Key Takeaways

  • A proprietary information agreement (PIA) helps businesses safeguard trade secrets, technical data, and intellectual property by legally restricting disclosure and misuse.
  • These agreements are critical for employees, contractors, and third-party collaborators to ensure inventions and confidential business information are owned and controlled by the company.
  • Employers should clarify ownership of pre-existing inventions and ensure enforceability by limiting overreach.
  • A well-drafted PIA includes provisions on confidentiality, return of information, non-disclosure exceptions, and invention assignments.
  • Institutions like MIT and law firms stress PIAs' importance in research, startups, and innovation environments.

What is a Proprietary Information Agreement?

A Proprietary Information Agreement is a legally binding contract that stipulates that a number of parties must not disclose confidential supplies, data, or information as outlined by the contract to a different third party. Non-disclosure agreements (NDA) are sometimes utilized by firms to keep proprietary information, business secrets, and techniques confidential. A non-disclosure settlement is also called a "confidentiality settlement (CA)," "confidential disclosure settlement (CDA)," "proprietary information settlement (PIA)," or "secrecy settlement."

Why Proprietary Information Agreements Are Essential

Proprietary Information Agreements (PIAs) serve as foundational legal tools that protect a company's sensitive business information, including trade secrets, customer lists, financial data, and product development plans. These agreements are especially crucial for startups and technology companies, where intellectual property (IP) often represents the company's core value. Without a PIA in place, there is significant risk that employees or collaborators may misuse or misappropriate proprietary data, resulting in legal disputes and loss of competitive advantage.

A PIA typically requires that:

  • Any confidential information shared with an employee or contractor be kept strictly private.
  • The receiving party does not use the proprietary information for any purpose other than what is agreed.
  • Any inventions or developments related to the company’s business, created during the relationship, be assigned to the company.

For growing businesses, these agreements are also vital during fundraising, acquisitions, or partnerships, where protecting intellectual assets is key to valuation and trust.

Difference Between Employee Proprietary Information Agreements and Confidentiality and Invention Assignment Agreements

An Employee Proprietary Information Agreement and a Confidentiality and Invention Assignment Agreement are identical in that these agreements shield the businesses’ confidential info and possession of intellectual property. An Employee Proprietary Information Agreement is identical to an Employee Confidentiality and Invention Assignment Agreement, Proprietary Info Agreement, Employee Intellectual Property Project Agreement, and Safety of Firm Pursuits Agreement.

Startup firms ought to require all staff and contractors to sign a proprietary information agreement. Firms ought to have a proprietary info agreement that places the employee under contract to maintain the employer’s proprietary info as confidential and use it solely to further the business’s pursuits. Firms must also require all staff and contractors to sign a provision that each one’s intellectual property created through the employment is “work-for-hire.”

Problems with the Pre-existing Inventions List

Many of the pre-existing invention agreements have a provision that requires the employee to list private inventions that shouldn’t arise through the scope of the project of invention. A few pre-existing invention agreements overreach and put an unfair burden on the worker to list all of their inventions, even when they were created before the employment with the present employer or unrelated to the present employer’s enterprise. Pre-existing invention agreements can create inevitable stress as many employees create concepts from the work they're doing.

A settlement could be overreaching if a worker is required to list the complete list of things they had ever created prior to their employment, including for anything written, illustrated, coded, or snapped with a digital camera to be able to be eligible to be excluded. Due to this fact, the settlement could be unenforceable.

All the worker’s writings, drawings, images, and many others could be required by a company. Anything not associated with the firm’s business and created on the staff’s personal time results in an exception.

In this instance, this is a settlement that could be honest to the worker and sufficiently protect the business as well: "I've hooked up hereto, as Exhibit A, a whole listing describing with particularity all Inventions (as outlined under) that, as of the Efficient Date, belong solely to me or belong to me collectively with others, and that relate in any approach to any of the Firm’s proposed companies, merchandise or analysis and improvement, and which aren't assigned to the Firm hereunder; or, if no such listing is hooked up, I signify that there are not any such Inventions on the time of signing this Settlement."

Proprietary Information Agreement Sample Provisions

The following are sample provisions in a proprietary information agreement:

  • Proprietary Information will specify all the proprietary information of the disclosing party to the receiving party.
  • Duty of Confidentiality will specify the use of the proprietary information by the receiving party.
  • Exceptions to Duty of Confidentiality will state the receiving party's limits to disclosing information by the receiving party.
  • Export Compliance provision will restrict the receiving party from disclosing the information outside United States.
  • No License/Ownership of Intellectual Property provision requires the receiving party to return the proprietary information or destroy it.
  • Indemnity/survival provision will state that the disclosing party should be compensated for any damages, awards, liabilities, costs, and/or attorney fees resulting from any breach by the receiving party.
  • Governing Law provision will specify what state governs the contract.
  • No Joint Venture provision will specify that no partnership is created because of the agreement.
  • Assignment provision will not give the receiving party rights to others without the permission from the disclosing party.
  • Amendment provision will specify the rules regarding the changes in the contract.
  • Termination/survival will specify that the contract is effective until terminated.

Institutional Use of Proprietary Information Agreements

Research institutions like MIT require their faculty, staff, and students to sign Invention and Proprietary Information Agreements (IPIAs) to affirm their obligation to assign any inventions made under institutional programs or funding. These agreements are a condition of participation in research, collaboration with sponsors, or use of institutional resources.

The IPIA ensures:

  • Inventors acknowledge their duty to disclose inventions to the institution.
  • The institution retains ownership of inventions made with its support.
  • Obligations remain consistent with federal and sponsor policies.

Such agreements demonstrate how proprietary information controls are essential in both corporate and academic innovation environments.

Common Clauses in a Proprietary Information Agreement

In addition to the standard confidentiality and assignment clauses, proprietary information agreements often include several other critical provisions:

  • Return of Materials: Requiring the return or destruction of company property upon termination of employment or engagement.
  • Residual Knowledge Clause: Addresses whether employees can use knowledge retained in memory post-employment, and limits its use if proprietary.
  • Ongoing Obligation: Confidentiality obligations that extend beyond the term of employment or contract.
  • Disclosure Requirement: Obligates the individual to disclose all inventions conceived or developed during employment.
  • Assignment of Inventions: Clarifies that any invention created within the scope of employment is the property of the employer, even if not using company resources.

Each clause should be tailored to the nature of the employee's role and access to proprietary materials.

Who Should Sign a Proprietary Information Agreement

It’s not just employees who should sign proprietary information agreements. To fully protect a business’s intellectual property and trade secrets, the following individuals should also sign:

  • Founders: To ensure that any pre-incorporation inventions or developments are properly assigned to the company.
  • Independent Contractors and Consultants: Especially when they have access to proprietary systems or participate in product development.
  • Advisors: Who may be exposed to sensitive strategic or technical details.
  • Board Members: If they handle confidential or insider information.

Early-stage startups in particular must ensure that all stakeholders, including co-founders and outside developers, are contractually obligated to assign any relevant inventions to the company. Failure to do so can complicate IP ownership later, especially in due diligence scenarios.

Frequently Asked Questions

1. What is the purpose of a proprietary information agreement? A proprietary information agreement ensures confidential business information is not disclosed or misused by employees, contractors, or collaborators.

2. Who should sign a proprietary information agreement? Employees, contractors, consultants, advisors, and even board members should sign to protect a company’s confidential information and IP.

3. Can an employee refuse to sign a proprietary information agreement? While technically they can refuse, companies may then choose not to hire or continue working with them due to the associated risks.

4. How long do proprietary information obligations last? Most agreements specify that confidentiality obligations survive the termination of employment, sometimes indefinitely.

5. Does a proprietary information agreement cover inventions made outside work? Only if the inventions relate to the company’s business or are created using company resources—otherwise, they may be excluded if properly documented.

If you need help with a proprietary information agreement, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.