In the early, high-energy days of a Pennsylvania tech startup, the lines between “mine” and “ours” can get blurry. You might be working out of a garage in West Chester or a co-working space in Fishtown, and your lead engineer, let’s call him Dave, develops a brilliant new algorithm during his lunch break using the high-powered laptop the company provided.

You assume the company owns that algorithm. After all, you pay Dave’s salary, and he used your hardware. But in the eyes of the law, you might be in for a rude awakening. Without a rock-solid written agreement, Dave might own the invention, and your company might be left with nothing more than a “Shop Right.”

In the legal world, a Shop Right is often described as the consolation prize of intellectual property. For a founder looking to scale or exit, it is a prize you do not want to win. To protect your company’s intellectual property from day one, explore our startup business law services.

What is a “Shop Right”?

The Shop Right Doctrine is a centuries-old legal principle. It states that if an employee creates an invention using their employer’s time, facilities, or materials, the employer receives a non-exclusive, royalty-free, non-transferable license to use that invention.

In plain English, you can keep using the tech, and you do not have to pay Dave for the privilege.

The Catch and Why It Matters

While a Shop Right sounds acceptable on the surface, it is fundamentally different from ownership. Here is why it fails the startup test:

  • It is non-exclusive. You cannot stop Dave from licensing the tech to your biggest rival.
  • You do not own the invention. Dave does. He can leave your company tomorrow and start a competitor using that same tech.
  • It is non-transferable. You generally cannot sell or assign a Shop Right to someone else. This can be a massive problem during an acquisition.

Why Founders Should Be Concerned About Shop Rights

If you are a Pennsylvania founder, your valuation is likely tied directly to your intellectual property. Investors are not looking for companies that have permission to use their core tech. They want companies that own their core tech and prevent others from using it.

The Due Diligence Disaster

Imagine you are at the closing table for a five-million-dollar Series A round. The investor’s legal team asks for the chain of title for your software. They discover that the original code was written by an early employee who never signed an invention assignment.

They will not care that you have a Shop Right. From an investor’s perspective, your competitive moat is significant. If you cannot exclude others from using your technology, you do not have a proprietary advantage.

The Remote Work Gray Area in 2026

In 2026, the Shop Right doctrine is harder to prove than ever. Pennsylvania courts traditionally look at whether the employee used company time and resources. But in a world of remote work and Bring Your Own Device policies:

  • If Dave used his personal MacBook at 10:00 PM on a Tuesday?
  • What if he used a company-paid Slack account to brainstorm the idea, but wrote the code on his own server?

Without a clear contract, you may not qualify for Shop Right, leaving the company with no rights to the invention.

Pennsylvania Law and the “Hired to Invent” Rule

Pennsylvania courts recognize a variation known as the Hired to Invent rule. If you specifically hired Dave to solve a particular problem, for example, building a more efficient battery cooling system, the law is more likely to lean toward company ownership.

However, relying on the Hired to Invent concept as a legal strategy is a dangerous gamble. It is expensive to litigate the exact scope of an employee’s duties. For a startup, the legal fees alone could be devastating.

How to Protect Your Startup With a PIIA

The only way to avoid the Shop Right trap is to ensure that every single person who touches your product, including founders, employees, and contractors, signs a Proprietary Information and Inventions Assignment agreement, commonly called a PIIA.

What a Strong PIIA Does:

Assigns Ownership: It explicitly states that any invention related to the company’s business belongs to the company, not the individual.

Covers Prior Inventions: It requires employees to list any projects they built before joining you, so they cannot later claim your new product is actually their old side project. If a prior invention is used in company work, the company receives a broad license to use it.

Includes Power of Attorney Provisions: It authorizes the company to sign certain documents on the employee’s behalf if the employee leaves on bad terms and refuses to cooperate.

Ownership Versus Shop Right at a Glance

  • Who owns the invention: Under a PIIA, ownership of the asset vests in the company. Under a Shop Right, the employee owns it.
  • Can you sue infringers: With ownership, yes. With only a Shop Right, generally no.
  • Can you sell the rights: With ownership, yes. With a Shop Right, generally no.
  • Is it investor-friendly? Ownership is investor-friendly. A Shop Right is not.

Conclusion: Do Not Let “Dave” Own Your Moat

In the tech world, your code and your inventions are your crown jewels. Relying on the Shop Right doctrine is like building a house on land you do not own. You may be allowed to live there for now, but you cannot sell the property or prevent the landlord from moving someone else into the basement.

As companies navigate the complexities of the modern labor market, strong intellectual property practices are essential. Before your next hire, make sure your agreements are designed to secure ownership, not just permission.

Protect Your IP the Right Way From Day One

Ensuring your invention assignment documents are properly drafted at the outset, or reviewing existing agreements before issues arise, can save your company from costly disputes and valuation losses down the road. Nathan Wenk at Spengler & Agans works with startups to put the right legal protections in place early and to clean up gaps before they become problems. You can contact us to schedule a consultation and make sure your intellectual property is fully protected.