A mutual non-disclosure agreement (mutual NDA) 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?
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, this agreement would protect both parties from leaking critical proprietary information.
Differences Between a Unilateral and Mutual NDA
The main difference is that in a mutual NDA ( two-way), both parties agree not to disclose proprietary or confidential information about the other party’s interests.
As opposed to a unilateral NDA ( one-way ), 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.
When Do I Need a Mutual Non-Disclosure Agreement?
This type of agreement is often used when two parties discuss working together in some capacity.
Business Collaborations 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
These non-disclosure agreements 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.
Protecting Sensitive Information in Early-Stage Partnerships
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.
When the business 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 wasting time 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 potential negative consequences:
- Breeds Mistrust: A mutual non-disclosure agreement protects both parties when two companies discuss a merger or joint project and signals that both parties are on an even playing field. Both companies agree to the same terms and are protected by the same parameters. Even if only one party provides sensitive information, offering a unilateral agreement might be considered a red flag for caution.
- 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. It 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 non-disclosure agreement 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.
Does a Mutual NDA need to be notarized or witnessed?
A mutual non-disclosure agreement is not legally required to be notarized or witnessed.
Sample
Here’s what a typical mutual non-disclosure agreement looks like:
