Mutual NDA vs NDA: Everything You Need to Know
Mutual NDA vs NDA are two types of NDAs, or non-disclosure agreements, in the U.S.3 min read
2. Receiving Party vs. Disclosing Party
3. Legal Responsibility for Third Parties
4. Non-Use & Non-Disclosure Obligations
5. Length of NDA Obligations
Updated November 2, 2020:
Mutual NDA vs NDA are two types of NDAs, or non-disclosure agreements, in the U.S. They are usually used to protect certain confidential information from wrong exposure, theft, or misuse. They are used to protect:
- Intellectual property rights.
- Trade secrets.
- Customer lists.
- Company business plans.
- Valuable proprietary information.
When an entity wants to share valuable trade information with another party, an NDA should be drafted and signed.
Unilateral or Mutual
When drafting an NDA, you must choose between a mutual or unilateral NDA. In a unilateral NDA, one party agrees to non-disclosure of confidential information belonging to the other party. In a mutual NDA, both parties agree not to reveal the other's confidential information.
The choice between these two kinds of NDA is important since the final outcome depends on several factors including bargaining power and whether or not the non-disclosure of confidential information is agreed to by one or both parties.
Receiving Party vs. Disclosing Party
The party that receives the confidential information is known as the receiving party while the party that is disclosing the information is referred to as the disclosing party.
Recipients, especially potential buyers, may need to share the confidential business information of the disclosing party with its consultants, employees, and, in some cases, debt and equity financing sources.
Therefore, the recipient must ensure that the clauses in the NDA allow sharing. If this is not possible, the NDA should at least have a provision allowing the recipient to obtain consent in order to share the disclosed information with necessary third parties. There shouldn't be an unnecessary delay or unreasonable withholding of such consent.
Legal Responsibility for Third Parties
Whether the third parties become subject to the terms of the NDA or not, disclosing parties should add a clause to the NDA holding the recipient legally responsible for any disclosure of confidential information by its employees or third parties that violate the terms of the NDA.
Non-Use & Non-Disclosure Obligations
The NDA's core element is the obligation not to disclose or use the confidential information of the other party. Usually, an NDA stipulates that receiving parties:
- Cannot disclose confidential information to other entities.
- Cannot use confidential information to their own advantage.
- Will use reasonable efforts to safeguard the confidential nature of the disclosed information.
It's good practice to include clauses that allow recipients to disclose the information to entities such as accountants, lawyers, and certain parties — as long as these entities sign an agreement not to reveal confidential information.
The scope of an NDA is determined by the term “Confidential Information.” Confidential information can refer to all disclosed information or information contained in a stamped document. However, the scope varies since most definitions of the term include all information deemed by a reasonable person to be confidential.
However, you should include exceptions to the term — for instance, information that recipients can obtain from other sources or information that is commonly known in the industry.
Length of NDA Obligations
You should specify a timeline for NDAs. If you create an NDA for potential business relationships, it should have a short tenure — one year, for example. The timeline for NDAs created for larger ongoing agreements should correspond with the agreement's termination date. However, it's good practice to add a time period ranging from one to five years after the termination of agreements.
For statutorily protected trade secrets, NDA protection should survive for the maximum time provided by the state's trade secret law.
You should only work with entities that you believe are trustworthy and operate with integrity. An NDA won't stop unscrupulous entities from copying your business model. Although you can sue these entities, lawsuits are often expensive, time-consuming, and energy-draining.
Also, you shouldn't disclose confidential proprietary information in a manner that allows the receiving part to retain copies of said information. If you must reveal your business model, only reveal sections that are very necessary to the business at hand. Never reveal everything. You should always reserve your key secret — the methods used in achieving your business model.
Recipients may want to add residual clauses to the NDA stipulating that some information that the recipient shares with its team is not treated as confidential. Such information is usually retained in the “unaided” memories of the team members.
If you need help with mutual NDAs or unilateral NDAs, you can post your legal need on the UpCounsel marketplace. UpCounsel accepts only the top 5 percent of lawyers on its site. Lawyers on UpCounsel come from prestigious law schools like Yale Law and Harvard Law and usually have 14 years of legal experience, including work on behalf of or with companies like Airbnb, Menlo Ventures, and Google.