Sharing Intellectual Property (IP) blocks in today?s competitive market poses significant high security risks. In this paper, we present a tutorial for a watermarking approach based on the embedding of the ownership proof as part of the IP design?s finite state machine (FSM). It 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. The developed technique increases the robustness of the watermark and allows a secure implementation, hence enabling the development of the first public-key IP watermarking scheme at the FSM level. In order to integrate these algorithms in the design cycle of industrial projects, we extend the above techniques to enable the watermarking of hierarchical finite state machines (HFSMs).