IP Assignment

What is an IP assignment?

IP assignment (transfer of rights) refers to the contractual allocation of the rights in software, inventions, designs, trademarks and databases to the company that uses them. IP stands for intellectual property; the contract is also called an IP Assignment Agreement. Under German law there are two routes, depending on the type of protected right. Patents, trademarks and registered designs are transferred. Copyright, which protects software and graphics, for example, cannot be transferred; here the author grants the company exclusive rights of use, that is, the sole right to use the work. A company without these rights resembles a publisher without author contracts: it sells works over which it cannot legally dispose with certainty.

The term originated in US contracts. In German companies, the arrangement is set out in the founders' agreement, in employment, managing director and freelancer contracts or in separate assignment contracts. In a funding round and a company acquisition, investors and acquirers review the chain of title in due diligence. This means the evidence of how each right has passed from the author or inventor to the company.

Copyright: rights of use instead of transfer

Under Section 29(1) of the German Copyright Act (Urheberrechtsgesetz, UrhG), copyright cannot be transferred, except by inheritance. The author can, however, grant simple or exclusive rights of use (Section 31 UrhG). The exclusive right allows the company to use the work to the exclusion of all others, in principle including the author. The author retains the moral right (Urheberpersönlichkeitsrecht), for example the right to be recognised as author and protection against distortion.

The scope is governed by the purpose-of-transfer rule (Section 31(5) UrhG): if the types of use are not individually specified, the acquirer receives only the rights that the purpose of the contract requires. Contracts therefore list what is granted: reproduction, distribution, making available to the public (for example on the internet), adaptation, sublicensing and onward transfer, unlimited in time and territory. The adaptation of software expressly requires consent (Section 69c no. 2 UrhG). Onward transfer and sublicences also need the author's consent without a provision to the contrary (Sections 34, 35 UrhG); contracts therefore grant it in advance.

IP clauses for employees, managing directors and freelancers

Software created by employees

If an employee creates a computer program in performing their duties or on the employer's instructions, all economic rights belong solely to the employer, unless otherwise agreed (Section 69b UrhG). The employer may therefore exploit the program commercially without a separate grant of rights. What matters is the connection with the employment duties, not the place or time of creation. For texts, graphics or designs, the rule is narrower. Under Section 43 UrhG, the employer acquires the rights only to the extent that the content and purpose of the employment relationship support it; an express clause in the employment contract provides clarity here.

Employee inventions

For inventions that are eligible for protection as a patent or utility model, the German Employee Inventions Act (Arbeitnehmererfindungsgesetz, ArbnErfG) applies. It concerns service inventions, that is, inventions made during the employment relationship that arose from work in the company or are substantially based on its experience. The employee must report them promptly and separately in text form. If the employer claims them, all economic rights pass to the employer (Section 7(1) ArbnErfG). The claim is deemed made if the employer does not release the invention within four months of a proper report in text form (Section 6(2) ArbnErfG).

The employee then receives a claim to reasonable remuneration (Section 9 ArbnErfG); a deviation to the employee's detriment cannot be agreed in advance. For pure program code, copyright generally applies, because computer programs as such cannot be patented. The ArbnErfG becomes relevant as soon as a technical solution is eligible for a patent or utility model, for example in hardware, sensor technology or computer-implemented inventions of a technical character.

Founders, managing directors and freelancers

For founders before incorporation, for freelancers and for managing directors, who as statutory representatives of the GmbH (German limited liability company) are usually not employees, these allocations do not apply, or not reliably. The ArbnErfG covers only employees in companies, and whether Section 69b UrhG applies to managing directors has not been conclusively settled. If several founders wrote a program together, they are joint authors (Section 8 UrhG) and must grant the rights jointly. An express grant of rights is therefore needed in each case, for freelancers including the results of subcontractors and the handover of the source code. If an author undertakes to grant rights in future works defined only by category, the contract requires written form (Section 40 UrhG).

Open source and third-party rights

Components from open source are not transferred but licensed. Most licences permit commercial use subject to conditions such as copyright notices. Licences with copyleft effect require derived software to be made available, on being passed on, under the same conditions and with source code; some extend this to use over a network. The chain of title therefore includes a register of the components and licences used.

Third-party rights can also arise if founders were employed before incorporation or conducted research at a university. What matters is whether the work was created in performing the duties there. A declaration by the founders that no code and no invention originates from earlier activities is among the standard documents of a transaction.

The chain of title in a funding round and company acquisition

In due diligence, investors and acquirers compare a list of all persons who contributed to the product with the associated contracts. Invention reports and remuneration under the ArbnErfG, the registration of patents, trademarks and domains in the name of the company and the open-source register are also reviewed. In the participation or purchase agreement, the company or the sellers warrant that all material rights lie with the company (warranty).

Gaps are closed by supplementary agreements before signing or agreed as a condition to completion. If a gap cannot be closed, acquirers demand a special indemnification, a retention from the purchase price or an adjustment of the purchase price.

In a share deal, the purchase of the shares, the rights remain with the company. In an asset deal, the purchase of individual assets, they are transferred individually. Rights of use pass without the author's consent if the business is sold in whole or in part (Section 34(3) UrhG). If, in accordance with good faith, the author cannot reasonably be expected to accept use by the acquirer, however, the author can revoke the right. The same applies on a substantial change in the shareholding structure, and therefore also in a share deal. The author cannot waive this right of revocation in advance (Section 34(5) UrhG).

Practical example: IP assignment before a Series A round

A software company with about EUR 3 million in annual recurring revenue is preparing a Series A round. The stocktake reveals four groups of contributors:

• Two founders wrote the core of the platform together eight months before incorporation, and a written grant of rights to the GmbH is missing. Both sign, as joint authors, a contract on exclusive rights of use that names the types of use individually.
• A freelancer developed the mobile application. The freelancer's contract grants a right of use “for the project”. Under the purpose-of-transfer rule, adaptation and sublicensing are not reliably covered. A supplementary agreement against a one-off payment grants exclusive, unrestricted rights.
• Employed developers, including a working student, programmed interfaces as part of their duties. Section 69b UrhG applies here, and the employment contracts additionally contain a rights clause.
• One founder was previously employed at a software house. The founder confirms in writing that the platform was created outside the duties of that role and without code from the former employer.

With these documents, the chain of title is closed before due diligence begins. The investors accept a standard warranty in the participation agreement; without the supplementary agreements, they would have made their conclusion a condition to completion and lengthened the timetable of the round accordingly.

Distinction: IP assignment, licence and assignment clause

• Simple licence: permits use alongside other authorised parties. For the core product, it is generally not enough for investors, because the company cannot exclude third parties from use.
• Assignment clause: governs whether rights and obligations under an existing contract may be transferred to third parties. It concerns contractual positions, not the allocation of protected rights.

Common mistakes

• Rights from before incorporation not regulated. Code that founders wrote before the GmbH was established remains with them personally, without a contract.
• Blanket clauses without types of use. A wording such as “all rights pass to the company” leaves open, under the purpose-of-transfer rule, whether adaptation and sublicensing are covered.
• Freelancers without a rights clause. Payment for a service does not create an exclusive right of use. Without a clause, the client receives only the rights that the purpose of the contract requires.
• Inventions not documented. If the report, claim or remuneration arrangement under the ArbnErfG is missing, the inventors' claims remain open and ownership is hard to prove.
• Trademarks and domains registered to founders. Registrations in a person's name must be transferred to the company before a transaction.

Frequently asked questions

Can an author transfer copyright to a GmbH in full?

No. Under German law, copyright cannot be transferred. The author can grant the company exclusive rights of use, which come close to a transfer economically; the moral right remains with the author.

Does code that an employee writes outside working hours belong to the employer?

Not automatically. Under Section 69b UrhG, what matters is whether the program was created in performing the work duties or on the employer's instructions. If it has no connection with the duties, the rights remain with the employee, even if it was written at the workplace.

What belongs in an IP assignment agreement?

The contract names the works and protected rights covered. Patents, trademarks and domains are transferred; for results protected by copyright, it grants exclusive, unrestricted rights of use with the types of use listed individually. This includes the handover of the source code, the consideration and the assurance that no third-party rights stand in the way. For the evidence in due diligence, a written contract is indispensable, even where the law requires no form.

Must a founder be paid for the transfer of their rights?

Not necessarily in money. Between a founder and the founder's own company, the grant of rights is often agreed as part of incorporation, against a small fee or without a separate payment. Authors do, however, have a statutory claim to reasonable remuneration that cannot be excluded by contract (Section 32 UrhG). It is therefore advisable to record in the contract what the consideration consists of; the tax treatment, for example as a contribution, is clarified in advance by the tax adviser.

The Roemer Capital view

Before a funding round or a sale begins, we compile with the company a list of all persons who contributed to the product. We assign to each person the contract from which the company's rights arise. At this stage, gaps can usually be closed with a supplementary agreement. If they only become visible in due diligence, they shift the timetable and the negotiating position.

The drafting of the contracts is up to the company's law firm. We make sure that the evidence on the chain of title is organised in the data room, which should be ready within 24 hours. We reconcile the warranties in the participation or purchase agreement with the actual position.