A Mutual NDA establishes reciprocal obligations to protect proprietary and confidential information. This playbook addresses definition scope, duration, and permitted disclosure exceptions.
Why This Matters: Limiting liability is crucial to avoid disproportionate financial exposure and to protect overall deal economics.
Negotiation strategy
If you're the Disclosing Party A:
Negotiate for a liability cap that aligns with the company's risk tolerance. Ensure carve-outs for indemnity items and include exceptions for fraud and willful misconduct.
If you're the Disclosing Party B:
Aim to limit liability to a reasonable amount while ensuring that exceptions for fraud and willful misconduct are clearly defined.
Essential elements
1
Liability Cap
Maximum financial exposure limit.
2
Exclusions
Items not covered by liability cap.
3
Liquidated Damages
Pre-agreed compensation for breaches.
Action framework
ACCEPT
Propose edits if liability cap is too high or lacks necessary exceptions.
EDIT
Reject if clause imposes unlimited liability.
ADD
Add clause if missing to ensure liability is capped.
PRO TIP
Always ensure exceptions for fraud and willful misconduct are included to protect against unfair risk allocation.
Example clauses
FAVORABLE
Reasonable Liability Cap
"The liability of [Party] shall be limited to [amount], except in cases of fraud, willful misconduct, or gross negligence."
NEUTRAL
Standard Liability Clause
"The liability of [Party] shall be limited to [amount], with exceptions for fraud and willful misconduct."
UNFAVORABLE
Unlimited Liability
"The liability of [Party] shall be unlimited."
Fallbacks
High-Risk Transactions
High-risk transactions may require tailored liability limitations to address specific risks, consulting with risk management and legal teams.
International Deals
International deals may necessitate adjustments to liability caps due to varying legal standards across jurisdictions.
Technology Contracts
Technology contracts often require specific carve-outs for intellectual property and data breaches.
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