Tech Consulting IP Ownership Disputes Overview

Intellectual property ownership is one of the most contentious issues in California tech consulting relationships. Unlike employees, independent contractors may retain ownership of their work unless properly assigned. California's unique laws - including Labor Code 2870 and Business & Professions Code 16600 - provide significant protections that can invalidate overbroad IP assignment clauses.

Key California Advantage for Consultants California Labor Code Section 2870 protects inventions developed entirely on your own time without using company resources - even if your contract says otherwise. Additionally, B&P Code 16600 voids non-competes, limiting clients' ability to restrict your future work.

Common tech consulting IP disputes include:

  • Work-for-hire misclassification - Client claims ownership but independent contractors aren't automatically "employees" under copyright law
  • Pre-existing IP disputes - Client claims ownership of tools, libraries, or code you brought to the project
  • Invention assignment overreach - Client claims inventions developed on your own time
  • Open source contribution conflicts - Disputes over contributions made during engagement
  • AI/ML training data and model ownership - Emerging disputes over who owns trained models
  • Trade secret misappropriation claims - Client alleges you took proprietary information

Work-for-Hire Doctrine (17 USC 101)

Copyright Act - 17 USC 101 Definition

A "work made for hire" is: (1) a work prepared by an employee within the scope of employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, IF the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Critical Limitation for Tech Consultants

Most software and tech consulting deliverables do NOT fall into the nine enumerated categories for commissioned works. This means:

Software Code is NOT Automatically Work-for-Hire Unlike employees, independent contractors creating software retain copyright ownership unless there is a valid written assignment. Simply labeling something "work for hire" in a contract doesn't make it so - the work must fit one of the nine statutory categories.

The Two-Prong Test

  1. Employee Work: Work created by an employee within the scope of employment (uses the common law agency test from Community for Creative Non-Violence v. Reid)
  2. Commissioned Work: Work specially ordered and fitting one of nine categories, with a signed written agreement

Reid Factors for Employment Status

Courts examine factors including:

  • Skill required and source of tools/materials
  • Location of work and duration of relationship
  • Method of payment and hiring party's control
  • Whether the hired party has discretion over when/how to work
  • Tax treatment and employee benefits
Work Type Qualifies as WFH? Ownership Solution
Custom Software/Code NO (not in 9 categories) Requires written assignment
Technical Documentation MAYBE (supplementary work) Written WFH agreement + assignment
Website Design NO Requires written assignment
Mobile App NO Requires written assignment
API/SDK NO Requires written assignment
Training Videos MAYBE (audiovisual work) Written WFH agreement + assignment

California Labor Code 2870 - Employee Invention Rights

Labor Code Section 2870 - Invention Assignment Limitations

(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or

(2) Result from any work performed by the employee for the employer.

Application to Independent Contractors

While Labor Code 2870 technically applies to "employees," California courts and the DLSE have increasingly applied similar principles to independent contractors, especially those who are misclassified or who work in employee-like arrangements under AB5.

Practice Tip If you're an independent contractor, Labor Code 2870 may still protect you if: (1) you're misclassified under AB5/ABC test; (2) the contract is interpreted under California common law agency principles; or (3) as a matter of public policy against overbroad IP assignments.

What LC 2870 Protects

  • Personal projects developed entirely on your own time
  • Side businesses unrelated to the client's business
  • Open source contributions to unrelated projects
  • Inventions not using client equipment/facilities/trade secrets

Required Disclosure Notice

Under Labor Code 2872, employers must provide employees with a written copy of LC 2870 when requiring invention assignment agreements. Failure to provide this notice can affect enforceability.

Labor Code Section 2871 - Void Provisions

Any provision in an employment agreement purporting to require an employee to assign rights to inventions protected by Section 2870 is against public policy and unenforceable.

Business & Professions Code 16600 - Non-Compete Limitations

B&P Code Section 16600 - Void Restraints

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

Impact on IP Assignment Clauses

California's prohibition on non-competes affects IP ownership disputes in several important ways:

  • Overbroad IP assignments that effectively prevent you from working in your field may be void
  • Assignment of future inventions unrelated to the engagement may be unenforceable
  • Non-solicitation provisions are void in California (except narrow trade secret exceptions)
  • "Trailer clauses" requiring assignment of inventions after the engagement ends are suspect
2024 Updates Effective January 1, 2024, California AB 2282 and SB 699 further strengthened protections. Employers cannot require employees to sign void non-competes, and employees can void prior non-competes even if signed in other states. Penalties include attorneys' fees.

Trade Secret Exception

B&P 16600 does not prevent protecting legitimate trade secrets under the California Uniform Trade Secrets Act (CUTSA). However, clients often overreach by claiming broadly that all client information is a "trade secret."

Clause Type Likely Enforceable? Notes
Assignment of work product created for client YES Valid if properly drafted
Assignment of all inventions during engagement PARTIAL LC 2870 carve-out applies
Assignment of inventions for 1 year post-engagement UNLIKELY Likely void under B&P 16600
Non-compete with any competitor NO Void under B&P 16600
Non-solicitation of client's customers NO Void in California
Trade secret non-disclosure YES If properly limited to actual trade secrets

Trade Secret Protection (CUTSA)

California Uniform Trade Secrets Act (Civil Code 3426-3426.11)

"Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

CUTSA in Tech Consulting Disputes

Trade secret claims are frequently raised in tech consulting IP disputes. Clients may allege that departing consultants have misappropriated trade secrets, while consultants may claim their own methodologies are protected.

What Qualifies as a Trade Secret?

  • Proprietary algorithms and source code (if kept secret)
  • Customer lists and pricing information
  • Business processes and methodologies
  • Technical specifications and designs
  • Training data sets and AI model weights (emerging area)

What Does NOT Qualify

  • Generally known information or industry practices
  • Information disclosed without confidentiality protections
  • Skills, knowledge, and experience gained during engagement
  • Publicly available code or open source software
  • Information reverse-engineered from public products
CUTSA Preemption CUTSA preempts other state law claims based on trade secret misappropriation, including breach of confidence and unfair competition claims based on the same conduct. However, contract claims (breach of NDA) are not preempted.

Statute of Limitations

CUTSA claims must be brought within 3 years of when the misappropriation was discovered or should have been discovered (Civil Code 3426.6).

Remedies Under CUTSA

  • Injunctive relief to prevent use or disclosure
  • Damages for actual loss and unjust enrichment
  • Exemplary damages up to 2x actual damages for willful misappropriation
  • Attorneys' fees for bad faith claims or willful misappropriation

Open Source Contribution Issues

Open source software creates unique IP challenges in consulting relationships. Both consultants and clients may have legitimate concerns about open source use and contributions.

Common Open Source Disputes

GPL Contamination Claims

Client alleges consultant used GPL-licensed code without disclosure, potentially requiring client to open source their proprietary code.

Contribution Attribution

Disputes over whether consultant's open source contributions during engagement belong to consultant or client.

License Compliance

Client discovers deliverables include open source under restrictive licenses, claiming breach of "original work" representations.

CLA Requirements

Client's corporate open source policy conflicts with consultant's desire to contribute to community projects.

Key License Categories

License Type Example Commercial Use Risk
Permissive MIT, BSD, Apache 2.0 LOW - Can include in proprietary software
Weak Copyleft LGPL, MPL MEDIUM - Modifications must be shared
Strong Copyleft GPL, AGPL HIGH - Derivative works must be open
Network Copyleft AGPL HIGHEST - SaaS use triggers obligations
Best Practice Include an open source disclosure schedule in your consulting agreement. List all open source components you plan to use, their licenses, and how they'll be incorporated. Update this schedule throughout the engagement.

Protecting Your Open Source Contributions

Under California Labor Code 2870, open source contributions made entirely on your own time, without using client resources, and unrelated to client's business should remain yours. However, explicitly address this in your contract:

  • Carve out existing open source contributions
  • Reserve right to continue contributing to community projects
  • Define what constitutes "client business" narrowly
  • Retain right to contribute generic improvements back to community

AI/ML Model Ownership Disputes

Artificial intelligence and machine learning projects create novel IP ownership questions that existing law doesn't fully address. These disputes are increasingly common as AI consulting grows.

Key Ownership Questions

Training Data Ownership

Who owns or controls the training data? Client's proprietary data vs. consultant's curated datasets vs. publicly available data.

Model Architecture IP

The structure, layers, and design of the neural network. May be consultant's pre-existing expertise vs. custom work.

Trained Model Weights

The learned parameters after training. Derivative of both data and architecture - who owns the result?

Generated Outputs

Content generated by AI systems. Copyright status of AI-generated works is currently unsettled.

Current Legal Framework (Evolving)

  • Copyright Office position: AI-generated works without human authorship are not copyrightable (Thaler v. Perlmutter, 2023)
  • Model weights: May be protectable as trade secrets if kept confidential
  • Training data: Original compilation may be copyrightable; fair use questions for training
  • Architecture: Likely protectable if sufficiently original and documented
Contract Critical Given legal uncertainty, AI/ML consulting agreements must explicitly address: Who owns training data inputs and derivatives? Who owns model architecture vs. trained weights? What rights does each party have to use, modify, and sublicense? What happens to the model if the engagement ends?

Practical Considerations

Structure AI/ML consulting agreements to address:

  1. Input data ownership: Client provides data under license vs. assignment
  2. Pre-existing consultant IP: Base models, training pipelines, architectures
  3. Work product: Custom-trained models, fine-tuned weights specific to client
  4. Residual knowledge: Consultant's right to use general learnings
  5. Improvement rights: Who owns improvements made to base models?

Trade Secret Consideration for AI/ML

Trained model weights may qualify as trade secrets under CUTSA if they: (1) derive economic value from being secret; and (2) are subject to reasonable secrecy measures. However, once a model is deployed, reverse engineering may be possible, potentially defeating trade secret status.

Code Repository and Version Control Ownership

Disputes frequently arise over access to and ownership of code repositories, version control history, and development infrastructure.

Common Repository Disputes

Repository Access After Termination

When an engagement ends, questions arise:

  • Who controls the primary repository?
  • Does the consultant retain a copy of the code?
  • What about commit history showing consultant's contributions?
  • Who owns forks, branches, and development branches?

Hosted Repository Considerations

Scenario Ownership Consideration Best Practice
Consultant's GitHub account Consultant controls access; client may have license only Use client's organization/repo from start
Client's GitHub organization Client controls access; consultant has contributor rights Document consultant's retained license rights
Shared private repository Depends on account ownership and contract terms Clarify ownership in agreement
Forked public repository Original license terms apply; fork may be owned by forker Understand upstream license obligations
Best Practice Use the client's repository infrastructure from day one. If using your own, transfer ownership before final payment. Document in writing what happens to repository access upon termination.

Commit History as Evidence

Git commit history provides valuable evidence in IP disputes:

  • Authorship proof: Commits show who wrote what code and when
  • Timeline evidence: Demonstrates development sequence
  • Contribution quantification: Lines of code, files modified
  • Integration points: Shows where pre-existing code was incorporated

Development Environment IP

Don't forget associated infrastructure:

  • CI/CD pipeline configurations
  • Docker containers and deployment scripts
  • Database schemas and migration scripts
  • API keys, credentials, and secrets
  • Documentation and technical specifications

Sample Demand Letters for IP Disputes

Use these templates as starting points. Customize with specific facts, agreements, and applicable law.

Demand: Client Claiming Ownership of Consultant's Pre-Existing IP

[YOUR NAME/COMPANY] [ADDRESS] [CITY, STATE ZIP] [DATE] VIA CERTIFIED MAIL AND EMAIL [CLIENT NAME] [CLIENT ADDRESS] [CITY, STATE ZIP] Re: Demand to Cease IP Ownership Claims - Pre-Existing Consultant IP Project: [PROJECT NAME] Agreement Date: [DATE] Dear [CLIENT NAME]: I am writing regarding your recent assertion of ownership over [SPECIFIC IP - e.g., "my proprietary framework/library/tool"]. This claim is without legal merit, and I demand you immediately cease and desist from asserting ownership over my pre-existing intellectual property. FACTUAL BACKGROUND On [DATE], we entered into a Consulting Agreement for [PROJECT DESCRIPTION]. Section [X] of our Agreement addresses intellectual property ownership. Prior to our engagement, I developed [DESCRIPTION OF PRE-EXISTING IP], which I disclosed to you in [EXHIBIT/SCHEDULE/EMAIL]. This pre-existing IP was created [TIMEFRAME - e.g., "in 2019, over two years before our engagement began"] and has been used in [NUMBER] other client projects. OUR AGREEMENT'S IP TERMS Our Consulting Agreement, Section [X], specifically provides: "[QUOTE RELEVANT LANGUAGE - e.g., 'Pre-Existing Consultant IP shall remain the sole property of Consultant. Client is granted a non-exclusive license to use Pre-Existing Consultant IP solely as incorporated in the Deliverables.']" Alternatively, if your agreement lacks such language: Our Agreement assigns to you only "Work Product" defined as [QUOTE DEFINITION]. My [PRE-EXISTING IP] does not meet this definition as it was not "created or developed in connection with" our engagement - it existed years before and independently of our relationship. LEGAL FRAMEWORK Under 17 USC 204(a), a transfer of copyright ownership requires a written instrument signed by the owner. No such assignment exists for my pre-existing IP. Even if our Agreement purported to assign all IP, such overreaching provisions are unenforceable under California Labor Code 2870 and Business & Professions Code 16600. DEMAND I hereby demand that you: 1. Immediately cease claiming ownership of [PRE-EXISTING IP] 2. Acknowledge in writing my ownership within ten (10) business days 3. Cease using [PRE-EXISTING IP] beyond the licensed scope, or 4. Execute a proper license agreement if you wish to continue using it If you fail to comply, I will pursue all available legal remedies, including claims for copyright infringement, unfair competition, and declaratory relief establishing my ownership. Please contact me at [EMAIL/PHONE] to discuss resolution. Sincerely, [YOUR SIGNATURE] [YOUR NAME] cc: [COUNSEL, IF APPLICABLE] Enclosures: Consulting Agreement excerpt, Pre-Existing IP Documentation

Demand: Consultant Asserting Work-for-Hire Doesn't Apply

[YOUR NAME/COMPANY] [ADDRESS] [DATE] VIA EMAIL AND CERTIFIED MAIL [CLIENT NAME] [CLIENT ADDRESS] Re: Clarification of IP Ownership - Work-for-Hire Inapplicable Project: [PROJECT NAME] Deliverables: [SOFTWARE/CODE DESCRIPTION] Dear [CLIENT NAME]: I write to address a fundamental misunderstanding regarding ownership of the [DELIVERABLE] I created during our recent engagement. While I understand you believe this work is "work for hire" owned by your company, the law does not support this position. WORK-FOR-HIRE DOES NOT APPLY Under the Copyright Act, 17 USC 101, a commissioned work qualifies as "work for hire" only if: (1) It is specially ordered or commissioned; AND (2) It falls within one of nine enumerated categories; AND (3) The parties expressly agree in a signed writing that it is a work for hire. The [DELIVERABLE] - custom software code - does NOT fall within any of the nine statutory categories (contributions to collective works, motion pictures, translations, supplementary works, compilations, instructional texts, tests, answer materials, or atlases). SOFTWARE IS NOT A STATUTORY CATEGORY This is not a technicality - it is black letter copyright law. See Aymes v. Bonelli (2d Cir. 1992); M.G.B. Homes, Inc. v. Ameron Homes, Inc. (Fed. Cir. 1990). Simply labeling work as "work for hire" in a contract does not make it so when the work doesn't fit the statutory categories. YOUR LICENSE RIGHTS I am not claiming you have no rights to the [DELIVERABLE]. Upon payment in full, you received an implied non-exclusive license to use the software for its intended purpose within your organization. However, I retain copyright ownership, including the right to: - Create derivative works - License to third parties - Use the code in future projects PROPOSED RESOLUTION I am willing to negotiate an appropriate license or assignment that meets your business needs while fairly compensating me for the transfer of ownership rights. I propose: Option A: Full assignment of copyright for $[AMOUNT] additional compensation Option B: Exclusive license within [INDUSTRY/FIELD] for $[AMOUNT] Option C: Current implied license continues at no additional cost Please respond within fourteen (14) days to discuss options. Sincerely, [YOUR NAME]

Response to Trade Secret Misappropriation Allegation

[YOUR NAME/COMPANY] [ADDRESS] [DATE] VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED [CLIENT NAME] [CLIENT ADDRESS] Re: Response to Trade Secret Misappropriation Allegations Your Letter Dated: [DATE] Dear [CLIENT/COUNSEL NAME]: I am in receipt of your letter dated [DATE] alleging trade secret misappropriation under the California Uniform Trade Secrets Act. Your allegations are without merit, and I respond as follows: YOUR ALLEGATIONS You allege that I misappropriated [DESCRIPTION OF ALLEGED TRADE SECRETS] when [DESCRIPTION OF ALLEGED CONDUCT - e.g., "I began working for a competitor" or "I used information in my new business"]. MY RESPONSE 1. THE INFORMATION IS NOT A TRADE SECRET Under Civil Code 3426.1(d), a "trade secret" must derive independent economic value from not being generally known AND be subject to reasonable secrecy measures. The information you identify fails both tests: [Choose applicable arguments:] - The [INFORMATION] is generally known in the [INDUSTRY] industry, as demonstrated by [PUBLICATIONS/PUBLIC SOURCES/COMPETITOR PRODUCTS] - Your company failed to maintain reasonable secrecy, having [SHARED OPENLY/FAILED TO MARK CONFIDENTIAL/PROVIDED NO SECURITY] - The information is publicly available at [SOURCE] - This constitutes general industry knowledge and skills that I am entitled to use in my profession 2. CALIFORNIA LAW PROTECTS MY RIGHT TO WORK Business & Professions Code 16600 makes non-compete agreements void in California. Your attempt to prevent me from [WORKING FOR COMPETITOR/STARTING COMPETING BUSINESS] is an unlawful restraint of trade. As the California Supreme Court held in Edwards v. Arthur Andersen LLP (2008), California law protects employee mobility. 3. LABOR CODE 2870 PROTECTS MY INVENTIONS To the extent your claims relate to inventions I developed on my own time without using your resources, Labor Code 2870 renders any assignment unenforceable. DEMAND I demand that you: 1. Withdraw your baseless allegations immediately 2. Cease threatening legal action designed to restrain my lawful business activities 3. Confirm in writing you will not pursue these claims Should you file suit, I will vigorously defend and seek recovery of attorneys' fees under Civil Code 3426.4 for your bad faith claims and under Code of Civil Procedure 1021.5 as a private attorney general enforcing California's public policy against restraints on trade. This letter is written without prejudice to any rights or defenses. Sincerely, [YOUR NAME] cc: [YOUR COUNSEL]

When to Hire an IP Attorney

IP ownership disputes in tech consulting can determine who controls valuable code, algorithms, and data. Here's when you can handle matters yourself versus when professional representation is essential.

✅ May Handle Yourself When:

  • Clear written agreement specifies IP ownership
  • Dispute involves generic or commodity code
  • Both parties willing to negotiate assignment terms
  • No commercial use of disputed IP yet
  • Simple license clarification needed

⚠️ Hire an Attorney When:

  • Valuable proprietary algorithms or AI models at stake
  • No written agreement or ambiguous terms
  • Client is using your IP commercially without license
  • Trade secrets may have been misappropriated
  • DMCA takedown or copyright registration needed
  • Multiple parties claim ownership
  • Open source licensing compliance issues
  • The other party has engaged legal counsel

📊 Not Sure If You Need an Attorney?

IP ownership disputes can affect your ability to use your own work in future projects. Take our free assessment to determine whether your situation warrants professional legal representation.

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Frequently Asked Questions

No. Software code does not fall within the nine statutory categories for commissioned works-for-hire under 17 USC 101. For a commissioned work to be "work for hire," it must be: (1) specially ordered; (2) fall within one of nine categories (collective work, motion picture, translation, supplementary work, compilation, instructional text, test, answer material, or atlas); and (3) covered by a signed written agreement. Since software isn't in these categories, consultants retain copyright ownership unless they sign a written assignment.

Labor Code 2870 protects inventions you develop entirely on your own time, without using your employer's/client's equipment, supplies, facilities, or trade secrets, except for inventions that: (1) relate to the employer's business or R&D; or (2) result from work you performed for them. Any contract provision requiring assignment of protected inventions is unenforceable. While technically an "employee" statute, courts have applied similar principles to misclassified contractors and as public policy.

No. Business & Professions Code 16600 makes non-compete agreements void in California, with very narrow exceptions for sale of business goodwill and partnership dissolution. This includes: non-compete clauses, non-solicitation of customers clauses, and overbroad IP assignment clauses that effectively prevent you from working in your field. As of 2024, employers cannot even ask you to sign a void non-compete, and you can void prior agreements even if signed in other states.

An assignment transfers complete ownership - the client becomes the copyright owner with all exclusive rights. A license grants permission to use while you retain ownership. Assignments must be in writing signed by the owner (17 USC 204). Licenses can be exclusive (written, one licensee) or non-exclusive (can be oral/implied, multiple licensees). Even without a written assignment, clients typically receive an implied non-exclusive license to use deliverables for intended purposes.

This is legally unsettled and depends heavily on contract terms. Typically: Training data - client owns/controls their data but you may have rights to aggregate/anonymized data. Model architecture - likely your pre-existing IP if you brought it to the project. Trained weights - arguably derivative of both, ownership should be explicitly assigned. Generated outputs - may not be copyrightable at all if AI-generated without human authorship. Always address these issues explicitly in your contract.

Yes, if properly structured. Your pre-existing tools and frameworks should be carved out of any IP assignment. Reserve a broad license to use, modify, and sublicense your pre-existing IP. For new code, distinguish between client-specific implementations (assigned) and generic components you want to reuse (retained with license granted). Many consultants use a "residual knowledge" clause allowing them to use general skills, ideas, and techniques learned during an engagement.

It depends on the claim type. Copyright infringement: 3 years from when the claim accrued (17 USC 507). Trade secret misappropriation (CUTSA): 3 years from discovery or when it should have been discovered (Civil Code 3426.6). Breach of contract (written): 4 years (CCP 337). Breach of contract (oral): 2 years (CCP 339). Patent infringement: 6 years. Federal trademark: No statute but laches defense applies.

Include specific carve-outs in your consulting agreement: (1) Reserve existing open source contributions you've made; (2) Retain rights to contribute to community projects unrelated to client's business; (3) Define "client's business" narrowly; (4) Reserve rights to contribute generic improvements back to open source projects; (5) Cite Labor Code 2870 for contributions made entirely on your own time. Document your open source contributions before and during the engagement with dated commits.