Unilateral vs Mutual NDAs
Non-disclosure agreements (we’ll use the NDA short name in this article) are reflections of the business opportunities that give rise to them.
Sometimes the opportunity can be straightforward, like a product manufacturer needing to show confidential information to a test laboratory that will be validating its product.
Other times, the underlying transaction can be more complicated: for example, two companies can contemplate working together in a way that would require each to “show its cards” to the other before deciding to proceed.
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Depending on the circumstances, your NDA can be a simple, one-way agreement to protect only what you disclose or be broader in the form of a “mutual” NDA to protect everyone’s confidential information.
What’s in a name?
These agreements can go by different names, including one-way vs. two-way, and unilateral vs. mutual (or bilateral) agreements.
If your business is not going to receive confidential information from the other company – and you are certain that it never will – then understanding how a mutual NDA works may not be essential to you (although it can still be helpful to know nonetheless).
However, if you do exchange any of your confidential information with that of another individual or company, then being familiar with the similarities and differences between unilateral and mutual agreements is important.
When it’s time to look into drafting a mutual agreement rather than a one-way agreement:
Sometimes, in addition to disclosing your own confidential information, the opportunity you’re considering will require you to see another company’s trade secrets, intellectual property, customer lists, equipment diagrams, blueprints, or other information that company considers proprietary.
That company will expect you to protect their secrets. In this case, entering into a mutual NDA is not only likely unavoidable, but also a good idea.
Few businesses anymore operate on the “handshake” principle; otherwise these NDAs would not be as commonly used as they are.
On occasions, your business-to-business discussion may begin in an environment where your prospective partner may be wary of your intentions. This cautious attitude can express itself in its desire that any contract with you must be “mutual” in the way it’s written, even if in practice the information disclosure will be all one-way (from your side only).
Anticipating the unexpected.
NDAs often cover information exchanges during a period of years.
What happens if at the start you think you’ll not need to receive confidential information, but a year or two later things change and you learn that you’ll need to see the other side’s proprietary information, after all?
If you have a unilateral agreement protecting only your own confidential information, then you’ll need to enter into a second unilateral NDA to safeguard the other side’s secrets, or draw up a mutual NDA to replace the current unilateral one.
This can be inconvenient and time-consuming, and lead to awkward questions like why you didn’t just start off with a mutual agreement.
Some companies try to head off this possibility by seeking to use a mutual NDA in every situation.
Similarities between unilateral and mutual NDAs
Generally, differences in the way that unilateral and mutual NDAs are written are minor.
To illustrate how close these two agreement types can be, we will look at examples of a unilateral and mutual agreement between the same partners to demonstrate.
Our scenario uses two companies, “Omni Test Laboratory” (OTL) and “Chem-Ray Technologies” (CRT).
CRT wants to use OTL to test a prototype chemical laser to government or industry standards. To do this, it will need to reveal to OTL confidential technical information about how the laser works.
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Here’s an example of how a unilateral NDA provided by CRT to OTL and its preamble language might read:
WHEREAS, CRT desires to use the test services of OTL, under the terms of which OTL may become aware of information that CRT considers confidential; and WHEREAS, CRT is willing to disclose to OTL such confidential information as may be necessary in the performance of OTL’s obligations to CRT in the performance of said test services; and WHEREAS, CRT and OTL desire to establish terms and conditions which shall govern the exchange of such information; NOW, THEREFORE, in consideration of the disclosure made under this AGREEMENT and the mutual covenants contained herein, the PARTIES agree as follows…
Note the specific identification of each party, a typical feature of unilateral agreements. There’s no mistaking that this is a one-way disclosure of confidential information.
This kind of agreement and its protections will cover CRT, not OTL.
Next, assume that either CRT or OTL uses a mutual NDA model for all of its information exchanges.
The agreement’s preamble language above might now read as follows:
WHEREAS, CRT and OTL are interested in exchanging information, the designs, materials and uses of which consider confidential and in which they have proprietary interests; and WHEREAS, for purposes of evaluation and determination of their possible interests therein; and WHEREAS, the PARTIES desire to establish terms and conditions which shall govern the exchange of such information; NOW, THEREFORE, in consideration of the disclosures made under this AGREEMENT and the mutual covenants contained herein, the PARTIES agree as follows…
In this kind of mutual agreement, often the individual companies will be referred to throughout the agreement as “parties” instead of by their company names.
Here, OTL as a test laboratory would almost certainly not have any chemical laser designs, materials or related information of its own. But the mutual agreement is nonetheless written like it does, even though CRT will likely be the only party revealing confidential information.
So what’s the difference, technically, between the unilateral and mutual examples above?
The answer is, “Not much.”
Throughout a mutual NDA, you’ll typically find that the basic provisions – the definition of what confidential information is, marking requirements if any, exceptions to confidential treatment, breach of contract remedies, the duration of the agreements, its governing law, and more – are virtually identical to a unilateral one.
The only significant difference will be in the equal application of the protections to and obligations for both companies, even if only one of these companies actually discloses anything to the other.
But are there any international law considerations in choosing between a unilateral or mutual NDA? The answer to this question is, basically, “No.”
Laws regarding non-disclosure in the United States and Commonwealth countries such as Australia and Canada derive from English common-law, so there’s no meaningful difference in these countries’ legal systems when it comes to their treatment of mutual and unilateral NDAs.
The same goes for the European Union, which recognizes unilateral and mutual agreements in much the same way as the Anglo-American countries do.
NDAs will almost always put on the Receiving Party an obligation to protect the Disclosing Party’s information in the same way it protects its own. That’s the unilateral agreement.
With this in mind, before you draft your own mutual agreement or you enter into one, consider:
- Whether you have written policies and procedures in place to safeguard confidential information that you’ll disclose
- Whether you’re clear on what will be considered confidential information and how it will be identified
- Whether your employees are up to speed on these safeguarding requirements
Other considerations you need to make before deciding what type of agreement you need:
- What kind of business is being discussed? Some arrangements, like mergers and acquisitions, joint ventures, and teaming agreements will more likely involve mutual information exchanges.
- Is fairness an issue? A mutual agreement will apply its protection obligations equally to both sides, so it will not “favor” the party that has drafted it.
- How many parties are involved? These NDAs are not limited to two-party contracts. Sometimes three or more businesses can participate in a confidential information exchange. The more parties that are involved, the more a mutual NDA may make sense.
Credits: Icon contract by Robert Salazar from the Noun Project.
Dec 12, 2017 | Non-disclosure Agreements
This article is not a substitute for professional legal advice. This article does not create an attorney-client relationship, nor is it a solicitation to offer legal advice.