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What is a Mutual Confidentiality Agreement?

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  • Written By: Daphne Mallory
  • Edited By: Melissa Wiley
  • Last Modified Date: 18 November 2016
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    2003-2016
    Conjecture Corporation
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Inventors, business owners, and other owners of intellectual property can protect trade secrets and other insider information with a mutual confidentiality agreement. The agreement is also often referred to as a mutual non-disclosure agreement, or mutual NDA. In the agreement, both parties agree to not disclose any information that is not publicly available and information that is expressly deemed to be confidential. If the information is disclosed or misused, then the party who is injured by the disclosure has a legal recourse and can sue for damages. There is often no compensation exchanged in the agreement but mutual promises to protect the information shared.

A mutual confidentiality agreement is often used when both parties wish to enter into a business transaction. For example, an inventor may want to license a process to a business owner, but may have concerns about the owner stealing the ideas that he or she learns of during business meetings or the negotiation process. The business owner may need to share trade secrets to give the inventor the information she needs to modify the process for her particular business. The inventor and business owner may also be concerned about proprietary information being leaked to the public. The mutual confidentiality agreement is the legal instrument that can put both parties’ minds at ease that the business owner will not share the information or will be liable for damages if he does.

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The agreement is often not a lengthy one. A one- to two-page document is usually sufficient to contain all the necessary terms of a mutual confidentiality agreement. Some of the elements of the agreement include a definition of what’s considered confidential information and what’s excluded. For example, information that is already in the public sphere is often not deemed confidential. The agreement also includes the length of time that the information must be kept confidential, as well as the rights and remedies available to both parties.

The actual confidential information that will be shared after the creation of the confidential relationship is often not included in the mutual confidentiality agreement itself. The definition of confidential information is often broad and covers general subject matters. For example, a software developer may define confidential information as code and not add any details about the specific software application that he has developed. A company interested in licensing the software may include financial information to indicate the confidential financial records that it may share with the developer once the confidential relationship is official. Although the definitions are broad, it is legally adequate to protect both parties from disclosing information.

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