The CIIA Agreement Explained: Essential Features and Impact

What is a CIIA Agreement?

A CIIA Agreement (Confidential Information and Inventions Assignment) is a contract between an employee and their employer. As the name suggests, it serves two main purposes: to protect confidential information that an employee is given access to and to assign or transfer any inventions or intellectual property rights that an employee creates while working for the company.
The CIIA agreement is designed to prevent the employee from disclosing proprietary information to outside parties, excluding information that is available publically or that was not learned through their work and to restrict the employee’s ability to use any inventions created for another employer for a specified duration of time if they choose to leave their employment .
When an employee enters into a CIIA agreement, it’s assumed that they have access to sensitive data or are involved in the development of new ideas and processes. This is generally not entered into by employees who are new to the company, have a lower level role or work in the customer service or administrative departments.
This is a common agreement for companies looking to protect their work from being registered as a patent by the employee if they leave the company or have discovered something new that has not been registered elsewhere.

Key Elements of a CIIA Agreement

While there are certain differences in CIIA agreements across organizations, there are common components that can be found in virtually all CIIA agreements. Even with respect to these common components, such components are often customized to the particular situation. In addition, while the most common implementers of CIIA agreements are private organizations, public organizations, such as academic institutions also use CIIA agreements. Within this context, some examples of the common components of CIIA agreements are as follows: confidentiality clauses; provisions assigning the rights of invention to the company; obligations with respect to confidentiality on the part of the employee or contractor; a list of typical exclusions to the assignment to the company of the rights of invention; the appropriate applicable law for the agreement; and the appropriate forum for resolving disputes.

Why CIIA Agreements Matter in Business

The CIIA Agreement is vitally important to a business. If a business does not have such an agreement, and the confidential information or trade secrets of the business are improperly disclosed, which is prohibited under the CIIA, the business may be irreparably harmed.
It is also very important that a business enforce the terms of the CIIA Agreement, including the non-compete and non-solicitation provisions in a timely manner. If too much time elapses after the disclosure or use of the confidential information or trade secrets, it may be more difficult to successfully seek an injunction or other remedy, and in some cases, it may be too late.
As explained above, a CIIA Agreement can provide a business with equitable relief such as a court ordered injunction. Such a court ordered injunction may prohibit an employee from using or disclosing the trade secrets or confidential information of the business.
If a business does not have an enforceable non-compete or non-solicit in place, it would be much more difficult for the business to stop the employee from working for a competitor, or to stop a competitor from soliciting or hiring the employees of the business. A viable, strategic non-compete or non-solicit, along with a CIIA Agreement, may very well be the key to the business surviving at some point in the future.

Legal Aspects of a CIIA Agreement

The enforceability of a CIIA is largely determined by general and specialized contract law, caselaw precedent, the state laws governing the agreement, and how the agreement is drafted. Therefore, in two or more states the enforceability of the same CIIA may vary, depending on how the agreement was originally drafted and what the state law is in a particular jurisdiction. For example, in Delaware, or New York, a CIIA may be dismissed at the outset of any court proceedings, in favor of an arbitration proceeding as a result of the mandatory arbitration agreement. In that regard, Delaware courts require the arbitration to first determine whether a valid contract exists that contains an arbitration clause, before deciding whether the CIIA is enforceable in the first place. Milrose Consultants, Inc. v. Employers Ins. Co., 2013 Del. Super. LEXIS 149 (Del. Super. Ct., April 19, 2013). Similarly, under New York law, "an arbitration clause in an employment agreement, even if contained in an employee handbook, constitutes an enforceable contract." Roach v. Kelsey-Hayes Co., 980 F. Supp. 2d 400, 414 (W.D.N.Y. 2013), citing, Truelove v. Northway, 95 N.Y.2d 219, 224; 738 N.E.2d 770 (2000). Other cases have held that a CIIA does not have to be signed to be enforceable. McCormick v. Publix Super Markets, Inc., 76 So. 3d 805 (Fla. App. 1st DCA 2011); see also Richey v. IGT, Inc., 940 So. 2d 522, 524 (Fla. Dist. Ct. App. 2006) ("[I]t is well established as a matter of Florida law … that … an unsigned employment manual is enforceable when: 1. that employee knows or reasonably should know of the provisions, and 2. the employer has shown through its conduct that it accepted those provisions.") CIIAs can be difficult to enforce because broader non-compete provisions are more likely to be found unreasonable, and the scope of prohibited conduct is thus more likely to be overbroad. See Paul J. Siegel Counsel, The Enforceability of Noncompete Agreements Under California, Massachusetts and New York Law, Private Placement Memorandum, New York: Thomson Reuters/West, 2014. These issues are a constant concern for many employers and the risk of broader non-compete provisions may be more than many employers are willing to accept. In practice, many CIIAs are attached to employment agreements or other agreements which include a choice of law provision as part of a larger agreement. There are thus, for example, non-restrictive provisions of CIIAs which attempt to generally apply to non-compete, non-solicit or confidentiality agreements, but are not intended to be interpreted as an individual stand-alone non-compete, non-solicit or confidentiality agreement. It is important to note that very few jurisdictions provide best practices for the enforceability of a CIIA. So the most effective way to enforce a CIIA is to seek the advice of experienced attorneys who have drafted CIIAs in the past and know the history of enforceability of CIIAs under their governing law. The precedent continues to evolve and the CIIA landscape will continue to change as more cases address the validity and merits of CIIAs.

CIIA Agreement Drafting Guidelines

Practices Recommended for Drafting a CIIA Agreement
Drafting a CIIA Agreement requires good legal training and experience and, as noted above, it is critical for the buyer or investor to observe all legal formalities if they intend to enforce the CIIA against a potential bidder or investor. A CIIA Agreement should clearly define its scope so as not to be overbroad. For example, in an original CIIA, a buyer or investor must be careful to restrict the scope to those documents actually required in order to enable it to determine the terms of the proposed acquisition or investment, as opposed to those documents which would allow the buyer or investor to compete with the seller in a heads of scope way, or allow it to use the knowledge acquired under the original agreement to specify its own technology, etc . The concern is: if too many unrelated documents are provided to the buyer or investor, will this tend to prejudice the non-competitive effect of the original CIIA? The CIIA Buyer or Investor (and its Advisors) should take care to limit the number of confidential documents to those strictly required in order to understand the scope of the proposed acquisition or investment, so as to prevent competing or noncompeting disclosures. Even then we would suggest that a lawyer’s advice be sought throughout the negotiation and drafting process.

CIIA Agreement Alternatives and Modifications

At times, parties may wish to forego entering into a CIIA Agreement and, instead, enter into either an employment confidentiality agreement or a non-competition / non-solicitation (collectively, ‘non-compete’) agreement.
Employment confidentiality agreements can be more appropriate in situations where the party concerned (usually, an employee) has no reason yet to know whether or not the other party has any information that it considers confidential, and therefore the purpose of the agreement is to simply establish a blanket prohibition on confidential information. This would differ from a CIIA in a number of ways, notably that there is no mechanism for the parties to agree on what is confidential; and there are no procedures for what to do with any copies of confidential information that are taken home overnight. Further, employment confidentiality agreements typically do not restrict the ability to enter into competitive business. However, as we have previously noted on this Blog, non-competition agreements can be difficult to enforce in the United Kingdom, and so if you are seeking such an agreement, you should seek legal advice in relation to it.
Non-compete agreements are generally more appropriate where the sophistication of the parties or the industry they compete in are not suitable for a CIIA agreement, or where there is a very real concern regarding the risks posed by the use of confidential information and the party concerned is willing to act in the knowledge that it will limit its ability to take future opportunities that may be competitive. Non-compete agreements allow for the clear carving out of confidential information that can then be used in competition with another party. Given their restrictive nature, however, it is important that non-compete agreements are reasonable in duration, scope and geographic coverage. See our previous Blog post on this topic.

CIIA Agreement Case Studies – Real-World Examples

The use of CIIA agreements spans across a range of complex situations. In one case, the circumstances applied to a part sale and another to corporate re-organizations. A third case had far greater sexual harassment and fiduciary issues, while a fourth was more akin to a standard buy-sell scenario that lingered past its best-before date. Each scenario came with its unique complexities, outcomes, good planning and bad planning. In the CIIA between parties engaged in a part sale, for example, there was significant disagreement as to the timing and manner for winding down the operation. One stakeholder had a very legitimate view that such operations typically decline after a certain period of time and, therefore, if the business could be wound down quickly and effectively then its going concern value would be maximized. That stakeholder’s view was disputed by a second stakeholder, who was the other CIIA Party. The second CIIA Party argued that the business held greater going concern value if it were wound down over a protracted period of time. If that were, in fact, the case then a going concern purchase price would reflect it. In other words if the business is closing down then a protracted winding down process would allow a potential purchaser to realize upon the greatest value the business could offer as it wound down. The parties to that Agreement fought long and hard about who was right. They argued about the business case, the market case, the opportunity cost of waiting for a better price, the negative impact of having two stereotypical "asshole" entrepreneurs fighting with each other in the market place. It went on for some time. The cost to the Parties was significant. If anyone thinks that their fight and the market view did not hang over the business during this period of time then they are delusional. The result was that their combined market reputation suffered. They didn’t work together for years after the fact, but they had four or five co-investments that continued to plague their relationship. Those co-investments had become opaque to a degree where no one knew who owned what . The Parties were the key or only investors in those co-investments; they were also single source investors. It took that dynamic some time to resolve even after the respective CIIA agreements were resolved. In another case a controlling shareholder in a small business was found by the courts to have sexually harassed a sub-ordinate. The degree of sexual harassment found was of both the qualitative and quantitative kind. That means that the harassment not only occurred, but it was also pervasive and had an impact on the company’s operations, bottom line and on the well-being of the victim. The party that suffered that sexual harassment made application to the court for the oppression remedy alleging several matters against the controlling shareholders, including the CIIA restrictions upon him. The dominant shareholders were successful in that aspect of the claim, but the court was clear that this was a case about oppression where the victim of oppression was a woman. The controlling shareholders were ordered to pay the plaintiff shareholder almost $1 million in damages including a massive punitive award. The punitive award was staggering for a variety of reasons, not the least of which was that the controlling shareholders were both named and named as defendants in various counts of the oppression action. They were not even co-defendants. They were found personally liable for a major damages award against their company. They were also found to have individually acted in a way that put them front and center for the major damages award. It was a nasty situation that might have been avoided had all parties cooperated with respect to clarifying the manner in which the multi-shareholder company would operate and in the manner in which its stakeholders would comply with the Canadian Business Corporations Act. Most, if not all problems, would have been avoided if the CIIA had operated in accordance with the provisions of the CBCA and had, as a matter of good governance, been updated to comply with the then current provisions of the CBCA. This company had not done so.