The Confidential Information and Invention Assignment Agreement (CIIAA) is critical for any startup or technology company that wants to protect its intellectual property and confidential information. Sometimes referred to as a Proprietary Information and Inventions Assignment Agreements (PIIAA) or Tech Assignment Agreement, this is an underrated but essential agreement for every startup founder and employee. Getting this agreement from the beginning will save a great deal of conflict down the line and will protect you from costly litigation.
In this article, we’ll explore what a CIIAA is, why it’s important and what terms your startup should include in its independent contractor agreement. We’ll also discuss how a CIIAA can help facilitate corporate transactions, clarify expectations and provide legal recourse.
Of course, every company is different, so it’s worth hiring legal counsel to both draft and educate you on the CIIAA. If you are looking for legal counsel, feel free to reach out to us here.
Purpose of the CIIAA
Here’s why a CIIAA is important:
- Protecting Confidential Information. A startup may have sensitive information that is crucial to its competitive advantage. A CIIAA requires that employees and contractors keep this information confidential.
- Intellectual Property Ownership. When an employee or contractor develops something new while working for the company such as a product, a piece of software, or a business strategy, the CIIAA helps ensure that the intellectual property rights for these inventions remain with the company and not the individual.
- Preventing Competitor Advantage. Without a CIIAA, an employee could potentially take the knowledge and expertise gained at your startup and use it to benefit a competitor or start a competing business.
- Investor Relations. Investors are often more willing to invest in a company that has taken steps to protect its intellectual property and confidential information. Having a CIIAA in place can show investors that you are serious about protecting your business.
- Legal Recourse. In case a former employee or contractor violates the agreement, a CIIAA provides the company with more solid ground for legal action.
- Facilitating Corporate Transactions. When a startup is involved in a merger, acquisition or is raising funds, the other party will conduct due diligence. Having a CIIAA in place can make these processes smoother as it shows that the startup has taken steps to secure its assets.
- Clarifying Expectations. A CIIAA can help in setting clear expectations with employees and contractors regarding what they can and can’t do with the information and resources they access during their tenure with the company.
Terms of the CIIAA
These agreements can take many forms, but below are the bare minimum terms that your startup should include in its independent contractor agreement:
- Definition of Confidential Information
- Use of Confidential Information
- Definition of Inventions
- Assignment of Inventions
- Return of Company Property
Definition of Confidential Information
The definition of “Confidential Information” can vary, depending on the jurisdiction and the specific nature of the business. Generally, it refers to information that a company considers sensitive and private to the public. Examples include:
- trade secrets, inventions, ideas, processes, formulas, software in source or object code, data, technology, know-how, designs and techniques;
- research, development, new products, business plans, budgets, financial statements and projections, future plans and strategies, capital-raising plans, internal services, suppliers and supplier information;
- data about customers and potential customers;
- details about company’s business partners and their services;
- personnel, employee lists, compensation and employee skills; and
- any other non-public information that a competitor of the startup could use to gain a competitive edge.
Use of Confidential Information
Generally speaking, use of confidential information is limited to using it to provide service to the startup. Any other use is prohibited. Restrictions on the use of confidential information are typically outlined to ensure that the particulars are handled properly and to protect the company’s interests. Common restrictions on the use of confidential information in a CIIAA include:
- No Unauthorized Disclosure. Employees and contractors are typically prohibited from disclosing the confidential information to any third party without explicit authorization from the company.
- Limited Use. The confidential information should only be used for the specific purpose it was disclosed for, usually in the performance of the employee’s or contractor’s duties for the company. Any use beyond this scope is generally prohibited.
- No Personal Benefit. Employees and contractors are often restricted from using confidential data for their personal benefit or gain.
Specific restrictions and terms can vary depending on the jurisdiction, company and nature of the relationship. It is advisable to consult legal counsel when drafting or entering into a CIIAA to ensure it complies with applicable laws and protects the interests involved.
Definition of Inventions
The definition of “Inventions” can vary depending on the jurisdiction and the specific nature of the business. Generally, it refers to anything created that is related to the startup’s business, including:
- trade secrets, inventions, ideas, processes, formulas, software in source or object code, data, technology, know-how, designs and techniques; and
- documentation regarding research, development, new products, business plans, budgets, financial statements and projections, future plans and strategies, capital-raising plans, internal services, suppliers and supplier information; and
- facts and figures directly related to the startup’s business or actual or anticipated business.
There are two sets of inventions that are sometimes carved out of the definition:
- Prior Inventions. In this carve out employees or contractors list any inventions that they developed before starting their relationship with the company, which are excluded from the assignment of inventions. This ensures that the individual retains ownership of these prior inventions.
- Side Projects. Similar to the prior inventions carve-out, an agreement might include a provision that excludes certain side projects that the employee is working on. These are typically projects that are not related to the company’s business and that employees work on during their own time without using company resources.
The most talented and experienced employees will likely insist on retaining ownership of prior inventions and side projects. To accommodate these concerns, consider adding these two carve-outs to your standard CIIAA. Doing so will help attract top talent, provide clarity for all team members and protect the company’s intellectual property.
Assignment of Inventions
This clause is of utmost importance. It is essential for the employee to assign all rights to the startup, which gives the startup full ownership and the freedom to utilize the inventions in any way they desire, without any restrictions. This ensures that the startup can fully leverage the inventions to achieve its business objectives without any hindrances or legal issues. Additionally, the clause serves as a means to protect the startup’s interests and investments, since it provides them with legal grounds to take action against any potential infringement or misuse of their intellectual property. Thus, it is crucial for all employees to carefully read and understand this clause before signing the CIIAA, as it has far-reaching implications for both the startup and the employee.
Return of Company Property
This clause is aimed at ensuring that when employees end their relationship with the company, the confidential information they had access to during their tenure remains secure and is not retained or misused. The primary goal of this clause is to prevent the unauthorized retention, use or dissemination of confidential information after the contractual relationship has ended. This is critical for safeguarding the company’s trade secrets, intellectual property and other sensitive information.
- Return of Materials. The employee or contractor is usually required to return all documents, files, equipment, and any other materials that contain or relate to the company’s confidential information. This includes not only physical materials but also electronic files and data.
- Destruction of Information. In some cases, the company might prefer the destruction of the information instead of having it returned. This could be due to the sensitive nature of the information or to reduce the risk of the information being accidentally disseminated. The employee or contractor may be required to permanently delete electronic files, shred documents or otherwise ensure that the information is irretrievable.
This clause is important because it helps companies to control and protect their valuable assets even after an individual’s relationship with the company has ended. It’s important for both parties to understand their responsibilities under this clause and for companies to enforce it effectively.
Ownership Rights for Inventions Created During Work Hours Versus Outside of Work Hours
When drafting an invention assignment agreement, it is important to determine the ownership rights for inventions created by employees during work hours versus outside of work hours.
In general, inventions created during work hours are the property of the employer because they were created using company resources and within the scope of the employee’s job duties. However, there are exceptions to this rule if the employee can prove that the invention was not related to their job duties and was not made using company resources.
On the other hand, inventions created outside of work hours are typically the property of the employee because they were not made using company resources and were likely unrelated to their job duties. However, if an employee used company resources or confidential information to create an invention outside of work hours, then it may still be subject to the invention assignment agreement.
Employers and employees should understand these ownership rights to avoid potential disputes over intellectual property ownership. As mentioned above, the best way to create clarity is to include a carve-out for side projects in the definition of inventions.
In conclusion, a CIIAA is an essential document for protecting a startup’s intellectual property and confidential information. It helps ensure that the company retains ownership of any inventions created by its employees or contractors and prevents competitors from gaining an advantage. Having a CIIAA in place can also make corporate transactions smoother and provide legal recourse in case of violations.
It’s crucial for both employers and employees to understand the implications of a CIIAA and to seek legal counsel when necessary to ensure compliance with applicable laws and protection of their interests. While the specifics of the agreement may vary depending on the company and jurisdiction, including these minimum terms can provide a solid foundation for your CIIAA.
If you’re looking for legal counsel to help you draft your CIIIA, feel free to reach out to us here.
