Party-Name Defined Terms in Two-Way Confidentiality Agreements

I apologize in advance: what follows is even more nerdy than usual.

In the past few days, two companies have shared with me their template for a two-way confidentiality agreement.

In one template, the company responsible for the template is the first entity named in the introductory clause, and it’s given a defined term based on its name. In other words, a defined term analogous to “Acme.” The other party is referred to by the defined term “the Company.”

In the second template too, the company responsible for the template is the first entity named in the introductory clause, but in this template it’s given the defined term “the Company.” The other party is referred to by the defined term “the Counterparty.”

Referring to the other guy as “the Company” leaves something to be desired. After all, it’s not the only company in the transaction.

And “the Counterparty” isn’t great either. It’s like saying, “the Other Guy.”

But for three reasons, it might be that no better alternatives are available.

First, because we’re dealing with two-way confidentiality agreements, “the Disclosing Party” and “the Receiving Party” (or “the Recipient”) aren’t available—they’re already being used to refer to each of the two parties, as each can both disclose and receive information.

Second, using a party-name defined term can add extra work, as you’d have to create a new defined term for each new contract. That’s an extra burden that can be annoying if you’re dealing with a high volume of confidentiality agreements.

Third, you could use a common-noun defined term that’s less blandly vacant than “the Company” or “the Counterparty.” For example, “the Customer.” But if you enter into confidentiality agreements for different kinds of transactions, such a one-size-fits-all defined term might not work.

So “the Company” or “the Counterparty” might be your best bet as the defined term to use for the other guy in a two-way confidentiality agreement. If that were case, I suppose I’d use a party-name defined term for the first party and go with “the Counterparty” for the other party, but grudgingly. I’d try hard to use something else.

Posted in Confidentiality Agreements | 6 Comments

  • Mark Anderson

    Counterparty sounds to me as fusty as party of the second part. In my 2-way CDAs, most of the refs are to Disclosing Party and Receiving Party (or either party), so the need for abbreviated names of the parties is limited, and might even be dispensed with. I prefer Company over Counterparty, except that sometimes the CDA is with a non-commercial entity such as a university, where Company doesn’t sound right.

  • Max

    How about Party A and Party B? It may also be useful to use party-name abbreviations as defined term – for instance, Acme Manufacturing Co. can be “AMC” and Widget Trading and Retail Co. can be “WTRC”.

    • http://www.adamsdrafting.com/ Ken Adams

      I think it’s way too easy to get “Party A” and “Party B” mixed up. And as I noted, my premise is that it’s a nuisance to have to change the defined term for the other guy with each new confidentiality agreement.

  • Vance_Koven

    My first reaction after reading this was the same as Mark’s–just do away with the party handles entirely, since there’s no need for them in the body of the agreement. I notice, though, that your own Koncision template NDA does assign party handles and uses them in the body for “pre-dated” disclosures, but I think that one can draft around that fairly easily. The alternative, of course, is to leave a placeholder for the second party’s name and just fill in a company-specific handle when the time comes. Universal search and replace is a wonderful thing.

  • AWrightBurkeMPhil

    I like Vance Koven’s approach best (and share his appreciation for universal search and replace), and Max’s “Party A / Party B” second best, but tweaked to the Greek alphabet and dropping the “party”: so, “Alpha” and “Beta.” There’s also something to be said for “Yankee” and “Zulu,” but not much. “Company” and “Counterparty” leave me cold, which may mean they’re the best choices. –Wright Burke

  • http://www.lawnotes.com D. C. Toedt

    I’m very late to this, but in some situations I like to use “Alice” and “Bob,” which are standard placeholder names in the tech world — see https://en.wikipedia.org/wiki/Alice_and_Bob. It’s informal, which can humanize the contract, which is no bad thing.