This article has been written by Rashmi C, pursuing the Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Introduction

In the present situation, where there exists a cut-throat competition between the businessmen or the corporation, there is a need to maintain confidentiality in order to stay strong in the competition. For the purpose of maintaining the secrecy or the confidentiality of the business which also includes the intellectual property, the parties enter into the most popular and versatile agreements of the business known as “Non-Disclosure Agreement”.

Non-Disclosure Agreement is a legal contract that is entered into between the parties (i.e., Disclosing Party and the Receiving Party), where they agree not to disclose the shared confidential information to the third party or to the public. A Non-Disclosure Agreement can also be called a Confidentiality Agreement. 

In the Non-Disclosure Agreement, the term “Confidentiality” shall be determined by the disclosing party but sometimes can be determined by the receiving party as well. The disclosing party shall decide and inform the receiving party as to what information shall be termed as confidential information under the agreement to ensure that the other party shall not disclose the information to the public or utilize the same for any other purpose.

There are four basic types of Non-Disclosure Agreements viz., Unilateral Non-Disclosure Agreement, Mutual Non-Disclosure Agreement, Precedent Confidentiality Agreement, Non-Disclosure Agreement for Employees.

In this Article, we are going to discuss in detail the Mutual Non-Disclosure Agreement.

Kinds of information or assets that can be termed as secret or confidential information

There are few kinds of information that the disclosing party or the receiving party shall determine to be confidential or secret and include under the Mutual Non-Disclosure agreement are:

1. Trade Secrets.
2. Intellectual Property.
3. Customer and Prospect lists and information.
4. Product formula.
5. Information about the products in development.
6. Computer Code.
7. Marketing and business plan.
8. Financial Information.
9. Contractual agreements with other companies.
10. Any other type of proprietary information.

Kinds of information that cannot be termed as secret or confidential information

As there is certain information that must be considered to include in the Mutual Non-Disclosure Agreement, there is certain information which shall not be considered or shall be excluded they are:

1. Information which is considered as public information.
2. Information which does not come under the definition of proprietary information.
3. Information where the receiving party had prior knowledge about the disclosed information from any other source.
4. If the information disclosed by the disclosing party is subjected to subpoena.
5. Information which is commonly known to the industries.

Mutual Non-disclosure Agreement

Mutual Non-Disclosure Agreement is also called a Mutual Confidentiality Agreement, where the parties to the contract agree not to disclose any information such as trade secrets or proprietary information, which shall be protected by the agreement. There exists a confidential relationship between the parties under this agreement. 

What makes a mutual non-disclosure agreement different from other non-disclosure agreements?

In other forms of Non-Disclosure Agreements, one party will be under the obligation for not disclosing the information, whereas under the Mutual Non-Disclosure Agreement, neither party can disclose the information to the third party. While the other confidential agreements pertain to one party, it provides more power and flexibility to the disclosing party. The Mutual Non-Disclosure Agreement applies to both the parties and there exists a balance between both the parties as neither of them can disclose the information.

Purpose of non-disclosure agreement

The purpose of entering into a Mutual Non-Disclosure Agreement is to protest the valuable proprietary information or the trade secret of the business or a company. This agreement may include certain provisions to even destroy the confidential information if it is disclosed to the third party. Some of the basic criteria to determine whether the information is a proprietary information or not are:

1. Whether the information is well known to others in general or not.
2. Whether there are any advantages to the business if such secrecy is maintained.
3. Whether there are any efforts made by the parties to the agreement to maintain such secrecy.

Advantages of mutual non-disclosure agreement

Some of the advantages of Mutual Non-Disclosure Agreements are as follows:

1. By making a Non-Disclosure Agreement mutual, it allows the parties to move ahead in pursuing a common goal without having any fear of getting their confidential information disclosed to the public or the third party.
2. Mutual Non-Disclosure Agreement is more equitable compared to the other forms of Non-Disclosure Agreements.
3. When there are any highly complex or unknown aspects within a project requiring sharing of information the parties to the agreement can share such information among themselves during the initial ground laying phase of such project.

Disadvantages of a mutual non-disclosure agreement:

Some of the disadvantages of Mutual Non-Disclosure Agreement are as follows:

1. The whole Mutual Non-Disclosure Agreement will be based on the nature of the business, the kind of confidential information involved and the relationship between the parties, which demands for the special care that has to be taken when the company decides to sell its shares or enter into merger or amalgamation.
2. Once the parties enter into the Mutual Non-Disclosure Agreement, it limits the company’s ability to engage in other joint businesses or joint ventures, where the parties need to review the agreement to make sure that no confidential information is disclosed by the parties to the agreement to the third party.

Important points/provisions to be considered while drafting a mutual non-disclosure agreement

While drafting a Mutual Non-Disclosure Agreement, one must always keep in mind that the draft must be short and but the clauses must be very much clear so that there should be no ambiguity in the clauses of the agreement, which may give rise to the disputes between the parties. It is very important for the parties to consult an advocate (where the advocate is an exception and he is expected to act in good faith and not to disclose the confidential information shared by the parties) and get the agreement drafted upon discussing the provisions in detail so that, no misunderstandings shall arise in future between the parties entering into the contract or the agreement.

These are some of the essential provisions which must be included while drafting the Mutual Non-Disclosure Agreement:

Parties to the agreement/contract

The details with regard to the parties to the agreement shall be described at the very beginning of the agreement. The party who is disclosing the confidential information shall be referred to as the “Disclosing Party” and the other party or the party to whom such confidential information has been disclosed shall be referred to as “Receiving Party”.

Definition of confidential information

The parties to the agreement shall specify what information is considered as confidential information and which is not. Both the parties shall be at the liberty to decide what information comes under the preview of confidential information. But the disclosing party usually tries to widen the definition of the confidential information to make sure that the receiving party shall not misuse the trade secrets or know-how.

If the confidential information is reduced into writing, the disclosing party shall label or mark such information as confidential or if the confidential information is transmitted orally, the disclosing party shall provide that information in a written form, which shall help the receiving party to identify the confidential information and to maintain the secrecy.

Exclusion from confidential information

It is important to include a clause that excludes the type of information which shall not be included under the definition of confidential information. The receiving party’s obligation not to disclose the confidential information does not extend to the information that will be mentioned under this clause. The information which shall be excluded from being confidential is publicly known at the time of disclosure, discovered by the receiving party before the disclosure, when it has come to the knowledge of the receiving party through any other legitimate source other than from the disclosing party when the information has been disclosed to any other party with the prior written approval of the disclosing party.

Obligation of the receiving party

The receiving party is bound by the obligation not to disclose the confidential information to any third party or to the public or utilize the same in any other manner for his own benefit. The receiving party shall restrict the access of confidential information from the other employees. The receiving party shall not without the prior written approval of the disclosing party, disclose the information. It is the duty of the receiving party to return all the records, notes, and all the tangible or written materials which are in his possession when the disclosing party requests for the same.

Time period

This clause shall contain the time period till when the parties are bound to hold the confidential information in confidence or until the disclosing party sends a written notice to the receiving party to release such information or when the confidential information under this agreement ceases to be confidential.

Relationships

The parties to this agreement shall not be deemed as partners, joint venturers or employees of the other party for any purpose.

Severability

This clause shall protect the terms of the agreement as a whole, even if any of the part of the agreement is invalidated by any law or by the order of the court. That invalidation will not make the entire agreement void, only the part will be invalidated leaving the remaining agreement enforceable.

Waiver

This clause explains that, if the disclosing party allows the receiving party to break an obligation relating to the confidential information, it does not imply that the disclosing party has waived the future rights and obligations to enforce the same under the agreement.

Remedies

This clause shall mention the remedies available for the aggrieved party when one party breaches the contract. For example, the disclosing party is at risk when he shares confidential information to the receiving party and if the receiving party breaches the contract, what remedies do the disclosing party have shall be mentioned under this clause.

Signing of the mutual non-disclosing agreement by the parties

A mutual non-disclosure agreement is of no use against a business or an individual if the agreement is not signed by its parties to the agreement. Each party should sign two copies of the agreement and keep one, by which both the parties have an original signed agreement.

Conclusion

In a nutshell, the most precious asset that the present-day startups or other corporations own is the intellectual property and it is very important for one company to maintain the confidentiality of such assets. A Non-Disclosure agreement of this kind helps them to protect the intellectual property rights of the parties including the database, client list, proprietary information and other sensitive data of the company. 

References

1. https://legaldocs.co.in/non-disclosure-agreement
2. https://nondisclosureagreement.com/mutual.html
3. https://www.legalnature.com/guides/mutual-confidentiality-agreement-what-is-it-and-when-is-it-used
4. https://www.legalzoom.com/articles/mutual-non-disclosure-agreement-how-to-guide
5. https://scand.com/company/blog/non-disclosure-agreement/

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