A Mutual Non-Disclosure Agreement is a legally binding contract between two (or more) parties where both parties agree not to disclose or share proprietary information they reveal to each other.
This agreement is common when businesses or individuals are exploring a potential relationship or partnership and need to share sensitive information.
- What is a Mutual Non-Disclosure Agreement?
- Differences Between a Mutual and Unilateral NDA
- When Do I Need a Mutual Non-Disclosure Agreement?
- The Consequences of Not Having a Mutual NDA
- Common Uses of a Mutual Confidentiality Agreement
- What Should Be Included in a Mutual NDA?
- Mutual Non-Disclosure Agreement Sample
What is a Mutual Non-Disclosure Agreement?
A mutual non-disclosure agreement ( also known as a bilateral ) is a contract that requires two or more parties to maintain confidentiality regarding specific information they share, preventing either party from disclosing, reproducing, or misusing the confidential information.
It should be drafted to ensure both parties agree not to disclose the proprietary information they learn about the other.
For example, two separate companies may consider working together on a joint project. To thoroughly discuss the opportunity, both parties may need to disclose confidential information they do not wish to be made public.
They may also need to disclose confidential information that a competitor could use to their advantage in the marketplace.
In this case, a mutual non-disclosure agreement would protect both parties from leaking critical proprietary information.
Differences Between a Mutual and Unilateral NDA
In a mutual NDA or two-way NDA, both parties agree not to disclose proprietary or confidential information about the other party’s interests.
This is distinct from a unilateral NDA ( or one-way NDA), where only one party is bound to keep the shared information confidential.
It’s drawn up to protect the company’s information, with the recipient agreeing not to disclose information. In these agreements, the company isn’t making any promises of non-disclosure – mainly because the receiving party has no critical information they’re disclosing.
A mutual NDA can also be called a bilateral or two-way NDA, and both parties agree not to disclose proprietary or confidential information about the other party’s interests.
Like a unilateral agreement, the sensitive information covered by the NDA is defined within the contract.
When Do I Need a Mutual Non-Disclosure Agreement?
A mutual non-disclosure agreement is often used when two parties discuss working together in some capacity.
Business Collaboration or Mergers
For example, the companies might hope to collaborate on a new project or merge some area of their businesses.
Startup Businesses Seeking Investment
Mutual NDAs are also commonly used when startup businesses are seeking investors. To cure investment, a startup must disclose sensitive information about its project, products, company financials, etc., to attract serious investors.
Interested parties, like larger businesses or other private investors, often need to share information with the startup to reach an agreement. A mutual NDA protects both entities.
Timing is Critical
This contract should be drawn up when both parties are still vetting the partnership but before internal information has been shared. In many cases, a collaboration of any kind will mean that at least one entity needs to disclose private information.
Deciding to move forward with business dealings will also often make it necessary for one or both parties to have access to confidential information about the other business.
Each business relationship differs. A unilateral NDA may be sufficient. In other cases, both parties will be divulging proprietary or sensitive data, so a mutual confidentiality agreement protects both parties more effectively.
There are also instances where two parties enter into business dealings, and only one party is sharing sensitive data, and a unilateral NDA would suffice here. The business relationship might shift later, necessitating both parties to share private information.
When the relationship evolves, and both parties need non-disclosure protection, it’s advisable to draw up and re-sign using a mutual non-disclosure agreement.
To avoid drafting and re-signing multiple contracts, some companies immediately use a mutual confidentiality agreement, even though only one party shares sensitive information.
This way, they protect their company from sharing critical information and the other entity should the partnership evolve.
This step ensures that the companies won’t need to draw up further agreements later or risk lapsing on protecting both entities’ interests.
The Consequences of Not Having a Mutual NDA
Like a unilateral NDA, the biggest worry over not having one is that your sensitive information is not protected. Without one, there’s limited recourse if the other party makes sensitive information public or damages your business interests in some way due to access to this confidential information.
Here are a few possible negative consequences of not using a mutual non-disclosure agreement:
- Breeds Mistrust: A mutual NDA protects both parties when two companies discuss a merger or joint project. Offering only a unilateral non-disclosure agreement, even if only one party provides sensitive information, might be considered a red flag for caution. A mutual confidentiality agreement signals that both parties are on an even playing field. Both companies agree to the same terms and are protected by the same parameters.
- Theft of Ideas: The most feared consequence of not using the proper non-disclosure agreement. The biggest asset a startup has is its invention or idea. Suppose they entered into discussions with a more significant business without adequate protection. What would stop the larger entity from bringing a similar product to market faster and more efficiently than the smaller startup?
- Negative Publicity: Some sensitive data could damage your company’s reputation.
Common Uses of a Mutual Confidentiality Agreement
Mutual NDAs offer an excellent way to protect your interests and the other party’s confidential information. Sometimes, a unilateral NDA will suffice because one company shares all the information.
A mutual NDA is an excellent option if the business relationship is likely to evolve or your company might like an extra way to nurture trust. It protects your interest while making the playing field fair for both parties.
Neither party feels like they’re giving more consideration than they’re receiving.
Business dynamics where this document is beneficial to include:
- Mergers: Companies will often discuss mergers at length before finalizing any agreement. Not all discussions end in a merger – a mutual NDA allows both companies to share information that helps them determine whether the merger is a good choice without compromising sensitive information.
- Investor Relationships: Smaller startups partner with larger companies investing in their products.
- Partnerships: Two businesses partnering on the development of a product.
What Should Be Included in a Mutual NDA?
A mutual NDA includes the same information as a unilateral NDA. The parties involved and dates are included. Sensitive and confidential information covered by the agreement is clearly defined.
The main difference is that both parties agree not to disclose confidential information gathered through the relationship with the other entity.
Does a Mutual NDA need to be notarized or witnessed?
A mutual NDA is not legally required to be notarized or witnessed.
Mutual Non-Disclosure Agreement Sample
Here’s what a typical mutual non-disclosure agreement looks like:
