Founders inside a company: intellectual property and employment agreements

This article is general information, not legal or financial advice. It was written on October 10, 2026. It describes United States federal law and one state statute, Washington’s, as an example. Other states differ. Ask your own counsel what applies to you.

If you are employed and thinking about starting a software company, the first question is not about the product. It is about who would own it. The answer depends on your agreement, on the facts of how the work was done and on the law of the place that governs your job. This article explains what those three things are, and lists what to bring to a lawyer. It does not say what you should do.

It covers one kind of founder: someone who holds a job and builds, or plans to build, something outside it, or who is asked to build a new venture from within the company. It touches two areas of intellectual property law: copyright, under the Copyright Act, and inventions, under the patent statute. It does not cover confidentiality, trade secrets, non-competition or non-solicitation terms, which also appear in employment agreements and also need counsel.

Copyright: the “work made for hire” question

Under the U.S. Copyright Act, a “work made for hire” includes a work prepared by an employee within the scope of the employee’s employment. If a work qualifies, Circular 30 of the U.S. Copyright Office says the employer or the party that specially ordered or commissioned the work is its author. The same circular says that party “is the initial owner of the copyright in the work”, unless it “has signed a written agreement to the contrary with the work’s creator.”

Everything turns on “scope of employment”, and the Circular says the Copyright Act does not define that term, or “employee” or “employer”. It reports that the U.S. Supreme Court held that Congress intended these terms “to be understood in light of agency law”. It then lists questions to consider, including:

• “Did the hiring party provide the space, materials, or tools to create the work?”
• “Was the work created pursuant to the creator’s usual tasks?”
• Whether the work was created during the creator’s authorized work time.

Notice what these have in common. They concern facts, not labels. A side project is not automatically outside the scope of your job because you call it a side project, and it is not automatically inside it because your job involves software. Where you were, what you used, when you worked and what your role covers all feed into the answer. For a founder, that makes records and dates valuable. Ask counsel which ones.

The Circular also says: “The parties involved must determine whether or not a work is a work made for hire.” It adds: “The Copyright Office cannot provide legal advice about the status of a work.” The office’s own guidance, in other words, returns you to the facts and to a lawyer.

Inventions: the assignment clause

Patents work differently. Under 35 U.S.C. section 261, “Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing.” An employment agreement may contain a clause in which the employee agrees to assign inventions to the employer, and Washington’s statute, discussed below, regulates exactly such clauses.

That is why the text of your agreement matters so much. The questions to bring to counsel are about its reach. What does it cover: inventions made at work, inventions related to the employer’s business, or all inventions made during employment? Does it apply to things you create on your own time with your own equipment? Is it a promise to assign in the future or an assignment that takes effect on its own? Does it list anything you have already built and excluded? The answers vary from one agreement to the next, and a clause that reads broadly may be limited by the law of the state that governs it.

One state’s limit: Washington RCW 49.44.140

Washington’s statute restricts how far such a clause can go. It is the only state law this article reads. It says that an agreement provision requiring the employee to assign rights in an invention “does not apply to an invention for which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee’s own time”, unless one of two things is true. Either the invention relates “directly to the business of the employer” or to “the employer’s actual or demonstrably anticipated research or development”, or it “results from any work performed by the employee for the employer.”

The statute adds three consequences:

1. A provision that purports to apply to such an invention is “against the public policy of this state” and “void and unenforceable” to that extent.
2. An employer may not require such a provision “as a condition of employment or continuing employment.”
3. For agreements made after September 1, 1979, the employer must “provide a written notification to the employee” at the time of the agreement that the carve-out exists.

Two things are worth drawing from this. The first is the structure: a protected category (your own time, your own equipment, no employer secrets) with exceptions (related to the employer’s business or planned research, or resulting from your work for them). The second is that the exceptions matter most where an idea sits close to your employer’s field. A side project in your employer’s own industry may fall into an exception even when you built it on a weekend.

Whether Washington’s statute applies to you depends on facts this article cannot know, such as where you work and which state’s law your agreement chooses. Ask counsel which state’s law governs, and what that state’s rules say. Do not assume they match Washington’s.

If the company asks you to build the venture

Some founders are not working on the side. Their employer has asked them to start something new, such as an internal venture, a spin-out or a new product line. The questions above still apply, and the answers are likely to look different, because the Circular’s factors (who assigned the work, who provided the tools, when it was done) may point toward the employer. The questions for counsel change in kind. What is the arrangement between you and the company if the venture is later separated out? What will be written down, by whom, and when? Ask these before significant work, not after.

What to bring to a lawyer

A short list lets a first meeting be productive:

• Your offer letter, employment agreement and any invention assignment or outside-activity policy, along with the handbook sections that mention them.
• A description of the idea in two or three sentences, and of how it relates to your employer’s products and plans.
• A dated list of what exists today, who made it, when, and with what equipment and accounts.
• A list of anything you built at work that resembles it.
• Your questions: which state’s law governs, what the agreement covers, whether permission or a written release should be sought, and how.

The IP, contracts and access article describes the records a young company keeps about who built what, and the seed data room checklist shows where such records are filed. Both become relevant later, when other people want to see that the company owns what it sells, as the data room guide explains. For the early stage, the validate the problem playbook describes work that does not require building anything first.

What this article cannot tell you

This article reads a federal circular, one federal patent statute and one state statute. It does not say whether you own anything you have built or will build, or what your agreement means. It does not cover other states, other countries, trade secrets, confidentiality, non-compete or non-solicitation terms, or public-sector and academic employment. The Washington statute is one example, and other states have different rules. Statutes are amended and courts interpret them, so check the current text and ask counsel before acting on anything here. It is information about what the sources say, not a recommendation on what to do.

In the data

These figures describe U.S. businesses in general, not WE’s results. Each one names its source.

Show the data as a table

Average founder age by growth tier, startups founded 2007 to 2009

Group	Mean	Standard deviation	Mean minus 1 SD	Mean plus 1 SD	Founders in the group
All startups	41.8 years	11.9 years	29.9 years	53.7 years	1,079,000
Fastest-growing 10%	41.6 years	11.5 years	30.1 years	53.1 years	126,000
Fastest-growing 5%	42.1 years	11.5 years	30.6 years	53.6 years	62,000
Fastest-growing 1%	43.7 years	11.1 years	32.6 years	54.8 years	13,000
Fastest-growing 1 in 1,000	45 years	10.7 years	34.3 years	55.7 years	1,700
Successful exit (IPO or acquisition)	46.7 years	10.6 years	36.1 years	57.3 years	4,000

Source: Azoulay, Jones, Kim and Miranda, Age and High-Growth Entrepreneurship (NBER WP 24489; AER: Insights 2020) , April 2018 (working paper); March 2020 (AER: Insights)

Retrieved 2026-10-15. Means, standard deviations and founder counts are copied from Table 5 as printed; growth is employment five years after founding.

Sources

1. Circular 30: Works Made for Hire, U.S. Copyright Office . Accessed October 10, 2026.
2. 35 U.S. Code section 261, Ownership; assignment, Legal Information Institute, Cornell Law School . Accessed October 10, 2026.
3. RCW 49.44.140, Requiring assignment of employee's rights to inventions, Washington State Legislature . Accessed October 10, 2026.

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