Confidentiality · · 6 min read
Mutual or one-way NDA? How to choose, and what to check before you sign one
An NDA is the first contract most founders sign and the one they think about least. The choice between mutual and one-way is simple once you ask the right question, and the clauses worth arguing about are fewer than people think.
Who will disclose?
That is the whole test. If only you will be handing over confidential information, for example when you show an investor your numbers, brief a freelancer, or give a prospect a demo, a one-way NDA is right. It binds the recipient and leaves you free.
If both sides will share, for example two companies exploring a partnership, a joint pitch, early talks with a supplier who will show you their roadmap, or co-founders before a founders' agreement exists, use a mutual NDA. The obligations are the same for both and the document is symmetrical, which also makes it quicker to agree: nobody is asking for something they would refuse themselves.
People sometimes choose one-way because they feel they are the smaller party and want to seem accommodating, or choose mutual because it seems fairer. Neither is a reason. Ask who is disclosing.
The clauses that matter
Definition of confidential information. The usual English approach is information marked or described as confidential, or that a reasonable person would understand to be confidential. Avoid definitions that only cover information stamped "Confidential": nobody stamps a conversation.
Purpose. Information may be used only for a stated purpose, so write it carefully. Wide enough to cover the real discussions, narrow enough that it does not cover anything the recipient might want to do with your information later.
Exceptions. Information that is already public, already known to the recipient, independently developed, or received from someone else entitled to share it. Every NDA has these and they are rarely worth a fight, but check that the independent development exception requires some evidence.
Who can see it. The recipient's directors, employees and professional advisers who need to know, on the same terms. If the other side wants to share with financiers or contractors, that is reasonable with your consent.
Duration. Two to five years from the date of disclosure is usual. Trade secrets can reasonably be protected for as long as they stay secret. An indefinite obligation covering everything is often resisted, and a court asked to enforce it may read it narrowly.
Return and deletion. On request or at the end, the recipient returns or deletes the information. Allow for backups that cannot practically be deleted and for one archive copy kept by lawyers; refusing this just produces a dispute about something nobody can control.
Remedies. An acknowledgement that damages may not be enough and that an injunction may be sought. This is standard and useful: the thing you most want from an NDA is to stop a disclosure, not to be paid after it.
What to push back on
- Non-compete or non-solicit clauses dressed up as confidentiality. An NDA should protect information, not stop you trading. If the other side wants a restriction, it belongs in its own agreement with its own consideration.
- A clause that assigns ideas arising from the discussions to the other side. That is an IP clause, and a big one.
- Residuals clauses, which let the recipient use anything its people "remember" without reference to documents. Common in American drafts, and in practice a licence to use your information.
- Foreign law and courts when both parties are in the UK. Enforcing an injunction abroad is slow and expensive.
- Liquidated damages for breach. Under English law a sum that is out of proportion to any legitimate interest can be unenforceable as a penalty, so these clauses tend to produce argument rather than protection.
Two things an NDA will not do
It will not make an investor sign. Most venture funds decline NDAs before a first meeting because they see dozens of similar businesses and cannot police what they already know. Share what you would be comfortable seeing elsewhere, and ask for an NDA before detailed diligence, when there is real interest.
It will not protect an idea on its own. Confidentiality protects information while it is secret; it does not give you a monopoly. If the value is in the invention, think about patents; if it is in the brand, trade marks; if it is in the code, copyright and a proper IP assignment from whoever wrote it.