What are mutual NDAs? 8 top questions and answers

1. Why should I use a mutual NDA?

A mutual NDA is a highly effective method of safeguarding your company’s secrets when both parties involved will be exchanging confidential information. With a mutual NDA in place, both parties can confidently share sensitive information without the fear of it being disclosed to third parties. It has become increasingly common in commercial discussions as it offers comprehensive protection for both parties involved. Mutual NDAs not only provide security but also help to build trust as each party can openly share confidential information to achieve a common goal.

2. What is a mutual NDA? 

A mutual NDA, also known as a bilateral or two-way NDA, is a legally binding contract between two parties to protect the confidential information they share with each other. A mutual NDA is typically used where two parties will be exchanging confidential information.

This contract establishes confidentiality obligations for both parties to keep the other party’s confidential information a secret. A mutual NDA, therefore, restricts the use and disclosure of the shared information with anyone that is not a party to the agreement. 

3. When should I use a mutual NDA? 

Mutual NDAs are commonly used when two parties engage in discussions or collaborations where each party will be sharing confidential information with the other. They provide mutual protection to both parties. Whether it's partnership negotiations, joint ventures, or product development, a mutual NDA ensures the confidentiality of sensitive information throughout the initial discussions. If the parties then decide to work together, they will enter into a broader contract that sets out the legal framework between the parties, such as a collaboration agreement, services agreement or master services agreement.

A mutual enhances trust between the parties and allows them to share valuable knowledge without fear of sensitive data being leaked. By implementing a mutual NDA, both parties can enter into business discussions confidently, knowing their information is safeguarded. 

4. What does a mutual NDA cover? 

A mutual NDA should ensure that each party is agreeing to obligations of confidentiality, outline the scope of confidential information, permitted uses of the information, the duration of the agreement and what happens when the agreement comes to an end.  

The definition of the "disclosing party" (i.e. the party disclosing confidential information) in a mutual NDA is very important and should always cover both parties. Although the title of the contract may be “Mutual NDA” don’t be fooled – sometimes depending on the language used throughout the agreement, an NDA may be unilateral, and only protects one party.

5. What could happen if I don’t use a mutual NDA? 

Without a mutual NDA, establishing and legally enforcing obligations of confidentiality can be extremely challenging. Your confidential information may be disclosed to a competitor or third party against your wishes, which could adversely affect your competitive edge in the market. Having a mutual NDA in place enhances legal protections and provides the innocent party with recourse if the other party discloses their confidential information to a third party. 

If you intend to patent an invention in the future, but fail to use a mutual NDA when discussing it with another party, you may lose your right to register this intellectual property – as once disclosed, a patent cannot be registered. If both parties will be sharing confidential information, we strongly recommended using a mutual NDA to protect that sensitive information.

6. What's the difference between a mutual NDA and a unilateral NDA? 

A mutual NDA involves the exchange of confidential information between two parties, with both parties having obligations of confidentiality. In contrast, a unilateral NDA (one-way NDA) assumes that only one party will disclose confidential information and therefore only protects the disclosing party's information.

7. How long does a mutual NDA last? 

The duration of a mutual NDA can vary depending on the type of confidential information being shared by each party. Usually, mutual NDAs have a lifespan of 2 to 5 years, although some can remain in effect indefinitely. Once the confidentiality obligations under the NDA expire, the parties are allowed to freely use and disclose the confidential information. 

8. Can a mutual NDA be enforced in court? 

Yes, a mutual NDA can be enforced in court in the same way any other contract can. If a breach occurs, the innocent party can seek legal remedies, such as an injunction to prevent further disclosure or use of confidential information or ask the court to grant “specific performance” which compels a party to fulfil an obligation under the contract. If a party breaches a mutual NDA, the innocent party may also be entitled to claim damages for any losses suffered due to the breach.

Conclusion 

Mutual NDAs play a vital role in safeguarding confidential information during collaborative ventures. By understanding their purpose, key provisions and legal implications, you can protect your business. If you're curious about the key factors to consider before creating or signing an NDA, check out our ultimate guide to help you navigate through the process. By gaining a thorough understanding, you can equip yourself with the knowledge to ensure your confidential information stays confidential! 

If you’re ready to create your own mutual NDA, you can find Docue's fully-customisable template here.

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