Sharing Intellectual Property (IP) blocks in today's competitive market poses significant high security risks. Creators and owners of IP designs want assurances that their content will not be illegally redistributed by consumers, and consumers want assurances that the content they buy is legitimate. Recently, digital watermarking emerged as a candidate solution for copyright protection of IP blocks. In this book, we propose a new approach for watermarking IP designs based on the embedding of the ownership proof as part of the IP design's finite state machine (FSM). The approach utilizes coinciding as well as unused transitions in the state transition graph of the design. Based on this approach, we have developed a robust watermarking framework, used for copyright protection, as well as fragile watermarking framework used for design authentication. For both frameworks, we developed related algorithms for watermark insertion and extraction. The developed techniques increase the robustness of the watermark and allow a secure implementation, hence enabling the development of the first public-key IP watermarking scheme at the FSM level.