But see the definitions: "Confidential Information" means information disclosed by a party to the other party under this Agreement that is marked as confidential or would normally be considered confidential under the circumstances. Customer Data is Customer's Confidential Information.

IAAL, and I deal with this stuff all day every day. The language you quote above is a very standard mutual confidentiality provision.

You left out the definition of "Confidential Information", but I'll bet you it's along the lines of "stuff one party gives to another that by its nature and under the circumstances would reasonably be considered to be confidential in nature".

Also, unlimited liability doesn't mean an automatic jackpot for the side whose secrets were leaked. It just means that the contract doesn't impose a ceiling on how much can theoretically be recovered in a worst-case scenario.

So, what's this really all about? Theoretically speaking, the fairest contract in the universe would not include any limits on liability at all. In other words, each party would and should be fully responsible for all of the harm that it causes.

However...by convention, it's very common for Party A to shift at least some of the risk of its screw-ups onto Party B. (If I had a dime for every sales person who told me "mistakes happen", I'd have thousands of dimes.)

One popular way to shift risk is to say "I'll be responsible for harm that I cause you, but only up to $X MM".

Another popular way to shift risk is to say "I'll be responsible for harm that I cause you, but only to the extent that I was the direct, proximate cause of it". (This rather vague standard gives the lawyers plenty to fight about in court.)

Anyway, imagine you gave me an important secret on a piece of paper to hold in safe keeping for you, and you asked me not to share it with anyone. Now, imagine that I lose the paper, and someone finds it, and your secret gets out.

What are your damages in that case? Well, we know you lost a piece of paper, so it's easy to measure your "direct" loss. Will you be happy if I just give you the price of a loose sheet of paper? No! You've just been dragged through the mud because I leaked your humiliating secret to the world. You're going to want compensation for losses that can't be so directly connected to my screw-up. You're going to want to hold me accountable for harm to your reputation, lost opportunities, etc. Maybe the secret on your piece of paper was the key to your company's whole competitive advantage! Now you're going to want to hold me responsible for ruining your entire business...just because I lost a piece of paper.

But you know what? You're not wrong. It's important to make both parties liable for losses that are both directly and indirectly caused by a breach of confidentiality, because the losses associated with leaked secrets can be quite severe indeed.

* The usual disclaimers apply. IAAL, but I'm not your lawyer. Don't treat this verbose, but fatally incomplete, post on HN as legal advice. ;)

You are misreading the clause.

It is talking about "confidentiality obligations", not "confidential obligations." That is, obligations to keep information confidential, not obligations that are themselves confidential.

And below, they define confidential information clearly:

'"Confidential Information" means information disclosed by a party to the other party under this Agreement that is marked as confidential or would normally be considered confidential under the circumstances. Customer Data is Customer's Confidential Information.'

They explicitly state that "Customer Data is Customer's Confidential Information." They are indeed saying that if they release the contents of an email, and it costs you a million dollars, then they are liable for that.