Exchanging valuable information with other partners is a common occurrence in collaborative initiatives or endeavors. As a result, confidentiality issues and measures should be considered to exchange information safely, ease project development, and ensure the non-disclosure of sensitive technology, business, or commercially confidential information. Two types of the most used non-disclosure agreements are mutual non-disclosure agreements (NDA) and unilateral non-disclosure agreements (NDA).
What is a Mutual Non-Disclosure Agreement (MNDA)?
Mutual non-disclosure agreements, abbreviated MNDAs, are common documents that allow individuals and businesses to fully discuss their confidential projects without fear of the other party wrongfully using or disclosing their confidential or proprietary information.
Mutual non-disclosure agreements are common documents
Without such agreements, parties who do not know (or trust) each other would be too afraid to consider collaborating. They became popular as part of the “tech revolution,” where many people and businesses needed to experiment with new ideas.
The distinguish between Mutual Non-Disclosure Agreement (MNDA) and Non-Disclosure Agreement (NDA)
In the U.S, there are two kinds of NDAs: MNDAs and NDAs. They are typically used to protect sensitive information from unauthorized disclosure, theft, or misuse. They are used to safeguard:
- Intellectual property rights
- Trade secrets
- Customer lists
- Company business plans
- Valuable proprietary information
Mutual NDA and unilateral NDA are used to protect sensitive information from unauthorized disclosure, theft, or misuse
An NDA should be drafted and signed whenever an entity wishes to share valuable trade information with another party.
When drafting an NDA, you must decide whether to use an MNDA or an NDA. In a unilateral NDA, One party promises to keep confidential material belonging to the other party privately. In an MNDA, both parties agree not to reveal the confidential information of the other.
– A mutual non-disclosure agreement, also known as a “2-way NDA,” is an agreement between two parties. Both parties expect to share proprietary and confidential information with the other. And they want to keep the disclosure to the two parties smallest. This type of agreement is commonly used when two companies are considering merging or forming a joint venture.
MNDA is commonly used when two companies are considering the corporation
The MNDA allows both parties to share information in confidence as long as they identify the data’s confidential nature before disclosure. Once the information has been transmitted, the receiving party cannot share it with any contractor or third party for the period specified in the form.
– A non-disclosure agreement is also known as a “one-way NDA.” Most NDAs are unilateral agreements that prohibit one party from disclosing information discovered while employed or contracted by the company requesting the agreement. It is common when people work for high-tech companies that specialize in advanced information and innovative technologies. Employees in these fields have access to information that could jeopardize the company’s ability to exploit the information if it fell into the hands of a competitor.
NDAs are unilateral agreements that prohibit a party from disclosing information
NDA forbids employees, or independent contractors, from disclosing sensitive information got while working for the company. Companies always require employees to sign a non-disclosure agreement dealing with sensitive information or trade secrets as an employment condition.
Choosing between these two types of NDAs is critical because the outcome is determined by several factors, including bargaining power and whether both parties agree to the non-disclosure of confidential information.
The receiving party is the party that receives the confidential information, while the disclosing party is the party that discloses the information.
Recipients, particularly potential buyers, may be required to share the disclosing party’s confidential business information with its consultants, employees, and, sometimes, debt and equity financing sources.
Choosing between MNDA and NDA is very important before cooperation
As a result, the recipient must ensure that the NDA’s clauses permit sharing. A provision in the NDA should include if this is not workable, allowing the recipient to get consent before sharing the disclosed information with third parties. There should be no unjustified delay or withholding of such consent.
Whether the third parties are subject to the terms of the NDA, disclosing parties should include a clause in the NDA that holds the recipient legally liable for any confidential information disclosed by its employees or third parties that violates the terms of the NDA.
Benefits of an MNDA
When both parties plan to share sensitive information, MNDA is appropriate. The benefit of using an MNDA is that the drafter will usually make the terms of the NDA much fairer because it applies to both parties.
Even if you’re unsure whether you will share sensitive information, request an MNDA if you need to share confidential information later.
MNDA has many benefits
An MNDA is the best way to make most NDA agreements safe when only two parties are involved and no more complications. Aside from providing security for both parties, the following are some more advantages of an MNDA:
Defend yourself against failed mergers, acquisitions, and joint ventures
If merger, acquisition, or joint venture negotiations fail, disclosed commercially valuable confidential information could not benefit either party. This reassurance is especially important to ensure that all parties easily disclose the information required to move negotiations forward.
Ease of agreeing
Because both parties must abide by the same rights and restrictions, It takes less time to develop a set of mutually acceptable terms and conditions. It also simplifies and expedites the negotiation process.
More balanced, fair, and reasonable terms
Mutual Non-Disclosure Agreements are more fair and reasonable than one-way contracts. The drafting party understands that the same constraints will bind that it seeks to impose on the other. As a result, the completed terms are usually fair to both parties involved.
The values of Mutual Non-Disclosure Agreements
An MNDA is a contract between two parties exploring a possible business arrangement or another merger that could benefit both parties. While the business arrangement may benefit both parties, each must divulge certain privileged information during the negotiation process that may use against them if the final agreement is not reached.
A confidentiality agreement that enhances the security of an individual or organization that is about to share or provide information to another one
The mutual non-disclosure agreement is used to ensure that any confidential information obtained from either party during the negotiations is kept private. And it is not used to the advantage of either party if the negotiations fail.
When an MNDA is a requirement of employment
When two or more companies want to do business together, it is often necessary to share vital information to determine the strengths, weaknesses, and potential of the various companies involved. If the potential partner does not materialize, the companies keep the privileged information. Without a binding document, such as an MNDA, these companies may use this information to harm their rival potentially.
The mutual non-disclosure agreement will specify the information that must be kept confidential and legally bind all parties not to disclose the information.
Mutual Non-Disclosure Agreements are useful when startups are looking for funding
A mutual non-disclosure agreement is also useful when individuals forming a startup business seek financing from investors or larger businesses. The potential startup must disclose details about the company’s plans and marketing strategies to the investor or larger business, exposing the startup to jeopardizing its plans and strategies.
Mutual non-disclosure agreements are useful for startups
The larger business or investor must also disclose information about their financial positions and strengths to lend capital to the startup, so both parties risk having confidential information breached. A mutual non-disclosure agreement prohibits either party from using privileged information to their benefit.
Signing an MNDA is a good business practice
Mutual non-disclosure agreements are specialized legal instruments designed to protect all parties involved in a potential business transaction where information sharing is required. It is a good practice for businesses to require signing an MNDA whenever negotiations regard business transactions requiring disclosing any trade secrets or inside information.
Mutual non-disclosure agreements can be tailored to include any information that needs to be kept private for any length of time. The MNDA will provide all parties with a measure of security against when they least expect it. Their sensitive information is being utilized against them, as long as all parties agree on the stipulations outlined in the agreement.
How to create Mutual Non-Disclosure Agreements
Creating an MNDA requires both parties to agree on the information kept secret and confidential from the public. Unlike a traditional NDA, this type of agreement requires each party to identify the information they want to keep private and the consequences if the information is shared.
Step 1 – Recognize each other’s confidential information
An MNDA can either state the confidential information in broad terms, such as business plans, client lists, trade secrets, and so on, or state the specific details that are not to be shared.
There are three steps to create an MNDA
For example, suppose a company is seeking consultation on a new product. In that case, the product should be entered directly into the MNDA to ensure that penalties are recouped if any aspect is leaked. A consulting firm would probably not want it known that they are working with the said company on their new product because of their connections with potential competitors.
Step 2 – Enter the MNDA’s Duration
Most MNDAs include an expiration date or a statement stating that the agreement will be void if any confidential information becomes widely known, either through other sources or by the parties themselves. It may not apply with an MNDA if both parties agree to keep the same information confidential. Here, both parties will most likely be required to keep the details and information secret until the MNDA expires.
Step 3 – Outline the Consequences of a Breach
If any of the parties violates the terms of the agreement, and MNDA has two options for writing consequences:
– Broad Language (“Equitable Relief”) – The parties may use broad language such as “the breaching party will be liable for fair relief for any damages and/or loss of business that occurred because of said breach.” It would allow the non-breaching party to request that the court determine the total amount owed by the breaching party. In most cases, the MNDA will also include language stating that the party who breached the contract handles both parties’ attorneys’ fees.
– Specific Language – In the event of a breach by any of the parties, the parties may also use specific language. A specific amount (one million dollars) should state if either party breaches the agreement. However, if the trade secret becomes more valuable than the penalty, then this is a problem. The penalty will become ineffective, and one party may decide that it is in their best interests to divulge trade secrets to third parties.
In most cases, it makes no difference which type of consequence is selected. What matters is that if a breach occurs, the party who suffered damages will be compensated by the other party.
Tips to make safe Mutual Non-Disclosure Agreements
Although MNDAs are fairer for both parties, certain clauses can still give an unfair advantage to one party if not carefully scrutinized. They are:
Confidential information definition
Unless you have a very broad understanding of what constitutes confidential information, you ensure that your agreed-upon definition covers the information you intend to reveal.
For instance, if you believe that the majority of your confidential information will be revealed verbally, ensure that confidentiality extends to verbal disclosures as well as written documents.
Of course, the more written confirmation you can provide of verbal disclosures made, the clearer the evidence that such disclosures made will be.
In any case, you shouldn’t limit yourself to written disclosures because doing so may cause the loss of ownership of confidential information if you forget to confirm something in writing.
Be carefully consider before signing a confidentiality agreement
If you believe that most of your confidential information will share through a presentation, include the presentation in your definition and mark your slides as confidential.
Governing law and jurisdiction clause
Normally, only one governing law and jurisdiction are chosen for the NDA to avoid ambiguity.
The governing law is the law that will use to determine the outcome of any legal conflict arising from the agreement’s terms. The court that will decide the case has jurisdiction.
Although it is possible not to select a governing law and jurisdiction for the NDA, it is usually advisable to do so during the drafting process so that the parties do not have to litigate the matter later if a dispute arises regarding the agreement’s enforcement.
Because only one governing law and jurisdiction are likely to be chosen, the parties must bargain to find a governing law and jurisdiction equitable to both parties.
Even though the terms of MNDA agreements are fairer than those of unilateral NDA agreements, you still ensure that the terms are appropriate for your situation and how your own business operates. Since every firm is different, the same thing that works for one company may not work for the next.
Confidentiality is a critical issue for all R&D project participants, from the planning stages to the implementation and exploitation phases. Before a project can begin, mutual non-disclosure agreements must sign.
One of Vietnam’s leading beverage manufacturing companies, Tan Do Beverage, never wants to make a prospective client feel uneasy. Our approach to new and existing business is to be candid and open while establishing a good and comfortable relationship.
We are well-known for providing private label services (OEM) to customers worldwide and supplying beverage needs by putting our customers first. Transparency and high quality are central to our values. Tan Do promises to improve customers’ living standards through nutritious product lines by using high-quality ingredients.