Mutual Confidentiality Agreement: What Is It and When Is It Used?

There are many instances in life where confidentiality is a necessity. This can be true in both business and in your personal life. However, even if confidentiality is expected, it is not always delivered. Instead of simply expecting someone to stay true to their word, you should consider creating a mutual confidentiality agreement. This is the only way to ensure that your business and your information is protected at all times.

What Is a Mutual Confidentiality Agreement?

A mutual confidentiality agreement is also sometimes called a mutual non-disclosure agreement. It is a legal document and contract that requires both parties that sign the agreement to not disclose any information protected by the agreement. It essentially creates a confidential relationship between the two parties, and they are linked by the information that they share and the information listed in the agreement. It is often used to keep information, such as trade secrets or proprietary information, secret and confidential. 

The agreement will also detail how this information can be disclosed and would prevent any information from being released without the consent of both parties. Additionally, this type of agreement will include a clause that discusses any potential consequences if the information is leaked by either party. Examples of this would include who would pay for the expenses of a legal proceeding and any other penalties of violating the agreement.

What Makes It a Mutual Agreement?

Something to take note of with this type of agreement is that it is a mutual agreement. This means that neither party can disclose the information instead of simply limiting one party from doing so. This is an important distinction because it changes the reasons for using it. While there are confidentiality agreements that are one way and pertain to one party, in this instance it is applied to both individuals. With a one-way disclosure, it can provide the party that is disclosing the information a bit more power and flexibility. With a two-way agreement, which is a mutual agreement, it is more balanced since neither party can disclose information. This type of agreement is meant to protect both parties equally.

Reasons Why You May Need a Mutual Confidentiality Agreement

One of the main reasons why people like to use mutual confidentiality agreements is because they have proprietary information or trade secrets that they want to protect. This information tends to be very valuable to its owner. Additionally, the information could possibly be destroyed or diminished if it is released to others. This makes it important to protect and to put some restrictions on the distribution of the information. To determine if you have proprietary information, you should determine if it meets the basic criteria. The criteria is as follows:

  • The information is not well known or generally known
  • It provides an advantage to the business that owns the information
  • There have been reasonable efforts taken to protect this information and keep it secret

Proprietary Information

As an example, proprietary information can be information about software, records, a specific recipe, or other types of products that have been developed by a company or different parties. It is also generally information that was expensive to create or has another type of value.

With a mutual confidentiality agreement, an example of this would be if both parties have worked together to create a product or service that they will both benefit from.

Things That Cannot Be Included or Protected by a Mutual Confidentiality Agreement

Just like there are specific things that you should consider including in your mutual confidentiality agreement for protection, there are also certain types of information that cannot be included. Some of the things that you cannot include in these types of agreements are as follows:

  • Information that is public information – If it is part of a public record, then it is considered to be public knowledge and cannot be protected by this type of agreement.
  • Information that is not considered to be proprietary information – If it is not proprietary information, then it does not need to be protected.
  • Information that the receiving party had prior knowledge of or had learned about from other resources – You cannot protect information that you have not provided to the receiving party.
  • Information that may be subject to a subpoena – If the information is part of a court order or may be called for case evidence, it may or may not be included based on a variety of factors. In this case, you should check with an attorney.
  • Information that is common knowledge in the industry – This would be information that is the same no matter where you go, such as how to scramble an egg.

Additionally, it is important to know that this type of agreement is not something you should put in place to protect you from illegal practices. In fact, if you are trying to use this type of agreement to protect you from legal action because your methods are illegal, then this type of agreement would be void. The other party could also still report you and the agreement would not prevent them from doing so.

Who Uses These Agreements?

Mutual confidentiality agreements are typically used by businesses. It can be an agreement that is used between two businesses or between the business and an individual, such as an employee. Most information that is protected by these agreements is important to the business because it provides them with their own trade secrets or other information that has allowed them to be successful in the industry.

Just because this is typically used by businesses, it does not mean it can only be used by them. This type of agreement can also be used by an individual. For example, if someone has a secret recipe they created with another party and they want to make sure it is protected, they may create this type of agreement to ensure the recipe is not shared with any other parties. The most common situation for using a mutual confidentiality agreement is between two businesses. An example of this would be if the two companies are working together to launch a new product and they want to mutually protect the interests of both parties.

How to Determine If You Need a Mutual Confidentiality Agreement

It is not always easy to determine if this type of agreement is the best option for your specific needs. If you are not sure whether or not this is the best option, then you should ask yourself these three simple questions:

  • Is it possible that the other party could tell a competitor about this information, or how our business works, at a later date or time?
  • It is possible that a vendor or client of our company would provide information about our arrangement with another company that we compete with and hurt our business as a result?
  • What if I need to protect my business from a current employee? Is there a risk that they could release proprietary information outside the company that is meant to be protected and confidential?

If you find yourself answering "yes" to any of these questions, then you should consider developing a mutual confidentiality agreement so that you can ensure all parties involved are limited in what they reveal and that your company is protected.

What Should Be Detailed in the Mutual Confidentiality Agreement?

There are four main things that should be included in a mutual confidentiality agreement no matter the specific circumstances. When you are working to create your agreement, you should make sure the following key components are included:

  • The effective date – In the agreement, there should be a specific date set for when the agreement officially goes into effect. This is not always when the document is signed, so you should make sure it is outlined either way. However, even if the agreement does start when it is signed, you should make sure that this part is clearly stated in the agreement.
  • The period of the agreement – As part of the effective date, you should also detail the time period of the agreement. This means how long it will remain in effect. You can select a specific end date or you can detail that there is an indefinite period, as far as forever, listed. You will simply need to have this outlined. Determining the right amount of time will depend on what you will be trying to protect. If you need help with this, you should consult an attorney to better determine the right time frame.
  • What should be protected – As part of the agreement, you will need to outline exactly what information is protected by the agreement. Additionally, you need to list who the owner of that information is. This information needs to be extremely detailed and listed in the confidential information portion of the agreement. It is important to use specific details because general phrases are harder to define and are more difficult to prove in court, if it ever comes to that.
  • What happens if the agreement is broken – You should also include a clause that will allow the business to get an injunction order if needed. This will need to be sought from a court of law. You will only need to do this if there is a fear that the other party is going to disclose the information. You should also include a clause that will allow the disclosing party to sue for damages if information is ever leaked from the other party.
  • What is meant by confidential – You should detail what you mean by confidential because this can vary depending on the type of information that is being protected by the agreement. You should outline exactly what is expected to be kept confidential so that there are no questions about what you mean by the term. This includes whether or not you are allowed to provide the information to your employees as long as they have signed a separate employee confidentiality agreement.
  • Who information can be disclosed to – Even though you are creating a mutual confidentiality agreement, you should also include any businesses or individuals that can be given the information on a need to know basis. For example, if your business is surrounding a product and you need to create packaging for that product, you will need to create a plan for how to provide dimensions and other information to your packaging contact. Think through all of your business's processes and include them in your agreement so there are no issues later.
  • How the confidential information should be used by both parties – You should detail how both parties can use this information for their business. This may be the most difficult section to include in your agreement, but you must think it through as it will impact your business and what you both think is reasonable for use of the information.
  • How the information will be destroyed or returned – There will possibly come a time when you will need to have the information destroyed as a way to better protect your company in the long run. While this may not happen, you will want to plan for how this information should be destroyed. Another thing to consider is how the information will be returned to the other party should the agreement become void or if the other business does not want access to it anymore. The process for this should also be detailed for each party to understand what is expected.

How to Create a Mutual Confidentiality Agreement

There are many other components that make up a mutual confidentiality agreement and you should aim to include all of them in yours.

Use our mutual confidentiality agreement template to create a thorough agreement and ensure that you do not miss any key components.