Proprietary information agreement: Overview, definition, and example
What is a proprietary information agreement?
A proprietary information agreement (PIA), also known as a confidentiality agreement or non-disclosure agreement (NDA), is a legal contract between two or more parties in which one party agrees to protect the proprietary or confidential information of the other party. This agreement ensures that any sensitive business information, trade secrets, intellectual property, or other confidential materials shared between the parties will not be disclosed to unauthorized third parties.
The goal of a proprietary information agreement is to safeguard the privacy and competitive advantage of the disclosing party, preventing the misuse or unauthorized dissemination of its proprietary data. PIAs are commonly used in various business contexts, including partnerships, employee contracts, or when sharing information with contractors or vendors.
Why is a proprietary information agreement important?
A proprietary information agreement is important because it provides legal protection for businesses that rely on confidential or proprietary information to maintain a competitive edge. This may include customer lists, marketing strategies, product designs, software code, financial data, or any other sensitive information.
For businesses, a PIA helps to mitigate the risk of intellectual property theft, leaks, or accidental disclosure. It also sets clear boundaries regarding the handling, use, and sharing of proprietary information, reducing the likelihood of disputes or legal issues in the future. For employees, contractors, or partners, it clarifies their responsibilities in handling confidential information and ensures that they understand the legal implications of breaching the agreement.
Understanding a proprietary information agreement through an example
Imagine a software development company, Company A, that is planning to enter into a partnership with another firm, Company B, to collaborate on a new product. Before sharing detailed information about its proprietary software and coding techniques, Company A requires Company B to sign a proprietary information agreement.
In this case, the agreement outlines that:
- Company B must keep all software code, designs, and marketing strategies confidential.
- Company B is prohibited from sharing any of Company A’s proprietary information with third parties.
- Company B is required to return or destroy all proprietary materials upon the termination of the partnership.
By signing the agreement, Company B legally agrees to these terms and commits to protecting Company A’s confidential information throughout the partnership.
Example of a proprietary information agreement clause
Here’s how a proprietary information agreement clause might appear in a contract:
“The Recipient agrees to keep all proprietary information, including but not limited to business plans, trade secrets, customer lists, software code, and financial data, strictly confidential and shall not disclose, distribute, or use such information for any purpose other than the performance of this Agreement. The Recipient shall take reasonable precautions to protect the confidentiality of the proprietary information and shall not allow unauthorized third parties to access such information. This obligation shall continue for a period of two (2) years following the termination of this Agreement.”
Conclusion
A proprietary information agreement (PIA) is a vital tool for businesses to protect sensitive information and maintain a competitive advantage. By clearly defining the boundaries for sharing, using, and disclosing proprietary data, a PIA helps prevent intellectual property theft and accidental leaks.
For businesses, implementing a PIA ensures that all parties involved in sharing confidential information are legally bound to protect it. For individuals, understanding the terms of a proprietary information agreement is crucial for complying with confidentiality obligations and avoiding legal consequences.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.