What is a PIIA Agreement?
In the tech industry, a proprietary information and invention assignment (PIIA) agreement is a contract between an employee and employer regarding the employee’s transfer of rights that are related to the employee’s work for the employer.
The purpose of the PIIA agreement is to protect the employer from the potential inadequacies of patent law for intellectual property created by employees and to protect the employer’s intellectual property through contract law by requiring employees to assign virtually all their intellectual property interests to the employer and prohibiting them from using, exploiting, or disclosing that intellectual property without consent.
Employers implement PIIA agreements to ensure that any inventions, discoveries, designs, concepts, or works of authorship that an employee creates in the course of his employment with the company will be assigned to and protected by the company . A well-written PIIA agreement is critical to ensuring that an employer’s intellectual property rights are secure in the event that an employee who worked on one of the company’s products or services leaves the company to join a competitor. The PIIA agreement should state that the employee agrees to assign to the company any patent rights for inventions that technically fall outside the scope of "work made for hire," which occurs when a company pays an employee to create a product or perform a service and the resulting IP Can then be owned by the company, regardless of whether the employee is listed as an inventor. Requires an acknowledgment by the employee that the employee’s obligation to assign inventions to the company extends to inventions conceived of or reduced to practice in the year after termination of employment.
Essential Components of a PIIA Agreement
Every PIIA should contain:
- A confidentiality clause that sets forth that, during the term of employment and after the termination of employment, the employee will not reveal to anyone outside of the company any confidential information of the company.
- A section that requires an employee, on a going-forward basis, to assign any inventions that employee makes to the company, if: (1) the employee conceived of the invention with the use of the company’s equipment or supplies or during the employee’s employment; and (2) the invention relates to the company’s business.
- A section requiring the employee, on a going-forward basis, not to disclose confidential information obtained by the company at the time that the employee is hired, and that also prohibits the employee from using confidential information obtained by the company to compete directly with it after the employee’s employment with the company ends. This section additionally should have a list of other parties or individuals to whom the employee is free to disclose the company information.
Advantages of Adopting PIIA Agreements
The benefits of using PIIA agreements are numerous, most significantly for employers in protecting their proprietary information. The first key benefit is that a PIIA agreement explicitly identifies the categories of information that an employer considers to be proprietary and explains why it is proprietary in order to afford the greatest protection to that information. By taking the time to identify and provide reasons for the secrecy of otherwise "commonplace" information, an employer can prevent courts and juries from compartmentalizing the information as just another "either – an – or" between the trade secret definition (not generally known) and what is publicly known. Doing so will allow for a greater number of non-disclosure determinations to be made in favor of the employer. A second key benefit to the inclusion of PIIA agreements is that it protects the company’s competitive advantage. The superior competitive advantage of a business is often its proprietary information. Another benefit of a PIIA agreement is that it enhances legal security. Courts and arbitrators will interpret a PIIA agreement to provide the coverage that the employer had intended for its proprietary information. Courts will interpret the contract according to its plain meaning and as it’s written unless some part requires statutory construction. A fourth benefit is that PIIA agreements can deter the employee from disclosing and/or seeking employment with a competitor to become privy to the information secret. A fifth benefit is that PIIA agreements are an important part of a comprehensive employee policy. Nondisclosure agreements on their own provide minimal protection to a company. PIIAs are more beneficial because they protect a wide variety of information and fill in the gaps left by nondisclosure agreements. A sixth benefit is that PIIA agreements put the employee on notice that using information for improper purposes is prohibited. The seventh benefit is that PIIA agreements help to ensure that business processes, plans, strategies, marketing, pricing tactics, employee manuals, product manuals, and other intellectual property are not used by a competitor.
PIIA versus Non-Compete Agreements
PIIAs and non-compete agreements are somewhat similar; both prohibit a departing employee from using or disclosing the company’s information or "going to work for the competition." Whether your business uses a non-compete agreement or PIIA, you will likely need both. Unlike non-competes, which typically are limited in duration and geographic scope, companies should not restrict a departing employee with a PIIA.
A non-compete is a contract that prohibits a departing employee from working for a competitor. It can also prohibit the employee from starting a similar competitive business. PIIAs do not prohibit an employee from working for a competitor.
A PIIA is used to protect a company’s proprietary information and trade secrets. It restricts a departing employee from using the information he or she learned while working for the company. Non-competes serve a different purpose — preventing employees from "going into competition" by setting up a competing business or going to work for a competitor. Both agreements can go by different names, including: non-solicitation, nonsolicit, no poach, non-compete, or confidentiality agreement.
For details on which type will work best for your business, read more PIIA and non-compete analysis.
Legal Implications and Enforcement
PIIA agreements, while important for protecting a company’s interests, are not foolproof. In some cases, parties may try to avoid the restrictions imposed by these agreements by treating them as if they were not legally binding. It can be crucial to create the right type of legal documentation to ensure that a company’s confidential information and intellectual property are properly safeguarded.
Despite the advantages of a PIIA, some companies have found it to be challenging to enforce. Among the reasons why an employer may have these sorts of challenges include:
- Many companies have employees or representatives who have contracts with other companies in different countries. When enforcement actions are necessary in these circumstances, the employer may be required to go through judicial procedures in foreign courts, which may or may not be favorable to the company.
- If an employee who has access to confidential information commits misappropriation, and then leaves the company and uses that information for their own benefit, it can be difficult or time-consuming to prove the theft in front of a judge .
- If the company has employees or contractors employed outside of the U.S., the enforcement of the PIIA may involve foreign laws. In addition, if the employee is terminated for cause and subsequently leaves the residence of the U.S. and is not amenable to service of process for the purposes of a civil lawsuit, the plaintiff can have difficulty obtaining a judgment and collecting on an order of restitution.
- A large number of PIIA agreements do not contain remedies in the event the employee breaches the agreement, or they do not do so in a manner that complies with the law in the relevant jurisdiction. This means that the agreements stand little chance of being enforced.
Because PIIAs are often created with little forethought, it is important to work with an experienced attorney to ensure they are proper and effective and will be enforceable should the need arise.
Impact on the Employee and Practical Considerations
Employees have several choices with respect to preparation of and complying with a PIIA. At the outset, the most important thing for any employee is to understand what the PIIA purports to do. One of the common complaints about PIIAs is that they are "one size fits all" – meaning that effectively every employee of the employer is asked to sign the employer’s version of PIIA even if it is not the type of position where there is a risk of having confidential information to protect. It is very important for the employee to understand what is included in his or her version of the PIIA. This would include not only what types of information constitute "confidential information" but also the scope of the restrictive covenants (which in California can be an issue if it is too broad in relation to the geographic scope). For all employees, even those who may have only one or a couple of pieces of confidential information, if they are signing the PIIA, they should accept it as a normal requirement of their position and understand what is required.
There are also some best practices for the employee if he or she wants to challenge the PIIA’s terms. Some helpful suggestions include (1) have the discussion with the employer, but do it right away, not once you have left the employer’s employment; (2) read the PIIA carefully before complaining about it; (3) be prepared for pushback from the employer as it will pretty much stand behind its PIIA; and (4) if you think that the PIIA is overreaching, then try to get the offending provisions removed in exchange for signing the PIIA. Where employers tend to move the most is in the geographic scope of a PIIA. Many employers recognize that they only need to keep certain information confidential, and that other information is not so sensitive, depending on the circumstances.
Case Examples of PIIA Agreements
Many businesses owe their success to secret sauce they’ve developed over many years. These "highly confidential end products," where the competing value of removing the veil makes them among a business’ most valuable assets, include:
- customer lists and sales information;
- employee lists, skills inventories and payroll data; and
- product specifications, formulations and process recipes.
PIIA’s are useful protections for businesses in each of the examples below:
- A customer list for an HVAC business that had been operating for 30 years and had detailed information about thousands of past customers who had "just had a small issue in XXX month and YYY year and they would like to speak with someone about it." Such a list was determined to be protected under a PIIA when used to try to lure away the sales force of the transferor.
- A developer of non-customer specific needs assessments and training modules who had only one client, but wanted to prevent the client from providing the same services to other clients in competition with the developer and from interfering with its recruiting. When that client "stole" the concept but revised the material for use with another customer, the court ruled that the "secret recipe" was protected by the PIIA.
- A "one stop shop" for computers that had for many years built its inventory piece by piece, sending out team members to get the very latest modems, motherboards, graphics chips, hard drives and other components . The court ruled that the vendor lists such explorers developed were protected by a PIIA because they did not do any cold calling and only visited a competitor’s "one stop shop" for training or a referral after becoming known to be trustworthy through prior service successes.
- A brand new construction company owned by a partnership of three former supervisors at a much larger builder of luxury homes with large expertise on finding land parcels, blending custom designs with pre-existing floorplans, identifying local contractors, balancing timelines with costs, dealing with local building code and zoning nightmares, and selling the home after construction. The former employer of the three had valuable generalizations about various components of the services, but not the particulars of how to quickly and effectively deal with the myriad decisions. The PIIA was upheld to protect the former supervisors’ ability to remain competitive and live near and with the aggrieved builder.
Just as ensuring you have a secret formula is not sufficient to keep it a secret, ensuring you have a good PIIA is not sufficient to avoid disclosure. Information developed over time and experience may need to be kept secret and a PIIA is a great tool. However, similar trade secret protections may be used in other ways and while the PIIA is less flexible, it is being used most commonly.