They Don't Want Your Code. Until It's Worth $10 Million.
I reviewed a Series A Due Diligence packet last week. The startup was raising $8 Million. The VC's lawyers found one email. It was sent by the Founder 2 years ago, from his old work email (at a Big Tech co), to his personal email. It contained the first version of the startup's pitch deck.
The Deal Died. Why? Because that email proved he worked on the startup while employed. Under his PIIAA (Proprietary Information and Inventions Assignment Agreement), his former employer technically owned the IP. The VC walked away because they didn't want to buy a lawsuit.
You think your "Side Hustle" is safe because you work on it at night. You are wrong. Here is the legal trap that gives your boss a 100% claim on your company.
1. The "Present Assignment" Clause (The Magic Words)
Go read your employment contract. Look for this sentence:
"I hereby assign to the Company all right, title, and interest in..."
This is a Present Assignment. It means the moment an idea leaves your brain and hits a keyboard, it instantly belongs to the company. It doesn't matter if you haven't patented it yet. It transfers ownership automatically, like a conveyor belt.
If your contract says "I agree to assign", you might have a defense (it requires a future action). But if it says "I hereby assign", the IP is already theirs. You are just holding it for them.
2. The "Laptop" Infection
This is the most common mistake. You are building your startup on your personal MacBook. Good. But one day, you are at the office. You have a brilliant idea. You open your Work Laptop for 5 minutes to fix a bug in your startup's code. You just infected the entire codebase.
By using "Company Resources" (Laptop, WiFi, Server Credits), you gave the company a claim. In Silicon Valley, Richard Hendricks lost Pied Piper because he ran a compression test on a "Hooli" computer. That wasn't fiction. That was legal reality. Rule: Never, ever, let your startup's code touch a corporate asset. Not even a Slack message.
3. The "Related Business" Trap (California 2870)
"But I live in California! Labor Code 2870 protects me!" Yes, California law says employers can't claim inventions made on your own time, with your own equipment. UNLESS...
"The invention relates to the employer’s business."
This is the loophole.
- Scenario: You work at Google (Search/Ads). You build a "Dog Walking App."
- Verdict: You are safe. (Unrelated).
- Scenario: You work at Google. You build a "New AI Search Tool."
- Verdict: Google owns it.
- Because "Search" is their business, your "Side Hustle" is competition.
If you work for a large tech company that does everything (Amazon, Microsoft, Google), almost any software you build can be argued as "Relating to the Employer's Business."
The Checklist: How to Clean Your IP
If you are currently employed and building on the side, you need to "sanitize" your IP immediately.
- The "Prior Inventions" List:
- When you join a new job, there is a form: "List of Prior Inventions."
- Fill this out.
- List your side project by name. "Project X: An AI tool for knitting."
- If you declare it before you start, they cannot claim it later. If you leave it blank, they assume it was created during employment.
- The "Air Gap" Protocol:
- Buy a separate laptop. Separate GitHub account. Separate AWS account.
- Never copy-paste code between work and personal projects.
- If you are Overemployed, this Air Gap is the only thing keeping you out of prison for IP theft.
- The "Quit" Date:
- Do not incorporate or raise money until your termination date is final.
- If you sign a term sheet while still employed, you are handing your investors a massive risk.
- Also, check your offer letter for Non-Competes to ensure you aren't walking into a lawsuit the day you leave.
Frequently Asked Questions (That Founders Ignore)
Can I ask my boss for permission?
Yes, but get it in writing. A "Moonlighting Letter" signed by an SVP (not just your manager) saying "We have no interest in Project X" is a golden shield. But be careful: Asking might put a target on your back if they decide it's competitive.
What if I'm a contractor (1099)?
It depends on the contract. Many contractor agreements include "Work for Hire" clauses that function exactly like employee IP assignment. Read the specific SOW (Statement of Work). If it says you assign "all IP created," you are in the same trap. (See our guide on the 1099 Trap).
Does this apply to Open Source?
Yes. If you contribute to Open Source on company time, your company might technically own your contribution. Most companies have an "Open Source Policy." Read it. Some require you to get approval before pushing a single commit to a public repo.
Leon Staffing connects founders with IP Attorneys who specialize in "Spin-Outs." Clean your cap table before you pitch. Get a referral.