Why You Must Secure IP Transfer Agreements From Independent Contractors Developing Software

DEREK FAHEY, ESQ.

When engaging independent contractors for software development, businesses should secure a clear written intellectual-property transfer agreement. Without one, a company may fund the development work but still lack ownership of the resulting code.

Ownership Does Not Automatically Transfer

Under U.S. copyright law, software created by an independent contractor generally remains owned by the contractor unless a written assignment transfers the rights. The work-made-for-hire rules that may apply to employees do not automatically give the hiring company ownership of contractor-created software.

Without a transfer agreement, the contractor may retain the ability to reuse, license, or sell the code to third parties, including competitors. The company may also face restrictions on modifying, expanding, or building upon software it paid to develop.

The Limits of Implied Licenses

Courts may sometimes recognize an implied non-exclusive license where the client requested the software, the contractor completed and delivered it, and both sides understood that the client would use it. That fallback is narrow and uncertain.

An implied license may be limited to the originally contemplated use, may be non-transferable or revocable, and does not necessarily prevent the contractor from licensing the same code elsewhere. It is not a reliable substitute for ownership.

Best Practices

• Include a clear assignment of all rights in source code, documentation, and derivative works.
• Address moral rights and any necessary further-assurance obligations.
• Document ownership expectations at the beginning of the relationship.
• Use a short-form assignment or letter of intent if the complete agreement cannot be finalized immediately.
• Consider registering the copyright in the company’s name after the assignment is completed.

Conclusion

A written IP transfer agreement is not a technical formality. It is a core part of protecting the company’s investment, maintaining control over its software, and preserving the ability to modify, commercialize, license, and enforce the resulting technology.