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.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.