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What is a Mutual Non-Disclosure Agreement?

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  • Written By: Maggie Worth
  • Edited By: Jenn Walker
  • Last Modified Date: 15 August 2017
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    Conjecture Corporation
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A mutual non-disclosure agreement, sometimes called a mutual confidentiality agreement, is an agreement between two or more parties in which everyone agrees not to disclose confidential information to outsiders. Such agreements are usually drafted in writing and are legally-binding, commonly including penalties for violation. The intent of the agreement is to protect proprietary information and business secrets when sharing such information among the parties is a necessary or beneficial part of doing business.

If, for example, a restaurant, a car rental company and a hotel decide to work together to provide a weekend getaway package, they may need to share market research statistics and customer data in order to develop the package that will be most attractive to potential customers. In this case, the companies would want a mutual non-disclosure agreement. The car rental facility and the restaurant might decide to market a similar package with another hotel in the future. With a mutual non-disclosure agreement in place, the hotel need not worry that the other parties will leak private information to the competitor hotel.

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Mutual non-disclosure agreements are also commonly used in client/vendor relationships. In order to provide pricing, the vendor may need to have access to confidential information, such as sales data, which the client wants to protect. At the same time, the vendor will want to ensure that the client does not share the pricing information because the vendor may quote a higher price to another company for a similar project.

Non-disclosure agreements usually contain language that defines what information is protected. Information that is part of the public domain, meaning that it is available to the general public, is generally excluded from such agreements. Time limits are also commonly imposed. For example, the parties may agree not to share the protected information for a period of five years because after that time, the information is stale and would not be useful to a competitor anyway.

Because it is a legally-binding document, it is usually best for someone familiar with local laws to write the agreement. Corporations commonly hire an attorney who specializes in business law to draft the mutual non-disclosure agreement. All parties are required to sign the agreement and all changes must usually be made in writing. In some locations, a verbal agreement is as binding as a written agreement, though it may be harder to prove that a verbal agreement exists.

While non-disclosure agreements are usually between companies, an individual may enter into a mutual non-disclosure agreement, either with another individual or with a corporation or other entity. Such an agreement might be part of the arrangement between an investor and the company in which she is investing, for example. It might also be part of a pre-nuptial agreement, particularly if the parties are wealthy or famous.

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