Let’s start with the basics. What is a nondisclosure agreement (NDA)? Simply put, it is exactly what it sounds like – an agreement between parties to keep information confidential.
So, what makes it mutual?
A mutual nondisclosure agreement (or mutual confidentiality agreement) is one where both parties share confidential information with the other, and each agrees to keep the other party’s information secret. When only one party is sharing confidential information, and the other party is promising to keep it secret – that’s a unilateral NDA.
In any contract, there must be consideration for the agreement to be enforceable. Consideration is the underlying exchange between the parties that supports the contract. Consideration can be money traded for goods or services, or an exchange of promises. In a mutual NDA, the consideration is the mutual promises that each party makes to keep the other party’s information confidential.
What goes into a mutual NDA?
- Clearly describe what information will be shared and will be considered confidential for each party. Explain what is NOT considered confidential information.
- Describe why the information is being shared and how the information may be used by the other party.
- Clearly state the length of term of the agreement – and what must be done with the confidential information when the agreement terminates. Typically, it must be returned in a set timeframe, or if it cannot be returned, must be destroyed.
- Describe any limitations about what information can be shared and who it can be shared with – the parties should keep any necessary information sharing limited to a “needs to know” basis.
- Explain the parties’ rights if the other party breaches the agreement by disclosing or misusing the confidential information.
- The obligation to maintain confidentiality should last beyond the term of the agreement, and is only relieved in the event the information is rightfully and lawfully made public.
A mutual NDA can be a stand-alone agreement, or the common terms of a mutual NDA can be incorporated into a larger agreement. A common situation where a mutual NDA would be appropriate could include buying or selling a business when the parties are doing their due diligence. Business coaches or consultants often use a mutual NDA so that they can safely share their intellectual property with their clients and the clients can confidently share pertinent details of the business during the coaching process.
It’s important to remember that the best way to keep something secret, is to keep it to yourself. So, always try to limit how much information is shared and with whom. When that can’t be done, an NDA is your next best protection.