Proprietary Information and Inventions Agreement

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Proprietary Information and Inventions Agreement

Brief Introduction About Proprietary Information and Inventions Agreement

Employers need to secure their confidential information and intellectual property. Employees can get access to sensitive information during their employment. To protect this information, employers may ask their employees to sign a proprietary information agreement (PIA agreement). Additionally, an employee can create intellectual property during her employment. To ensure that the employer owns the intellectual property, and no confidential information is leaked to outside parties, employees are made to sign an agreement.

This agreement is called a proprietary information and inventions agreement (PIIA agreement). It is a contract between the employer and the employee where the employee agrees that whatever she invents during her employment will be owned by the employer. It also protects the employer’s proprietary information from being exposed.

Purpose of a Proprietary Information and Inventions Agreement

Also known as a confidential information and invention assignment agreement, it is especially important for startups to have this contract. It protects sensitive business information from being leaked to competitors. It obligates the employees to treat this information as the employer’s exclusive property. It also gives the company legal rights over intellectual property (IP), especially inventions created during employment. Thus, it prevents disputes relating to IP. This becomes significant when the company wants to get investors and strategic partners on board.

In the absence of an agreement, the original inventor will own the associated IP even if she was employed with the company. To get complete ownership, the company will have to sign an invention assignment agreement with the inventor.

Contents of a Proprietary Information and Inventions Agreement

It contains the following key terms:

  • Names of the employer and the employee
  • Date of the agreement
  • Definition of proprietary information
  • Non-disclosure of proprietary information
  • Information on previous employers
  • Definition of inventions
  • Assignment of inventions
  • Carve-outs
  • Term of the agreement
  • Obligations of the employee
  • Enforcement of the agreement
  • Notice requirement
  • Governing law
  • Signature of the parties

How to Draft a Proprietary Information and Inventions Agreement

When drafting this agreement, ensure that all the provisions comply with all relevant laws. Different states in the United States of America have different considerations. For example, under the law of California and Texas, an employer will not get ownership of an IP if the employer can prove that she developed the IP on her own time without using the employer’s facilities or secret information. She also has to prove that the IP did not relate to the employer’s current or future business plans when it was developed.

In addition to compliance, the following points should be kept in mind:

  • The definition of proprietary information should be as clear as possible. It must include all the information that the employer wished to protect. This can include business plans and ideas, financial, legal, and technological information and employee data. It must state that all such information is the exclusive property of the employer.
  • Information on previous employers: The agreement may include a term that places an obligation on the employee to not disclose any confidential information of her previous employers.
  • Definition of inventions: This term must be defined in such a way that it covers everything, from designs, algorithms, techniques, codes, discoveries, developments, and other works created by the employee during the employment. If the definition is broad, it will provide more security to the employer.
  • Assignment of inventions must state that the employee has assigned and agrees to assign, in future, her rights and ownership in all the inventions that she develops in the course of her employment with the employer.
  • Carve-outs: This clause enables an employee to exclude a previous invention, which she developed before joining the employer, from the scope of the agreement. It also includes those inventions that cannot be assigned to the employer under the law.
  • Term: The agreement remains in force as long as the employee works for the employer. It also extends to a certain time, for example, twelve months after the termination of the employment.
  • Obligations of the employee: Apart from maintaining confidentiality, an employee’s obligations can include non-solicitation, non-compete, not making statements that may harm the employer, and such other terms that the employer feels necessary.

Negotiation Strategy

Most employers have a standard agreement for their employees. There is not much scope for negotiation from an employee’s position. However, she can negotiate the ‘carve-out’ provision if she has developed any invention previously. When negotiating, the employee must be firm about excluding the invention from the agreement’s purview. She should seek an attorney’s advice to ensure that there is no doubt about the inventions that are excluded and the IP that the employer wants to develop.

Benefits and Drawbacks of Proprietary Information and Inventions Agreement

Benefits:

  • It protects the employer’s information from being passed to competitors.
  • It gives the employer ownership of the IP created by its employees.
  • It presents the employer in a positive light to potential business partners and investors.

Drawbacks:

If the employer does not get this agreement signed by its employees at the beginning, it can cause problems during the due diligence conducted by investors. The employer will have to get the agreement signed by all current and former employees.

What Happens If It Is Violated?

Violation of a proprietary information and inventions agreement will result in litigation(1). The agreement will state the forum that a party can approach for remedies. Usually, if the agreement is violated, the aggrieved party can sue the guilty party in the court of the state that has jurisdiction (2). It is the state whose law governs the terms of the agreement.

A proprietary information and inventions agreement is an important document for a company. This contract gives it ownership of confidential information and intellectual property created by its employees. This ownership helps in its growth and future business partnerships. Since this contract is signed, it is wise to get it reviewed by an attorney.