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Businesses have gone to great lengths to protect their sensitive information in our current information economy. One way businesses have protected their confidential information is through confidentiality agreements. Put simply, non-disclosure agreements (NDA) are legally binding contracts that prevent parties from leaking confidential information. If a party breaches the agreement, you may seek contractual remedies to compensate for your losses. However, before you sign an NDA, you should understand the difference between a mutual NDA and a unilateral NDA. By knowing the difference between the two, you can decide which is best suited to your business.

Who Is Sharing The Confidential Information?

The main difference between a mutual NDA and a unilateral NDA is who is sharing sensitive information. Under a mutual NDA, both parties will generally disclose information. In this sense, a mutual NDA is a ‘two-way’ agreement where the terms which prevent the disclosure of certain information have equal application for both parties involved.

For example, if your tech startup works with another tech company to produce new software, you might enter into a mutual NDA since both companies disclose sensitive information. In this instance, the mutual terms of the NDA protect both parties. Additionally, both parties are obliged to comply with the terms of the agreement.

On the other hand, there is typically only one disclosing party in a unilateral NDA. In this sense, a unilateral NDA is a ‘one-way’ agreement where one party shares confidential information and the other party is obliged not to leak this information.

For example, if your tech startup works with a developer to fund a new venture, you might enter into a unilateral NDA if only your startup is disclosing its trade secrets. In this instance, the developer (the receiving party) is obliged to comply with the agreement terms by not leaking the information your startup (the disclosing party) provides.

How Will You Draft Your NDA?

Another difference between mutual and unilateral NDAs is in their drafting. The way you draft an NDA will ultimately depend on your commercial arrangement. For example, a mutual NDA might be more conducive to a partnership or joint venture where both parties must disclose confidential information. The terms of the agreement should reflect the terms of the agreement, which express each party’s mutual obligation.

On the other hand, a unilateral NDA might be necessary when outsourcing another business to provide a specific service. In any event, the way you draft an NDA should reflect your business arrangement.

Often, businesses enter into a unilateral NDA only to later realise that both parties to the agreement will need to share proprietary information. In this instance, you can draft a second unilateral NDA to safeguard the other party’s confidential information. Alternatively, you can draft a mutual NDA to replace the unilateral agreement. You should note, however, that NDAs are legally binding contracts. For this reason, you must exercise caution when you decide to change or draft new agreements. In any event, it would be wise to seek legal advice to ensure that your confidential information remains protected and you do not breach any contractual arrangements.

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NDA Benefits

Irrespective of whether you use a mutual or unilateral NDA in your business arrangement, your business can widely benefit from NDAs as they foster a relationship of trust and promote certainty.

Building a Relationship of Trust

Trust is essential in any business relationship. You can ensure both parties in a business venture are on the same page by using an NDA. An NDA can facilitate a relationship of trust since both parties know their confidential information remains undisclosed. This can allow ease of communication between two parties when making decisions about their business venture. 

A Degree of Certainty

There is some certainty that comes with signing an NDA. An NDA can deter parties from disclosing information if there are strict consequences for breaching an agreement. For example, your NDA might include a liquidated damages clause. Under this clause, the party in breach of the agreement would have to pay you an agreed amount of damages. You should note that just because you sign an NDA does not mean that your information is completely protected. After all, parties can breach an NDA. Nevertheless, by putting a confidentiality agreement in place, you have greater standing to enforce the agreement. 

Key Takeaways 

The main difference between a mutual and a unilateral NDA is who is sharing the information. Both parties will typically exchange confidential information in a mutual NDA or a ‘two-way’ NDA and will be under a mutual obligation to not disclose the information shared. On the other hand, a unilateral NDA or a ‘one-way’ NDA is where one party typically discloses information. The other party who receives confidential information under a unilateral NDA is obliged not to disclose the information shared. 

If you need help with using a mutual or unilateral NDA, our experienced commercial contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is a non-compete clause in my employment contract?

A non-compete clause in your employment contract can prevent you from entering into another commercial arrangement that would compete with your current place of employment. For example, if you begin employment at a tech startup, a non-compete clause can prevent you from starting your own tech company during your period of employment. 

How can non-disclosure agreements protect my intellectual property?

An NDA can protect your business’ trade secrets. Since you must keep your trade secrets confidential to retain an IP status, an NDA can prevent parties from leaking your confidential information. 

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