The Types of NDAs and Their Use Cases

When you want to share confidential information with another party, a non-disclosure agreement (NDA) allows you to protect trade secrets, competitive intelligence, and your roster of customers or clients. Whether you’re bringing on a new hire, licensing your technology, courting prospective investors, or receiving services from another company, the NDA acknowledges that sensitive material may be disclosed that cannot be shared outside the specific interaction. 

Once you understand which types of NDAs apply to common situations your business faces, you’ll need to know what to include in your draft and what to look for when reviewing terms and conditions. Increasingly, teams are moving away from manual processes to incorporate technology that leaves nothing to chance.

Types of NDAs and Their Use Cases

The last thing you want is for a person to walk away from an interaction with your company armed with the information and connections they need to profit at your expense. Understanding the various types of NDAs and when they’re best applied is the first step in protecting proprietary company information.  

Unilateral NDAs

Unilateral (or one-way) NDAs limit how a party can use or share information deemed confidential and disseminated by the disclosing party. This is the most common type of NDA used today. 

Use cases include:

• Employer-employee NDAs that restrict employees from using or sharing trade secrets, business development plans, pricing data, supply sources, operations plans, merchandising systems, and technical information

• Company-contractor NDAs that restrict contractors from sharing business-critical information that could interfere with the company’s competitiveness, which may sometimes include a non-compete clause that prevents contractors from working with direct competitors

• Company-consultant NDAs that prevent consultants from sharing details about the inner workings of company business operations, staff dynamics, or financial intelligence

• Company-service provider NDAs that protect a business’s pricing, strategies, personnel records, technical specifications, and marketing methods

• Inventor-evaluator NDAs that protect the inventor’s customer and vendor information, intellectual property, research and development, test results, and accounting information 

• Seller-buyer NDAs that limit buyers from sharing information related to business operations, proprietary research, production processes, and technology stack

Bilateral NDAs

Bilateral (or mutual) NDAs place limits on how both parties use and share information deemed confidential. This type of NDA is most commonly seen during business transitions of ownership or joint promotions. In a true exchange of information, it is up to each party to ensure the company’s interests are clearly described and protected. 

Use cases include:

• Company sales, mergers, and acquisitions where companies will need to learn detailed information to determine whether such a business move makes sense

• Joint partnerships and collaborations where it’s necessary to understand financial positioning, mission and values statements, and business plans in order to work together

Multilateral NDAs

Multilateral (or multiparty) NDAs involve three or more entities where at least one party is disclosing confidential information. While relatively uncommon, a multilateral agreement can cover all bases in a complex or negotiation-heavy deal and substitute the need for separate unilateral or bilateral NDAs.

Use cases include:

• Cross-border trade agreements between countries that share geography

• University agreements with project sponsors, researchers, and collaborators
  
  
• High-profile celebrity contracts that require multiple event attendees or service providers to protect a high-net-worth individual’s property, personal life, and privacy

How To Get the Most Value Out of Your NDAs

Now that you’re familiar with the three main types of NDAs, you’ll need to:

• Choose the right type of NDA for your situation
  
  
• Draft the NDA, hitting all important points and taking a strategic position
  
  
• Implement contract management tools to locate information, review, and reduce risk
  
  
• Protect confidentiality while reviewing NDAs for accuracy and consistency prior to signing

To derive the most value from your NDAs, you’ll need to know exactly what to look for—particularly during the review and negotiation processes. Today, many legal departments are turning to technology to assure compliance and adherence to best practices, while freeing up countless hours to focus on strategy and business relationships.  

LexCheck is an award-winning contract redlining, review, and negotiation platform used to speed up the pre-execution phase. In just five minutes, the system checks an incoming NDA draft against corporate legal playbook standards and fully redlines the agreement, providing contextual notes for all recommended changes. Errors, omissions, vague passages, and deviations from the standard are noted and can even be color-coded by risk. From there, teams can automate certain changes, implement suggested edits with the click of a button, forward NDAs with high-risk issues to senior counsel, or send them to the other party for further consideration.