Should a confidentiality provision be one-way or two-way?

by Dell C. "D. C." Toedt III on 2009-06-08

In negotiating confidentiality provisions, for example in a nondisclosure agreement (NDA), one of the first questions to be tackled is whether the agreement should protect the information of both parties, or just one party. The former are often called “two-way” or “mutual” NDA provisions, while the latter are frequently referred to as “one-way” NDA provisions.

For many situations, a two-way confidentiality provision is “market,” that is, protecting both parties’ information is the accepted way of doing business.

Some examples of both one- and two-way provisions “in the wild” on the Web are listed below.

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A one-way confidentiality provision gives the disclosing party more flexibility

Here’s an argument the disclosing party might make for a one-way confidentiality provision:

We want it clear that only our information will be treated as confidential.
If you happen to disclose your information to us, we’re not necessarily going to use it or disclose it.
But we don’t want to be contractually obligated to treat your information as confidential — that’s one more obligation we’d have to manage, and we don’t want to do that.

A two-way confidentiality provision is more likely to be balanced

Some lawyers, however, strongly prefer two-way confidentiality provisions; here’s a counter-argument the receiving party might make:

We don’t know for sure that we won’t need to disclose our own information to you. If that happens, we need for our information to be treated as confidential, too.
Besides, with a two-way agreement, it should take us less time to work out a mutually-agreeable set of terms and conditions. Each of us will have to live with the same rights and restrictions that it asks the other side to accept. That should make both of us more inclined to be reasonable in the negotiations.

A two-way agreement also allows for later role reversal

As alluded to above, it’s entirely possible that at a later date, the parties will decide that they also need to protect the receiving party’s confidential information. In that case, the original disclosing party might find itself in the embarrassing position of asking to negotiate a new agreement, because it doesn’t want to have to live with the obligations it insisted that the receiving party agree to.

If the parties did have to negotiate a new agreement, however, the business people likely would ask pointed questions about why the agreement couldn’t have been “done right” in the first place.

So it’s often a good idea to insist that any confidentiality provisions be two-way in their effect from the start, protecting the confidential information of both parties.

Heads-up: A two-way confidentiality provision might still be biased

Even in a two-way provision, a good drafter can slant the language in favor of the role he [or she] thinks his client will be playing. So a contract reviewer will want to look at more than just whether the provision is nominally two-way.