Freelancer paid, but still not getting rights?

Almost every startup works with freelancers. Developers, designers, copywriters, video producers, marketing agencies – without external service providers, the majority of today’s startup landscape would not be able to operate. At the same time, there is hardly a more common and costly mistake in the early stages than the assumption that payment automatically transfers the rights to the result.

The reality is sobering: contracts are quickly clicked together, copied from previous projects or taken from the Internet as a „standard contract“. The main thing is that someone gets to work. Legal protection is postponed because it doesn’t seem „urgent“. At the latest at the next investor meeting, relaunch, internationalization or exit, it turns out that the rights to key assets do not belong to the startup.

What then follows is not a theoretical legal problem, but tangible economic damage. Re-licensing, dependencies on individual freelancers, blockades with investors or even completely new developments are not the exception, but everyday occurrences. It becomes particularly explosive when AI tools, subcontractors or agencies were involved and no one can say exactly who actually granted which rights.

This article explains why this problem occurs so frequently, why payment does not mean rights, which legal principles apply and how these risks can be neatly avoided contractually.

Why founders believe they have rights – and why this is wrong

The misconception is simple and humanly understandable: Anyone who pays for something assumes that they also „own“ it. This logic may work in traditional sales law. In copyright law, however, it does not. Works are created by the creator, not the client. And copyright law follows its own rules, which have little to do with everyday expectations.

Freelancers and agencies generally create copyrighted works: software code, designs, texts, videos, music, concepts. Copyright automatically accrues to the respective author, i.e. the person who created the work. An invoice, a payment or the completion of a project do not change this.

What can be transferred are rights of use. These must either be expressly agreed or at least clearly derivable from the purpose of the contract. This is precisely the problem with many start-up contracts: They regulate the operational „what“, but not the legal „who owns what – and for what“.

There is also time pressure. Speed counts in the early phase. Contracts are kept „pragmatic“, often deliberately short. People know each other, trust each other and don’t want to create any hurdles. The fact that this phase in particular will later be dealt with legally is suppressed. Until it is too late.

§ Section 31 UrhG and the doctrine of assignment of purpose

German copyright law does not recognize an automatic „buy-out“ through payment. Section 31 UrhG, which regulates the granting of rights of use, is central. According to this, the client only receives the rights that have been expressly agreed or that necessarily arise from the purpose of the contract.

This so-called transfer of purpose doctrine is one of the biggest stumbling blocks for start-ups. Put simply, it means: In case of doubt, the client only receives as many rights as it needs to fulfill the specifically agreed purpose – no more.

A practical example: A freelancer develops a website for a start-up. The purpose is clear: to operate a website. This regularly results in a right to use this website. However, this does not necessarily include the right to use the design later for other products, to roll it out internationally, to license it to investors or to change it completely. All of this would have to be expressly regulated.

Software is even more problematic. Anyone who has code developed often only receives a right of use for the specific application without clear regulations. The right to further development, use in other projects, licensing or sale may be missing or restricted. This becomes apparent during due diligence audits at the latest.

The doctrine of assignment of purpose is not a theoretical construct, but rather a practiced case law. It always applies when contracts are unclear or incomplete. And that is precisely the case with „quickly written“ freelancer contracts.

The buy-out illusion

Many contracts contain sentences such as „The contractor transfers all rights to the client“ or „The rights are transferred in full to the client“. Founders feel safe with this. In legal terms, this is often a deceptive security.

Firstly, buy-out regulations must be specific. „All rights“ is not a legally reliable description if it is not clear which types of use, which territories, which time periods and which forms of exploitation are meant. Secondly, certain rights cannot be transferred across the board or are subject to special restrictions.

In addition, there is another practical error: even if the freelancer transfers comprehensive rights, this does not mean that they held these rights at all. Many freelancers work with stock material, open source components, templates or – increasingly – with AI tools. The rights to these preliminary services cannot simply be passed on if they are only available to the freelancer to a limited extent.

The buy-out illusion is particularly drastic when it comes to agency services. Agencies often act as a „single point of contact“, but work with subcontractors. If the chain of rights has not been properly traced through to the last author, even the best buy-out clause is useless. The startup thinks it owns everything – in fact, it only owns a house of cards.

Re-licensing

Many start-ups do not notice the rights problem immediately. The assets are used, further developed and marketed. It is only years later – often during a financing round or exit – that people take a closer look. Then comes the question: „Do you have the rights to everything you use?“

If the answer to this is not a definite yes, then relicensing begins. This is the moment when the power imbalance tips. The former freelancer suddenly knows that the startup is dependent on his rights. The negotiating position is correspondingly poor.

Re-licensing is rarely favorable. They are carried out under time pressure, often under threat of injunction or blocking. Investors react sensitively when IP risks arise. It is not uncommon for the purchase price to be reduced or for a deal to fail completely.

What is particularly bitter is that these costs are disproportionate to what a clean contract design would have cost at the beginning. What initially appeared to be „overlawyering“ later turned out to be minimal prevention.

AI, agencies and new abuse scenarios

The situation is exacerbated by the increasing use of AI tools. Freelancers and agencies use AI to generate code, create texts, designs or music. For start-ups, it is often not transparent which tools have been used and under what conditions.

Although many AI tools grant the user rights of use, they reserve their own rights or exclude certain forms of exploitation. In some cases, it is unclear whether the content generated is exclusive at all. If such content is integrated into products without being checked, new rights and liability risks arise.

There is also another aspect: misuse. There are repeated cases of service providers reusing content, using customer material for their own purposes or training AI models with third-party data. Without clear contractual regulations, these practices are difficult to challenge.

Boundaries become blurred, especially for agencies with many parallel projects. What was intended to be efficient becomes legally problematic. Start-ups usually only notice this when a competitor appears with strikingly similar content or platforms ask questions.

What clean contract drafting looks like – and why it is not a luxury

Clean freelancer and agency contracts are not an end in themselves. They are the basis for a startup being able to scale at all. They create clarity about what may be used, changed, sold or licensed. They not only protect against disputes, but also against structural dependency.

This is not about endless contracts, but about the right points in the right place. Rights of use must be clearly described. Chains of rights must be closed. The use of subcontractors and AI tools must be regulated. And it must be clear what happens to the results when the collaboration ends.

Contracts that are „quickly scribbled down“ almost always take their revenge. Not immediately, but reliably. If you get professional support at an early stage, you will not only save money later on, but above all time, nerves and strategic options.

Conclusion

For start-ups, IP rights are not a legal detail, but the substance of the company. If you don’t know who owns your products, designs or codes, you may own less than you think. Payment is no substitute for transferring rights. Trust is no substitute for a contract.

The typical startup mistake is not to work with freelancers, but to misclassify their work legally. Those who recognize and correct this mistake early on gain a real advantage. Those who ignore it almost always pay for it later.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.