The difference between a Mutual & Unilateral NDA.

Which NDA you should choose, and why.

  • A unilateral NDA is common when an entrepreneur or company is sharing information with a prospective employee or contractor, or advisor.
  • A unilateral NDA is also common with technology company employees to ensure they do not disclose trade secrets, commercial sensitive information or other intellectual property which the employee may learn or be exposed to in the process of the employee’s job.
  • A mutual NDA is common when potential investors are considering an investment in a product or company.
  • A mutual NDA is also common if two companies are thinking of collaborating on a project or technology which involves both of them sharing information, know-how or software, particularly if they are doing so on a limited basis.

An NDA will typically come one of in two forms: a Mutual NDA, which involves non-disclosure obligations on both parties, and a Unilateral NDA, which involves non-disclosure obligations on only one of the parties.

In both scenarios, both the party that is sharing the information and the party receiving the information subject to the agreement is a party to the NDA.
The difference is which party is bound by the non-disclosure provisions of the NDA.

What is a Unilateral NDA, and why should I use it?

A unilateral NDA prohibits only the recipient to the agreement from disclosing information they may have learned from the discloser in the course of a collaboration, potential investment or or other scenario.

A unilateral NDA is common when an entreprenuer or company is sharing information with a prospective employee or contractor, or advisor.

A unilateral NDA is also common with technology company employees to ensure they do not disclose trade secrets, commercial sensitive information or other intellectual property which the employee may learn or be exposed to in the process of the employee’s job.

This is to prevent the theft of information which the employee or contractor may learn in the course of his or her employment which is literally priceless.

For example, software engineers in Silicon Valley routinely switch technology companies, and utilizing a unilateral NDA when a software engineer comes on board protects Company A if the engineer later leaves for Company B, its fiercest competitor.

What is a Mutual NDA, and why should I use it?

A mutual NDA prohibits both parties to the agreement from disclosing information they may have learned from the other party in the course of a collaboration, potential investment or or other scenario.

A mutual NDA is common when potential investors are considering an investment in a product or company.

A mutual NDA is also common if two companies are thinking of collaborating on a project or technology which involves both of them sharing information, know-how or software, particularly if they are doing so on a limited basis.

This ensures that both parties are protected in the event commercial sensitive, proprietary or other protected information or intellectual property is shared between the two.

Which Type of NDA is Right for Me?

If you are sharing information with a person, company or organization in connection with a potential collaboration or investment by or with that party but will not be the recipient or any commercially sensitive, trade secret, proprietary or other protected information yourself, then a unilateral NDA most likely would be the best choice.

On the other hand, if you are pitching to potential investors or business partners on a potential investment or collaboration, a mutual NDA may be more appropriate given that both parties will be sharing information, the potential investor sharing the terms pursuant to which he, she or it would be willing to invest and you sharing your company or venture’s business ideas, processes and models.

Closing notes

Although each scenario is unique, there is enough commonality across most situations that it is possible to create form NDA’s which can easily be customized based on the particular facts of the situation at hand.

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