Creating a Proprietary Information and Inventions Agreement

06/09/2023

28 min

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Securing a business’ intellectual property is vital to its success and longevity, so it’s no surprise that creating a Proprietary Information and Inventions Agreement is a highly important process. Such an agreement, which is legally binding between the parties involved, outlines the rights and responsibilities of each party with respect to proprietary information and inventions.

The objective of this agreement is twofold: to ensure that confidential information remains within the business and not shared outside third parties; as well as preventing anyone from utilising, developing or exploiting inventions without prior consent from the business. This covers who owns any inventions or derivative works, as well as responsibility for filing patents or copyrights if needed. It also serves as a deterrent for potential thieves who are aware that unauthorized use of intellectual property will result in legal repercussions.

Not only does it guard against theft though; this agreement also provides a framework for collaborations with other parties such as partnerships and joint ventures by laying out terms for all involved parties to adhere to - ensuring any future projects are done in a fair manner beneficial to all those factoried in. The Genie AI team understands how crucial these agreements can be in protecting businesses’ IP assets; hence why we provide free template libraries containing millions of datapoints describing what market-standard agreements look like. That way everyone has access - whether they have an account on Genie AI or not - to create an effective contract without having to hire an expert lawyer. Read on below for step-by-step guidance on creating such agreements, plus information on accessing our template library today…

Definitions

Proprietary Information: Information that has been kept secret and shared between two parties, which gives its owner an advantage over competitors.
Trade Secret: Confidential information that gives its owner a competitive edge.
Confidential Information: Private information that is shared between two parties and is essential to their relationship.
Non-Confidential Information: Information that has been made public or is freely available.
Patentable Invention: A novel, non-obvious, and useful device, process, composition, or machine.
Unpatentable Invention: A device, process, composition, or machine that is not novel, obvious, or useful.
Improvement: A modification or addition to an existing product, process, or machine that provides an advantage.
Intellectual Property Rights: Rights to inventions, ideas, and creations that are owned by the person or entity that created them.
Obligations: Responsibilities or duties that must be fulfilled.
Restrictions: Limitations on an activity or action.
Non-Compete Provisions: An agreement that prohibits someone from competing with another in the same field.
Non-Solicitation Provisions: An agreement that prohibits someone from soliciting another’s customers or employees.
Choice of Law: The law that will govern an agreement.
Venue: The court or tribunal where a dispute will be heard.
Mediation or Arbitration: A process in which a third party assists two parties in resolving a dispute.
Termination: The ending of an agreement.
Damages and Fees: Monetary compensation or costs associated with a breach of an agreement.
Return of Proprietary Information: The transfer of confidential information back to the party that shared it.

Definition of Proprietary Information
Definition of Trade Secret
Definition of Confidential Information
Definition of Non-Confidential Information
Definition of Inventions
Definition of Patentable Inventions
Definition of Unpatentable Inventions
Definition of Improvements
Ownership of Intellectual Property
Who Owns the Intellectual Property rights
How to File for a Patent or Trademark
Confidentiality
Obligations of the Parties
Restrictions on Disclosure
Use of Proprietary Information
Limitations on Use
Restrictions on Use of Proprietary Information
Non-Compete Provisions
Non-Soliciation Provisions
Assignment of Inventions
Assignments of Intellectual Property Rights
Assignments of Patents and Trademarks
Non-Disclosure
Restrictions on Disclosure
Non-Compete Provisions
Non-Soliciation Provisions
Dispute Resolution
Choice of Law
Venue
Mediation or Arbitration
Termination
Termination of Contract
Damages and Fees
Return of Proprietary Information
Final Considerations and Signing
Review of Contract
Exchange of Signatures
Date of Execution

Get started

Definition of Proprietary Information

Start by defining what constitutes proprietary information, making sure to include all relevant information that should be kept confidential
Create a clear definition of what is considered proprietary information and what is not, and make sure that the definition is broad enough to encompass any and all information that should remain confidential
Include a list of examples of what is considered proprietary information
Ensure that the definition is clear and concise, so that all parties understand what is and is not considered proprietary information
When all parties are in agreement and the definition of proprietary information is clear, you can check this step off your list and move on to the next step of the guide.

Definition of Trade Secret

Define what constitutes a trade secret and why it is important to protect it
Include a definition of trade secret in the agreement that specifies what it is and why its confidential nature should be respected
Set out what constitutes a breach of confidentiality, such as disclosing the trade secret without authorization
Identify the consequences of such breach, such as monetary penalties or legal action
Specify how the trade secret is to be handled and who is authorized to access it
When the agreement is complete, check that all definitions and provisions regarding trade secrets are included and accurate.

Definition of Confidential Information

Define what is considered confidential information
Examples may include proprietary formulas, strategies, processes, methods, techniques, algorithms, inventions, designs, drawings, and other technical information, software code, customer lists, marketing plans and strategies, pricing structures, etc.
Include who owns the confidential information - the company or the employee
Include a definition for what is considered a “permissible use” of the confidential information
Specify how long the confidentiality agreement covers - a period of time or indefinitely
When you have finished defining confidential information and the parameters of the agreement, you can check this off your list and move on to the next step.

Definition of Non-Confidential Information

Review the definition of Confidential Information in the agreement
Determine what information does not fit the definition of Confidential Information
Draft a definition of Non-Confidential Information and add it to the agreement
Make sure the definition is in line with the definition of Confidential Information
Once the definition of Non-Confidential Information is drafted and added to the agreement, you can check this step off your list and move on to the next step - Definition of Inventions.

Definition of Inventions

Define what constitutes an invention under the agreement
List examples of what would constitute an invention, such as new processes, methods, formulas, software, products, etc.
Specify any additional areas of invention that should be included, such as improvements, discoveries, and additional components
Specify that any invention created as a result of the agreement should be considered owned by the company
Outline the process for employees to disclose any inventions they create in connection with their employment
When you have a clear definition of what constitutes an invention and the process of disclosure outlined, you can move on to the next step of defining patentable inventions.

Definition of Patentable Inventions

Identify what types of inventions and products are eligible for patent protection
Research relevant case law and legal precedent to determine which inventions can be patented
Outline the criteria that must be met in order to qualify as a patentable invention
Create a list of examples of patentable inventions

You can check this off your list and move on to the next step when you have identified and outlined the criteria for patentable inventions, and created a list of examples.

Definition of Unpatentable Inventions

• Clearly define what types of inventions are unpatentable and will remain as proprietary information.
• These could include inventions that are illegal or unethical, are part of confidential information, or are too abstract to qualify for patent protection.
• Be sure to include examples of each type of unpatentable invention.
• Reference any applicable local laws and guidelines that may be relevant.
• Once you have outlined the types of inventions that are unpatentable and included the necessary examples, you can check this step off your list and move on to the next step.

Definition of Improvements

Review the agreement and decide which items need to be defined as “Improvements”
Decide how Improvements will be classified and how they will be owned
Define the scope of the Improvements
Draft language to include in the agreement that clearly defines what constitutes an Improvement
Ensure that the language clearly states who owns the Improvements
Have the agreement reviewed and approved by the necessary parties
Once the agreement is signed, you can be confident that the definition of Improvements is clear and that ownership is established.

Ownership of Intellectual Property

Outline who owns the intellectual property rights for all inventions, discoveries, information, software, and works of authorship created by employees, contractors, officers, or directors in the course of their work.
Make sure to include language that specifies that all intellectual property rights created or developed by the employees, contractors, officers, or directors during the course of their work are owned by the company.
Add a clause that specifies that the employee, contractor, officer, or director will assign all rights and title in any such intellectual property to the company free of charge and that the employee, contractor, officer, or director will execute all documents necessary to accomplish the assignment.
Once the above items are completed, you can move on to the next step, which is to define who owns the intellectual property rights.

Who Owns the Intellectual Property rights

Determine who owns the intellectual property rights for the invention.
Obtain written consent from all parties claiming ownership of the intellectual property rights.
Ensure each party is aware of the ownership rights and their rights to the invention.
Include the names of the inventors in the agreement.
Make sure the agreement clearly states who owns the intellectual property rights.

Once you have obtained written consent from all parties claiming ownership of the intellectual property rights, and have ensured each party is aware of the ownership rights and their rights to the invention, you can move on to the next step.

How to File for a Patent or Trademark

Research existing patents and trademarks to make sure you are not infringing on existing intellectual property rights
Prepare a patent or trademark application and submit it to the United States Patent and Trademark Office
Monitor the status of the application and respond to any inquiries from the USPTO
Once the application is approved, you can receive a patent or trademark registration certificate

You’ll know you can move on to the next step when you have received a patent or trademark registration certificate.

Confidentiality

Draft a confidentiality agreement that clearly outlines the confidential information that is subject to protection
Include the definition of “confidential information” in the agreement
Outline the responsibilities of the parties in regards to protecting confidential information
Specify the duration of the confidentiality agreement
Specify the remedies for breach of confidentiality
Sign and date the agreement

Once the confidentiality agreement is drafted and signed, the parties will have a legally binding agreement that outlines their responsibilities in regards to confidential information. They can then move on to the next step in the process of creating a proprietary information and inventions agreement.

Obligations of the Parties

Determine the obligations of each party with respect to the confidential information and inventions.
Outline the responsibilities of each party in the agreement.
Specify the ownership rights of each party.
Describe the responsibilities of the disclosing party in providing the confidential information and inventions.
Include the obligations of the receiving party in regards to the confidential information and inventions.

When you have determined each party’s obligations and included them in the agreement, you can check this off your list and move on to the next step.

Restrictions on Disclosure

Identify what information is to be considered confidential and should not be disclosed
Place restrictions on the disclosure of that confidential information to third parties
Ensure that any confidential information shared with third parties is kept secure
Specify the permitted uses of confidential information
Establish a way to monitor any misuse of confidential information

When you have identified and established restrictions on the confidential information covered within the agreement, you can move on to the next step.

Use of Proprietary Information

Draft a paragraph that outlines the employee’s responsibility to use proprietary information only for business purposes and not for personal gain.
Draft a paragraph that explains the employee’s obligation to keep confidential any proprietary information that is not generally known or available to the public.
Draft a paragraph that explains the employee’s obligation to not use or disclose any proprietary information of the company or of any third party that the company has obtained from a third party.
Draft a paragraph that explains the employee’s obligation to return all proprietary information of the company or of any third party that the company has obtained from a third party upon termination of the employment.
Once these paragraphs are drafted and finalized, you can check this step off your list and move on to the next step.

Limitations on Use

Review the company’s policies on proprietary information and inventions and determine what limitations should be included in the agreement
Identify any additional restrictions that may be necessary to protect the company’s interests
Create a clause that outlines the limitations of use and any restrictions that should be agreed upon by both parties
Ensure that all restrictions are in compliance with applicable laws
When the limitations and restrictions have been drafted, review them with the other party and have them sign the agreement to confirm their understanding and acceptance of the terms
Check off this step as complete and move onto the next step, which is to review the restrictions on use of proprietary information.

Restrictions on Use of Proprietary Information

Identify any proprietary information owned by the employer and provide a detailed list of such information.
Specify the proper use of the proprietary information, including any restrictions on how it can be used or disclosed.
Outline how long the restrictions on the use of the proprietary information will be in effect.
Include a clause stating that any violation of the restrictions on the use of the proprietary information will be considered a breach of the agreement.

When you have completed this step, you should have a written agreement that outlines the restrictions on the use of the proprietary information owned by the employer.

Non-Compete Provisions

Draft a clause that outlines the employee’s agreement not to compete with the company in any capacity.
Specify any geographic or industry limitations in the non-compete clause.
Set out the length of time that the non-compete agreement will last.
Consider whether the clause should include any provisions allowing the employee to compete in certain ways, such as consulting for other companies.
Add a clause that states that the employee agrees to refrain from disclosing anything that could be considered confidential information.
Include a clause that states that the employee agrees not to use any of the company’s proprietary information or inventions while employed with the company.

Once you have drafted and finalized the non-compete provisions, you can move on to the next step, which is drafting non-solicitation provisions.

Non-Soliciation Provisions

Determine whether your company needs to include non-solicitation provisions in the agreement
Draft a clause that prohibits the employee from soliciting clients, vendors, or employees of the company
Include an exception to the non-solicitation clause if it is necessary
Specify a time period for the non-solicitation clause
Make sure to include a geographic area that is applicable to the non-solicitation clause
Decide whether you want to include a monetary penalty for violation of the non-solicitation clause
When you are satisfied with the clause, include it in the Proprietary Information and Inventions Agreement
You can check this off your list and move on to the next step when the non-solicitation provisions have been included in the agreement.

Assignment of Inventions

Identify who owns inventions created by employees, contractors, and consultants.
Determine whether the company should own any intellectual property created in the course of the work.
Include a statement that assigns any intellectual property to the company.
Specify that the company, not the employee, owns any intellectual property created related to the employee’s work.
Specify any exceptions to the assignment of inventions, such as pre-existing ideas, inventions created outside the scope of employment, or inventions created as part of another job.
Include a statement that any inventions created must be disclosed to the company.
Include a statement that the employee won’t file any patent or trademark applications without the company’s consent.
Include a statement requiring the employee to execute documents necessary to obtain and assign intellectual property rights.

You’ll know you’ve completed the Assignment of Inventions step when you have determined who owns the inventions created by employees, contractors, and consultants, included a statement that assigns any intellectual property to the company, and included a statement requiring the employee to execute documents necessary to obtain and assign intellectual property rights.

Assignments of Intellectual Property Rights

Determine which intellectual property rights (IPR) the employee is assigned to
Identify the IPRs that should be assigned to the employer
Draft a provision in the agreement that assigns all IPRs from the employee to the employer
Include language that specifies the employer’s ability to use, develop, and exploit the IPRs
Have both parties sign the agreement

When you can check this off your list and move on to the next step:

Once the agreement has been signed and both parties have agreed to the assignment of IPRs, the step to assign patents and trademarks can begin.

Assignments of Patents and Trademarks

Identify the parties to the agreement, as well as any employees, contractors, or agents that may be involved
Outline the scope of the agreement, including any definitions of proprietary information and inventions
List any patents, trademarks, or other protected intellectual property rights held by the parties
Specify that the assignment of those rights is effective immediately and is irrevocable
Detail any additional obligations of the parties to the agreement, such as confidentiality or non-compete clauses
Establish the terms of any compensation or royalties due to the parties
Have a signature page for the agreement, signed and dated by all parties
Ensure that the agreement is compliant with all applicable state and federal laws

When this step is complete, you should have a fully executed Proprietary Information and Inventions Agreement.

Non-Disclosure

Create an agreement that outlines the confidential information and inventions that will be protected.
Specify the duration of the agreement, including when the agreement begins and when it ends.
Make sure to include a statement that both parties agree to keep the confidential information and inventions confidential.
Identify the parties to the agreement and provide a description of the confidential information and inventions.
Include a statement that outlines the remedies available to the disclosing party in the event of a breach of the agreement.
When complete, both parties should sign the agreement and provide a copy to the other party.

You’ll know the step is complete when the parties have signed and returned the agreement.

Restrictions on Disclosure

Draft restrictions on disclosure that employees must abide by, such as limitations on sharing proprietary information with third parties - e.g. not disclosing any information to competitors or other interested parties
Ensure that the agreement clearly defines when and where employees can share information, and that they must report any breaches of the agreement
Make sure to include a clause that states that employees are prohibited from using the information or any materials obtained from the company for personal advantage, financial gain, or other purposes
When complete, ensure that employees sign the agreement to indicate that they understand and agree to the restrictions set out in the document
Once the agreement is signed, you can check this step off your list and move on to the next step.

Non-Compete Provisions

Draft a clause that defines what is considered a “Competing Business”, as this is important to limit the scope of the non-compete provisions
Draft a clause that prohibits the employee from engaging in a Competing Business during their employment
Draft a clause that prohibits the employee from engaging in a Competing Business for a defined period of time after the end of their employment
Draft a clause that defines the geographic area in which the employee is prohibited from engaging in a Competing Business
Draft a clause that prohibits the employee from utilizing proprietary information or trade secrets in the operation of a Competing Business

You can check this step off your list when you have drafted a comprehensive Non-Compete Clause that outlines the scope of the non-compete provisions and the restrictions placed on the employee.

Non-Soliciation Provisions

Draft and review the non-solicitation provisions: These provisions should outline any restrictions on the parties’ ability to solicit each other’s employees, customers, or contractors.
Ensure the non-solicitation provisions are tailored to the circumstances: The agreement should include the time and geographic limitations of the restrictions, as well as any exceptions that may apply.
Finalize the non-solicitation provisions: Once the provisions have been drafted and reviewed, sign and date the agreement.

Once the non-solicitation provisions have been finalized, the parties can move on to the next step, which is to draft and review the dispute resolution provisions.

Dispute Resolution

Choose a dispute resolution process that works best for the parties involved, such as arbitration or litigation.
Include a clause in the agreement requiring all parties to negotiate in good faith, and determine when/where the dispute resolution process will take place.
List any exceptions to the dispute resolution clause, such as when a party can seek injunctive relief.
Describe the process for selecting and appointing a neutral third-party to mediate the dispute.
Specify the costs associated with the dispute resolution process, such as filing fees and other related expenses.
When all applicable steps have been completed, check off this step and move on to the next step of creating a Proprietary Information and Inventions Agreement.

Choice of Law

Determine which state’s law will govern the agreement.
Consider consulting a lawyer or legal professional to decide which state’s law should be used.
Specify the governing law in the agreement.
Once the governing law has been determined and specified in the agreement, the Choice of Law step is complete.

Venue

Consider the forum in which any dispute will be heard.
Depending on the jurisdiction, the parties may be able to choose the venue of the dispute in advance.
Agree upon the appropriate venue in the agreement and include a provision that requires the parties to submit to the chosen venue before any other forum.
Make sure to include language that allows either party to seek injunctive relief in any court of competent jurisdiction.
Once the appropriate venue has been selected and included in the agreement, proceed to the next step.

Mediation or Arbitration

Draft a clause in the agreement that outlines how any disputes will be handled, such as through mediation or arbitration
Consider including a clause that states that all disputes must be submitted to a mediator, who will then decide the outcome.
Make sure that both parties agree to the terms of the mediation or arbitration and sign off on the agreement
Once both parties have agreed and signed off, you can move on to the next step in the process.