A mutual non-disclosure agreement between individuals is a contract between two parties analyzing a potential business deal or some other potential merger that may have a collective benefit to both parties. Although the business arrangement may benefit both parties, each side individually must reveal specific privileged information during the arbitration process that could be used in opposition to them if the final contract is not finalized.

Mutual Non-Disclosure Agreement Basics

A non-disclosure agreement (NDA) is very popular with companies, entrepreneurs, and businesses for launching licensing discussions, negotiations, and other future business relationships. The purpose of an NDA is to legally protect highly sensitive information such as technological innovations, trade secrets, and customer lists from being shared without proper authorization. In other words, the receiving party is assuring the disclosing party that they will not share any sensitive information with outside sources.

Without an NDA, serious and honest discussions between business partners would be nearly impossible. The potential loss would far outweigh the benefit. An NDA may either be mutual, where both parties disclose each other's confidential information, or it can be one-way, where only one party discloses sensitive information. In both cases, the information should not be shared with any other party unless it has been authorized by the disclosing party.

In an NDA, the term "confidential" can be misinterpreted. Confidentiality is usually determined by the disclosing party, but may also be decided by the receiving party. Generally, the disclosing party would like to keep the definition of confidential as broad as possible to ensure that the receiving party doesn't try to find a loophole and begin utilizing the disclosed information. On the other hand, the receiving party is usually looking for specifics so that they know exactly what information shouldn't be shared with outside parties.

Information that is shared orally is especially tricky. Some receivers of information may claim that the only information that's shared in writing needs to be kept confidential, while the disclosing party may insist that both oral and written should be kept classified. The most common compromise to resolving any written and oral dispute is to have the disclosing party clearly communicate to the receiving party exactly what verbal terms, phrases, and statements are deemed confidential.

A mutual NDA is commonly used to protect product ideas or plans before they come to fruition. In these circumstances, an NDA will help to make sure that the information is kept protected and private. In order to safeguard the information, the parties in an NDA agree to:

  1. Identify the confidential information.
  2. Explain the purpose of sharing the confidential information.
  3. Identify what specific individuals in the receiving party are qualified to view the information.
  4. Not enforce any accountability upon the parties for any confidential information that:
    • The receiving party possessed prior to receipt.
    • Became public knowledge through no fault of receiving party.
    • The receiving party legitimately received from a third party.
    • Is independently created and/or developed.
  5. Disclose that they have the right to make the agreement.
  6. Not guarantee the receiving party with any rights towards licensing or authority.
  7. Not obligate the other party to make a purchase from them.
  8. Not hold the other party liable for any of the information shared.
  9. Ensure that the non-breaching party is entitled to equitable relief, including injunction and specific performance as a remedy for any breach.
  10. Clearly communicate that the NDA supersedes all prior agreements between the two parties.
  11. Allow any provisions in the NDA that seem unenforceable to be changed to ensure the protection of the confidential information.

When Does a Non-Disclosure Agreement Make Sense?

An NDA may not be utilized in situations where the disclosing party is not 100 percent positive that the receiving party won't steal or use the information without their approval. Generally, an NDA is not used in the following situations:

  • When presenting a business idea or invention to a potential distributor, investor, or partner
  • When sharing marketing, financial, and other data with prospective buyers of your business
  • When displaying a new technology or product to a prospective licensee or buyer
  • When allowing employees to access proprietary and confidential information about the business during the normal course of their job
  • When businesses are in a startup phase and are trying to raise capital from investors

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