Faster Proprietary Information Agreements Negotiated by AI

icon-contractA Proprietary Information Agreement (PIA) is a standard contract that may either replace or complement a Nondisclosure Agreement (NDA). PIAs can stem from an employment contract or set the terms in a business deal. As businesses develop strategies and processes, the Proprietary Information Agreement ensures that sensitive information stays secure.

Illustration representing security concerns in a proprietary information agreement

Of course, PIAs are only effective if properly drafted and negotiated. While contract templates may offer common language and terms, attorneys must customize cookie-cutter agreements to fit company-specific needs. Document review services powered by AI offer innovative solutions that help ensure sound, enforceable agreements.

Provisions and Pitfalls in Proprietary Information Agreements

While businesses may use PIAs and unilateral NDAs interchangeably, they are not identical. NDAs focus on preexisting information and processes. PIAs, on the other hand, may cover information someone discovers or creates during the course of employment. They include many clauses similar to those found in NDAs.

Ownership

Duties

Exceptions

Disposal of IP

Penalties

This section verifies that anything created in the course of the employees, contractors, or businesses' work belongs to the contracting party. 

Duties cover general confidentiality terms and may include storage and access requirements. 

Parties may need to share information to complete tasks or meet requirements. Exceptions provide guidance for these circumstances and allow limited disclosure. 

The disposal provision describes whether the received IP will be returned or destroyed at the conclusion of the project or employment.  

While employees may face termination and lawsuits for breaching the agreement, contractors and businesses may be held responsible for damages. 

Governing law

Partnership waiver

Assignment 

Amendment rules

Termination 

In most cases, the contracting business's location will provide the governing law. However, some companies may choose the incorporation address or the site of business headquarters. 

An essential clause when developing patentable information, this provision explicitly states that no partnership is created to develop work.

The assignment clause prevents individuals from assigning their rights to another party. 

If either party wishes to change the contract, the amendment section explains the steps. This clause is often omitted in employment agreements.  

Instead of setting a fixed period, this clause establishes that the agreement is effective until the end of employment, the termination of a contract, or some other event. 

 

A Proprietary Information Agreement that incorporates these clauses has a better chance of protecting the business. However, pitfalls can emerge if these provisions are not considered.

Common Issues with Proprietary Information Agreements

PIAs present unique challenges because they may deal with non-existent intellectual property. The following issues commonly affect these agreements: 

  • Ambiguous terms: Failure to establish ownership rights, duties, and non-partnership clauses can leave a company exposed, as individuals cannot be held to terms that they do not understand. 
  • Overly broad provisions: A Proprietary Information Agreement is neither enforceable nor ethical if it defines everything an employee creates, on or off the clock, as business property.
  • Unclear obligations: If specific disposal or protection methods are required under the contract, they must be defined. Otherwise, the contracting party may waive its right to hold the counterparty responsible for breaches. 

In many cases, a PIA is accompanied by an adhesion contract—especially in employment agreements where many workers receive identical documents. As the contracting party has more power than the contractee, disagreements over ambiguities are resolved in the weaker party's favor. Carefully balancing provisions that are broad enough to be enforceable but clear enough to be understandable can be extremely challenging. 

Overcoming Challenges and Enhancing Protections with AI

Legal departments may find it challenging to achieve the high degree of clarity that PIAs require. Often, the contracting party hopes to cover details that do not even exist at the time of the contract's inception. To overcome this obstacle, attorneys must employ suitable clauses and phrases to trigger protection. Consider a standard paragraph found in many of these agreements regarding the recipient's duties; boilerplate language may resemble the following: 

The recipient of proprietary information disclosed under this agreement shall treat such information with the same degree of care to avoid disclosure to third parties as it normally uses to protect its own confidential or proprietary information. 

Initially, this clause may look acceptable, but context is critical. If the Proprietary Information Agreement is established between two businesses with extensive security procedures and protocols in place, it's okay. But what if the contract is between an employer and an employee who does not follow such protocols? An employee could save backups to their email, use weak passwords, send confidential information over unencrypted networks, or connect to unsafe hotspots. In these instances, the "same degree of care" falls far short of what a business would expect for its intellectual property. Unfortunately, when processing hundreds of these documents, human reviewers can miss ineffective boilerplate like this. AI contract review provides a reliable solution. 

When parsing this kind of contract, the AI notes that the contract is between an individual and a business. The AI then flags the section described above as “high risk” and suggest ways to expand on those duties to ensure proper protection. In doing so, AI technologies help eliminate the inherent risk of ambiguity in Proprietary Information Agreements. 

In addition to revising and clarifying PIAs, next-generation innovations in legal tech are empowering corporate legal departments to accelerate and automate the entire contract negotiation process. With an in-house, AI-driven contract negotiation platform, legal departments can now process contract reviews at scale and with playbook-enforced accuracy in a matter of minutes.

To build faster proprietary information agreements, consider LexCheck's AI-powered platform. Request a demo to experience the technology for yourself, or connect with us at sales@lexcheck.com for more information.

gary-sanghaGary Sangha | Founder & CEO

Gary Sangha is the Founder and CEO LexCheck. He's a serial entrepreneur and an academic. Gary previously founded Intelligize, a legal technology company that was acquired by LexisNexis. He's affiliated with the University of Pennsylvania and Stanford University and started his career as an attorney at Shearman & Sterling and White & Case.