Who owns the code your agency builds?

The Core Surprise: Paying for Code Does Not Make You the Owner

The starting point is a rule that surprises almost every founder. Under U.S. copyright law, the author of a work is its first owner. When you hire an independent development agency, the agency's engineers are the authors. Payment changes that only if your contract says so in the right way. There is no automatic transfer.

The work-made-for-hire doctrine is the exception founders assume applies to them. Under 17 U.S.C. § 101, a work qualifies as made for hire in one of two ways: it is created by an employee within the scope of employment, or it is a specially commissioned work that falls within one of nine enumerated categories listed in the statute and is covered by a signed written agreement. Software written to spec for a client does not appear in that list of nine categories. That is not an oversight. It means that a development agency operating as an independent contractor almost never produces a work made for hire in the legal sense, regardless of what your statement of work calls it.

The practical consequence is sharp. Without a written IP assignment clause in your development agreement, the agency may retain copyright ownership over the code they wrote. You have a license to use what was built, but you do not own it, and that distinction becomes critically important during a fundraise or acquisition.

What Is Background Technology in a Development Agreement, and Should You Accept the Carve-Out?

Background technology is the agency's starting inventory: pre-existing frameworks, libraries, tools, templates, and reusable modules the agency brings to your engagement. It is IP the agency owned before your contract started and developed independently of your project. The carve-out is the clause that keeps that pre-existing material outside the scope of what gets assigned to you.

The carve-out is reasonable in principle. An agency should not be required to forfeit tools it developed over years and uses across dozens of clients just because it deployed them on your project. You are not trying to own the agency's framework. The problem arises when the definition of background technology is written broadly enough to capture work created during your engagement.

Here is what that looks like in practice. An agency paper defines background technology as "all technology owned or developed by the Agency, including technology developed or improved in connection with any client engagement." That language is broad enough to pull the deliverables you paid for back out of your assignment. If the agency refines a module while building your product, that refinement arguably falls inside the carve-out, not inside your assignment. What you paid for is now licensed to you instead of owned by you.

Your negotiating position is this: accept a background technology carve-out only if it is limited to material that is genuinely pre-existing and unrelated to your project. Push for language that ties the definition to a specific date, typically the contract effective date, and that expressly excludes any technology first created, modified, or improved in connection with your engagement. Ask the agency to schedule its background technology in an exhibit attached to the agreement. A named list is far safer than a broad definitional category.

Wherever something is carved out and licensed back rather than assigned, insist on a backup license that is broad, perpetual, irrevocable, and sublicensable. That license is your insurance policy if the agency changes ownership, shuts down, or tries to leverage the carve-out in a dispute.

What to Look for in an IP Clause in a Development Agreement

The quality of your IP position comes down to specific language in specific clauses. Before you sign an agency agreement, read the IP section against this framework.

Necessary Provisions in the IP Clause

Present-tense assignment: The clause should read "Developer hereby assigns" not "Developer agrees to assign." Present-tense language transfers ownership immediately. Future-tense language creates only a contractual obligation that must be separately enforced and can be defeated if the developer is unavailable.

Scope of the assignment: The assignment should cover all copyrights, patent rights, trade secrets, moral rights (to the extent waivable), and other intellectual property in the deliverables, including source code, object code, documentation, and design materials. Broad scope prevents disputes over what exactly was transferred.

Subcontractor flow-through: The clause should obligate the agency to obtain equivalent assignments from all subcontractors and to flow those rights to you. Without this, the chain of title breaks the moment a subcontractor contributed code.

Background technology definition tethered to a date: The carve-out should be limited to technology existing as of the contract effective date and not related to your project. An exhibit listing specific background technology items is the most defensible approach.

Backup license on background technology: For any background technology incorporated into the deliverables, the clause should grant you a perpetual, irrevocable, royalty-free, sublicensable license to use it as embedded in the deliverables. This license must survive termination of the agreement.

Open-source disclosure and restriction: The clause should prohibit incorporation of copyleft-licensed open-source code without written approval and require the agency to provide a complete software bill of materials identifying all open-source components and their licenses.

Power of attorney: Include a clause authorizing you, as attorney-in-fact, to execute assignment documents on the agency's behalf if the agency fails or refuses to cooperate. This is a standard backstop.

Escrow trigger (where applicable): For license-based components, the clause should either reference a concurrent escrow agreement or obligate the agency to enter one upon your request.

What the Law Requires vs. What You Push for in Negotiation

These two things are not the same, and conflating them is a source of confusion in contract negotiations.

What the law requires is a signed, written agreement for copyright ownership to transfer from an independent contractor to a client. That is the floor. No writing, no transfer. The law does not require any particular form, specify present-tense language, or mandate a background technology exhibit.

What you push for in negotiation goes significantly further than the legal minimum. Present-tense assignment language is a negotiating ask, not a statutory requirement. An exhibit limiting background technology to pre-existing, listed items is a negotiating ask. A perpetual, irrevocable, sublicensable backup license on carve-out technology is a negotiating ask. Subcontractor flow-through obligations are a negotiating ask. Source code escrow is a negotiating ask.

Marking these items as asks is important because it helps you prioritize. The present-tense assignment and the open-source disclosure obligation are the highest-priority items. Without them, the ownership structure is either defective or undisclosed. The background technology exhibit and the subcontractor flow-through are important but sometimes easier to negotiate once the assignment structure is agreed. Escrow is most critical when the assignment structure does not fully cover a component you depend on.

Agencies that build software across many clients will resist a full assignment because they want to reuse what they build. That is a legitimate business interest. The resolution is a precisely scoped background technology carve-out, not a license in place of an assignment for all deliverables. Push for the narrowest carve-out you can negotiate, require the backup license on whatever is carved out, and make sure the deliverables definition in the assignment is broad enough to capture everything created specifically for you.

Advantages of Getting Your Development Agreement Right

A correctly structured development agreement is not a legal formality. It is the document that determines whether the asset you are building actually belongs to your company.

Clean chain of title at fundraise: Investors require representations and warranties that the company owns its IP. A properly documented assignment from every developer and agency in your history makes those representations accurate. Title gaps discovered at Series A are one of the most common reasons a round is delayed or restructured.

Full commercial control: Ownership means you can modify, sublicense, enforce, and sell the software without asking anyone's permission. A license, even a broad one, keeps the agency in a position of ongoing relevance to your business. An assignment eliminates that dependency.

Preserved exit valuation: In an acquisition, buyers price IP as an owned asset or as a contractual dependency. The valuation difference can be material. Agencies that hold copyright in your core product can use that leverage at the worst possible moment.

Reduced open-source liability: Requiring disclosure and approval for all open-source components during development prevents the copyleft contamination that forces source code disclosure and suppresses valuation. Discovering a GPL-licensed dependency embedded in a core module late in diligence has cost founders both time and deal economics.

Business continuity through escrow: A source code escrow agreement ensures that if the agency stops operating, you retain access to the source code and can assign another team to maintain and extend the product. Without escrow, a license to software you cannot touch or modify is of limited operational value.

FAQs About Code Ownership and Development Agency Agreements

• Do I own the code a development agency builds for me?

  Not automatically. Under U.S. copyright law, the author of a work is its first owner, and a development agency is the author of the code its engineers write. Payment does not transfer ownership. You own the software only if your development agreement contains a valid, signed IP assignment from the agency to you. Story.law reviews and negotiates development agreements to make sure that assignment is present, correctly drafted, and covers all deliverables including work by subcontractors.

• What is the work-made-for-hire doctrine, and does it apply to agency-built software?

  Work made for hire is a statutory exception under 17 U.S.C. § 101 that makes the hiring party the copyright owner from the moment of creation. It applies automatically when the creator is an employee. For independent contractors, it applies only when the work falls within one of nine enumerated categories listed in the statute and the parties have signed a written agreement. Custom software built to a client’s spec does not appear in those nine categories, so the doctrine does not cover most agency-built software. Never rely on work-made-for-hire language alone in a contractor agreement. Always pair it with a present-tense assignment.

• What is background technology, and should I accept the carve-out in an agency agreement?

  Background technology is the pre-existing IP the agency brings to your project: frameworks, libraries, reusable tools, and templates it developed before your engagement and uses across multiple clients. A carve-out that limits the assignment to exclude this pre-existing material is reasonable in principle. The problem arises when the definition is broad enough to capture work created during your engagement. Story.law advises founders to accept the carve-out only when the definition is tied to the contract effective date, references specifically listed items in an exhibit, and expressly excludes anything first created or modified during the engagement. Wherever something is carved out, require a perpetual, irrevocable, sublicensable backup license.

• What IP problems come up in diligence when code was built by an agency?

  The most common problems are missing assignments, future-tense assignment language that never fully transferred ownership, overbroad background technology carve-outs that pulled deliverables out of the assignment, subcontractor gaps where the agency used developers whose work was never properly assigned up the chain, and undisclosed open-source components with copyleft obligations. A disputed line of code or an unresolved chain-of-title gap is one of the primary reasons startups fail diligence before a Series A round. Story.law audits legacy development agreements and prepares the retroactive documentation needed to clean up the record before a financing or acquisition.

• Do I need a written IP assignment from a contractor?

  Yes. Without a written assignment, the contractor likely owns the copyright, and you hold only a license. That is true regardless of what you paid, what the project was called, or how clearly both parties understood the intent. The Copyright Act requires a writing for copyright ownership to transfer from an independent contractor. Verbal agreements and implicit understandings do not satisfy that requirement. The writing also needs to use present-tense assignment language to be effective immediately, rather than creating only a future obligation. Story.law drafts and reviews these agreements for founders at every stage.

• What is the difference between an IP assignment and a license for my software?

  An assignment transfers full ownership. Once assigned to you, the software is a company asset you can modify, sublicense, enforce, and sell without the agency’s involvement. A license allows you to use the software under defined conditions, but the agency retains ownership. Investors treat assigned IP as an owned asset and licensed IP as a contractual dependency. That distinction affects valuation, exit flexibility, and the representations you can make in a financing. Where an assignment is not available for a component, push for a license that is broad, perpetual, irrevocable, and sublicensable.

• What should I do if my existing development agreements are missing an IP assignment?

  Approach the agency now to sign a confirmatory assignment agreement. This is far easier to accomplish while the relationship is active and the agency is still operating than during a live diligence process under time pressure. If individual engineers contributed to the project, you may also need assignments from them directly, particularly if they were subcontractors rather than employees of the agency. Story.law identifies the gaps in existing agreements and prepares the retroactive documentation needed to establish a clean chain of title before your next fundraise or acquisition.