A non-disclosure agreement (NDA) is a contract that governs the disclosure and protection of confidential, proprietary, or sensitive information, or trade secrets, between parties. When proposing or entering an NDA, you may choose between a unilateral (one-way) or mutual NDA.
Unilateral or one-way NDA: one party agrees not to disclose confidential information that belongs to the other party.
Mutual NDA: both parties agree not to disclose the other’s confidential information.
Whether you choose one or the other depends on the relationship between the parties, the purpose for sharing the information, and the related discussions. For commercial work or a strategic business relationship, there will be a lot of information going back and forth between the parties. The NDAs in these cases are typically mutual.
For corporate matters, such as potential investments or acquisitions, unilateral (one-way) NDAs tend to be the default in order to mitigate risk related to the protection of another entity’s or people’s information. Consider a business opportunity in which an outside party is interested in doing business with your company and needs information from your company to evaluate the opportunity. If that outside party is not sharing any of its information with your company as part of the evaluation process, then a unilateral NDA that only obligates that outside party to protect your company’s information would be ideal.
One of the best practices in determining which type of NDA to employ is to understand how you wish to control the flow of information being exchanged and the level of risk it exposes you to. Choosing the correct type of NDA can help you avoid assuming risks that you don’t need to take on.
For example, a company should use a one-way NDA if it expects to be the only party that will be sharing information and that no information will be shared with it. This way, the company limits taking on obligations to the other party with respect to any information that the other party shares. These obligations might include ensuring that the information is not disclosed or used in an unauthorized way or is being protected in a certain way.
A company might also use a unilateral NDA to provide sales or pricing materials to a potential customer. In this case, the potential customer is receiving confidential information from the company to evaluate whether to purchase a product or service, but the customer is not expected to share any confidential information, nor does the company want to receive any from the customer or take on any unnecessary obligations to the customer.