When you partner with an individual or another company, your first step should be protecting sensitive business information. Whether you’re sharing trade secrets, financial data, or innovative ideas, a mutual non-disclosure agreement (NDA) ensures that your information remains secure while allowing for open collaboration.

This confidentiality agreement adds a much-needed layer of protection for each party sharing their sensitive and valuable data. The parties consent to protect sensitive information with equal standards and precautions under this contract. In this ultimate guide, you’ll know everything about mutual NDA. 

What is a Mutual NDA?

A mutual non-disclosure agreement (NDA) is used when three or more parties exchange sensitive or proprietary information.

For example, consider if “ABC Startup” is seeking investment. In this process, they must share financial projections, business models, and Intellectual Property (IP) with potential investors. Besides, the investors might need to share their investment criteria or portfolio strategies. A mutual NDA safeguards confidential information for both parties during these discussions.

Source: Eureka Nirmani Jayaweera via LinkedIn

Simply put, the disclosing and receiving parties share confidential information and agree to keep it confidential. Hence, after signing mutual NDAs, all parties have equal and reciprocal obligations to maintain non-disclosure and confidentiality.

Also read: Our Ultimate Guide to NDAs

Mutual NDA Template with Free Download Copy

Check out the template for a mutual NDA with all basic provisions and terms outlined to protect both parties’ confidential information.

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You can also download this free multilateral NDA playbook template.

Procedure to Draft a Mutual NDA

Here’s a quick step-by-step process to draft your first mutual NDA hassle-free.

1. Identify all disclosing and receiving parties bound by the NDA.
2. Specify the scope of confidential information.
3. Define the responsibilities, schedule, terms, and conditions of the confidentiality agreement.
4. Specify any exceptions to the non-disclosure agreement.
5. Mention any remedies for breach of the NDA.
6. Draft the mutual NDA.
7. Get the signatures of all parties involved in the NDA in the presence of a notary public or a witness.
8. Keep a copy of the signed Multilateral NDA for future reference.

Mutual NDA vs Unilateral NDA

Although both mutual and unilateral NDAs protect the interests of the disclosing parties, it’s essential to understand the nuances of each to choose the right legal contract for your company. 

In mutual NDAs, multiple parties disclose sensitive information while collaborating on a campaign. Also known as multilateral NDAs, the disclosing and recipient parties maintain confidentiality under this mutual agreement.  You usually sign this confidentiality contract for potential partnerships, corporate takeovers, or mergers.

On the other hand, a unilateral NDA or one-way NDA comes into play when one party discloses private and confidential information. Under this agreement, only the receiving party will be bound to protect the disclosing party's valuable information. Generally, you can use a unilateral NDA for potential investors, partners, employees, and consultants.

While both types of NDAs provide legal protection, a mutual NDA is safer as all parties are obligated to maintain the confidentiality of the other party's information.

Also read: What is a Unilateral Non Disclosure Agreement (NDA)? (+ Free Template)

Disclosing Party and Recipient Party in Mutual NDAs: Roles and Responsibilities

Understand the duties and responsibilities that all parties must fulfill before entering into a multilateral NDA with another party.

Responsibilities of Disclosing Party:

1. You must clearly define what constitutes confidential information, including trade secrets, business strategies, technical data, and other sensitive information. 
2. Only share information that is essential for the agreed purpose.
3. Clearly label all confidential information you’re sharing with the receiving party as "Confidential" or "Proprietary."

Source : Thomas Colson via LinkedIn

4. You should only disclose sensitive information to authorized personnel within the receiving party's organization.
5. Request regular contract audits or updates, if necessary, to verify compliance with the terms of the NDA.

Responsibilities of Receiving Parties:

1. Use the confidential information only for the specific purpose outlined in the NDA.
2. Confidential information should never be disclosed to unauthorized personnel.
3. Store and handle sensitive information securely, like encryption, password protection, and locked storage.
4. Immediately inform the disclosing party if you suspect any unauthorized access, use, or disclosure of their confidential information.
5. Upon termination of the agreement, return or destroy all confidential information that the disclosing party provided you, including copies. 

Mutual Obligations of All Parties

1. Each party must protect the confidential information with the same level of care as their own sensitive information.
2. Disclosing and receiving parties must act in good faith to uphold the confidentiality terms of the multilateral NDA.
3. All parties must adhere to applicable laws and regulations while handling confidential information.
4. Both parties must follow the dispute resolution process outlined in the NDA and resolve issues collaboratively.

So, your legally binding NDA must properly define terms and roles for all parties involved.  But let’s look into when and where you will need a mutual non-disclosure contract.

Use Cases of Mutual NDAs

Which type of business transactions will require a mutual NDA contract? Here are key scenarios where you would typically draft a mutual NDA.

Mergers and Acquisitions

You can opt for a multilateral NDA during preliminary talks about acquisition and merger, as both parties will share a lot of private information while negotiating the deal.

Joint Ventures and Partnerships

Consider signing a mutual NDA if you’re entering discussions about joint ventures or partnerships for your company. The agreement ensures the confidentiality of valuable information between both parties, such as customer data or marketing strategies.

Consulting and Professional Service

You can also use mutual NDAs when discussing service agreements with contractors, as both parties might exchange pricing information, strategies, personnel records, business methods, and technical specifications.

Research and Development

While working together on projects, companies and research institutions can sign a digitized clickwrap mutual NDA to protect unpublished data and research methods.

Inventor and Evaluator

A mutual NDA is also ideal for tech startups pitching a new invention to a potential evaluator. The multilateral agreement will protect the inventor's IP and the evaluator's confidential assessment details.

Law and Jurisdiction of Mutual NDAs

The integrity and enforceability of your mutual confidential NDAs depend on the choice of governing law and jurisdiction. Enforcing an NDA under foreign laws and procedures will be difficult if you partner with someone from another country. As the laws for each jurisdiction differ, they can favor or harm either party. 

Jurisdiction indicates the state or country where parties can file a lawsuit application, while the governing law defines the applicable regulation of that place in the event of litigation during the dispute. Both disclosing and recipient parties choose the same law and jurisdiction, but this is not a rigid rule.

Usually, the party with the highest bargaining power or entity with a more experienced legal team decides the jurisdiction and choice of law. In other words, the party with the least to lose has the final say.

So, always clarify the laws and jurisdiction you want in the agreement to protect the interests of multiple parties involved in the deal. If not, the governing regulations and place will impact the dispute resolution at times of conflict.

Best Practices for Writing and Managing Multilateral NDAs

A well-drafted mutual NDA document not only defines obligations but also secures sensitive information from breaches of confidentiality. So, follow these best practices to draft a contract that protects your confidential information.

Write in Clear and Concise Language

Always draft your confidential NDA in simple language to minimize potential loopholes, misunderstandings, or legal disputes. You should detail exactly which information must be protected under the NDA, as ambiguity can lead to inadvertent disclosure. 

Specify the Parties

Properly identify the interested parties in the legally binding document at the outset of any transaction and negotiation. Ensure that the legal names, addresses, and contact details of all parties involved are included to enforce the obligations outlined in your NDA. 

You must also clearly mention who is disclosing and receiving confidential information in the multilateral NDA document. 

Set a Tenure

Firstly, specify the start date of the NDA terms in your contract. Depending on the nature of the information and the parties involved, you should also clearly define the duration of the agreement for which it’ll remain effective. 

Termination Provisions

When you include contract termination provisions, all parties can end the agreement if it’s no longer needed or if there’s a breach. A provision detailing how the disclosed information would be handled at the termination should also be included. So, outline in your NDA whether you want such information destroyed or returned.

Define Consequences for Breaches

Your multilateral NDA must also specify the consequences of unauthorized disclosure of the information, such as injunctive relief or monetary damages. It’ll ensure signatories adhere to their rights and responsibilities and foster compliance.

Also read: How to Handle and Resolve Breach of Contracts

Use Contract Management Systems

If managing and storing mutual NDAs is difficult, SpotDraft's Contract Lifecycle Management (CLM) system can streamline your process. You can set reminders to receive automatic notifications about upcoming important dates and obligations, which helps you avoid breaches and stay compliant. 

SpotDraft’s CLM system also has encryption and access control features, adding an extra security layer for your critical agreements. You can maintain the confidentiality and integrity of your NDAs by providing access to sensitive information only to the duly authorized representative.

“We are able to draft and redline contracts inside the CLM tool. Therefore, we no longer need to rely exclusively on tools such as MS Word and Google Docs. Now, all stakeholders can view and access just one true version of the contract.”

~Igor Poroger, the Director of Legal (EMEA) at Vectra AI

4 Common Mistakes to Avoid in Mutual NDAs

You must be extra careful when preparing and reviewing your non-disclosure agreement. Avoid the mistakes below that can weaken the agreement or expose you to unnecessary risks.

1. Not Specifying Exceptions

Your mutual NDA must define what information won’t be considered confidential and, therefore, be excluded from the obligations. To ensure clarity and legal compliance, include exclusions in your agreement, such as publicly known information, pre-disclosed confidentiality obligations, or third-party information. Further, add a clause stating that disclosing and receiving parties have no rights to each other’s IP.

2. Too Broad and Unreasonable Confidential Definition

Overly broad contracts can be difficult to enforce and may deter collaboration due to disputes. That said, limit the scope of the NDA to relevant information and purposes. 

Instead of using a catch-all clause, outline information that’s truly confidential in your NDA. You can also specifically mark trade secrets as “TRADE SECRET” as this type of sensitive information is to last indefinitely.

3. Not Addressing Remedies for Breach

There’s no guarantee that the signing parties won’t breach the agreement. After all, that’s why you sign the multilateral NDA. So be prepared beforehand to protect your business from the dire effects of violations. 

“In my opinion, it’s best to mediate as soon as possible, especially if there is a real chance to resolve the dispute.  I say this primarily because, having been involved in many disputes in my career, I find the litigation process to be incredibly expensive, uncertain, corrosive and wasteful of everyone’s time and energy”

~Sterling Miller, CEO and Senior Counsel Hilgers Graben PLLC
Ten Things: Getting The Most Out of Mediation

To legally settle the disputes, include indemnification clauses specifying the remedies available to each party in the event of a breach. This strengthens your ability to enforce the agreement.

4. Wrong Signatories

Signatures by someone with insufficient or no authority, like a company representative, can invalidate even your well-structured mutual NDA. So, get written confirmation from the receiving party that the signatory is legally authorized to sign NDAs with you on the company's behalf. You can also request a copy of the “Certificate of Incumbency“ or an equivalent document to confirm the identity of a signatory.

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Source: Matt Gimovsky via LinkedIn

A Well-structured Mutual NDA Ensures Your Business Collaboration

A mutual NDA is a legally binding prior written consent, and signees have an obligation to honor it. For this reason, take the time to draft your multilateral NDA carefully. Consult legal experts if needed, and step into your next business relationship with clarity and security. 

FAQs

1. How long should a mutual NDA last?

Generally, the duration of mutual NDAs ranges between 1 and 5 years, depending on the nature of the information, the parties involved, industry standards, business requirements, and trade secrets.

2. How do you fill out a mutual non-disclosure agreement?

To fill out a mutual NDA, clearly define confidential information, outline each party's obligations, set the duration, and specify the consequences of breaches.

3. What is an example of a mutual agreement?

Key examples of a mutual NDA include business partnerships, employee contracts, lease agreements, and legal dispute settlements.