Understanding Trade Secrets in Food Processing Industry

Priyanka Sardana and Vijay Sardana

After visiting hundreds of food processing industries in India and in various parts of the world, it is clear to us that every business has some form of trade secret that plays an important role in the success and growth of the business.

Unfortunately only very few of the food companies are aware of them because they are not sure what is good and what is not good because of lack of exposures and understanding of vital aspects of business. In other words, very often the situation is like penny-wise pound-foolish. Many managers and companies only become aware of their strengths and trade secrets when competitors attempt to acquire their recipes, formulations, client lists or marketing plans, or to talk to their employees and copy the way they do business. Only then does it become obvious that they have something valuable to protect. Food industry is taking time to understand that knowledge is power. Slowly, a growing number of successful enterprises realize that valuable information or knowledge is what gives them an edge on the competition. Original confidential information, knowledge and expertise provide a unique competitive quality that helps businesses to attract customers.

The biggest issue is that for many entrepreneurs in India, much valuable information appears trivial and therefore may not be sufficiently appreciated. Many enterprises are unaware that secret information is considered intellectual property in the commercial world – frequently referred to as trade secrets – and often protected by legislation.

Keeping trade secret under wrap is a challenge. Companies also face a perpetual struggle between developing lasting relationships with customers, stakeholders and suppliers which entails revealing more and more about their products, processes and systems and the need to safeguard valuable trade secrets which are key to their continued success. Finding the right balance requires careful consideration.

What is a Trade Secret?

In general, any confidential commercial or business information which provides an enterprise a competitive edge may be considered a trade secret. Trade secrets encompass manufacturing, industrial secrets and/or commercial secrets. The unauthorized use of such information by persons other than the holder is regarded as an unfair practice and a violation of the trade secret. Depending on the legal system, the protection of trade secrets forms part of the general concept of protection against unfair competition or is based on specific provisions or case law on the protection of confidential information.

The subject matter of trade secrets is usually defined in general and broad terms and includes recipes, formulations, sales methods, distribution methods, consumer profiles, advertising strategies, lists of suppliers and clients, and manufacturing processes. While a final determination of what information constitutes a trade secret will depend on the circumstances of each individual case, clearly unfair practices in respect of secret information include industrial or commercial espionage, breach of contract and breach of confidence.

How are Trade Secrets protected by food companies?

What do you think of recipes of Coca Cola, Pan Parag, Pepsi Cola, scented tobacco, perfumes, flavour recipes, etc.? Contrary to patents, trade secrets are protected without registration, that is, trade secrets are protected without any procedural formalities. Consequently, a trade secret can be protected for an unlimited period of time. For these reasons, the protection of trade secrets may appear to be particularly attractive for food industry. There are, however, some conditions for the information to be considered a trade secret. WTO agreement on TRIPS also recognises the concept of trade secret. Compliance with such conditions may turn out to be more difficult and costly than it would appear at first glance. While these conditions vary from country to country, some general standards exist which are referred to in Art. 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement):

  • The information must be secret (i.e. it is not generally known among, or readily accessible to, circles that normally deal with the kind of information in question).
  • It must have commercial value because it is a secret.
  • It must have been subject to reasonable steps by the rightful holder of the information to keep it secret (e.g., through confidentiality agreements).

Example

If a food company develops a manufacturing process of its products that allows it to produce its goods in a more cost-effective manner with a specific taste and appearance, such a process provides the enterprise a competitive edge over its competitors. The enterprise in question may therefore value its know-how as a trade secret and would not want competitors to learn about it. It makes sure that only a limited number of people know the secret, and those who know it are made well aware that it is confidential. When dealing with third parties or licensing its know-how, the enterprise signs confidentiality agreements to ensure that all parties know that the information is a secret. In such circumstances, the misappropriation of the information by a competitor or by any third party would be considered a violation of the enterprise’s trade secrets. To prove the point that it is a breach of confidential becomes challenging.

Precautionary Measures to be taken by your Food Industry

Trade secrets are widely used by food industry including multinationals. In fact, many food companies rely almost exclusively on trade secrets for the protection of their IP (although in many cases they may not even be aware that trade secrets are legally protected). It is important, therefore, to make sure that food enterprises take all necessary measures to protect their trade secrets effectively. This includes:

  • Firstly, considering whether the secret is patentable and, if so, whether it would not be better protected by a patent.
  • Secondly, making sure that a limited number of people know the secret and that all those who do are well aware that it is confidential information.
  • Thirdly, including confidentiality agreements within employees’ contracts. Under the law of many countries, however, employees owe confidentiality to their employer even without such agreements. The duty to maintain confidentiality on the employer’s secrets generally remains, at least for a certain period of time, even after the employee has left the employment.
  • Fourthly, signing confidentiality agreements with business partners whenever disclosing confidential information.

Which is better option – Patents or Trade Secrets?

Trade secrets are essentially of two kinds. On the one hand, trade secrets may concern inventions or manufacturing processes that do not meet the patentability criteria. This could be the case of recipes, customers lists or manufacturing processes that are not sufficiently inventive to be granted a patent (though they may qualify for protection as a utility model under Patent Law). On the other hand, trade secrets may concern inventions that would fulfil the patentability criteria and could therefore be protected by patents.

In the latter case, the food industry will face a choice: to patent the invention or to keep it as a trade secret.

Some advantages of trade secrets include:

  • No time limit : Trade secret protection has the advantage of not being limited in time (patents last in general for up to 20 years). It may therefore continue indefinitely as long as the secret is not revealed to the public
  • No registration cost: Trade secrets involve no registration costs (though there may be high costs related to keeping the information confidential).
  • No waiting time: Trade secrets have immediate effect.
  • No disclosures required: Trade secret protection does not require compliance with formalities such as disclosure of the information to a Government authority.
    There are, however, some concrete disadvantages of protecting confidential business information as a trade secret, especially when the information meets the criteria for patentability:
  • If the secret is embodied in an innovative product, others may be able to inspect it, dissect it and analyze it (i.e. “reverse engineer” it) and discover the secret and be thereafter entitled to use it. Trade secret protection of an invention in fact does not provide the exclusive right to exclude third parties from making commercial use of it. Only patents and utility models can provide this type of protection.
  • Once the secret is made public, anyone may have access to it and use it at will.
  • A trade secret is more difficult to enforce than a patent. The level of protection granted to trade secrets varies significantly from country to country, but is generally considered weak, particularly when compared with the protection granted by a patent.
  • A trade secret may be patented by someone else who developed the relevant information by legitimate means.

Cases in which food industry may benefit from Trade Secret Protection

While a decision will have to be taken on a case-by-case basis, in the following circumstances it would be advisable to make use of trade secret protection:

  • When the secret is not patentable. Example: Many blending operations and combination of ingredients.
  • When the likelihood is high that the information can be kept secret for a considerable period of time. If the secret information consists of a patentable invention, trade secret protection would only be convenient if the secret can be kept confidential for over 20 years (period of protection of a patent) and if others are not likely to come up with the same invention in a legitimate way. Example: Recipe of Coca Cola, Pepsi Coal, fragrances and flavours, etc.
  • When the trade secret is not considered to be of such great value to be deemed worth a patent (though a utility model may be a good alternative in countries where utility model protection exists).
  • When the secret relates to a manufacturing process rather than to a product, as products would be more likely to be reverse engineered.
  • When someone have applied for a patent and are waiting for the patent to be granted.

It is important to bear in mind, however, that trade secret protection is generally weak in most countries, that the conditions for, and scope of, its protection may vary significantly from country to country depending on the existing statutory mechanisms and case law, and that the courts may require very significant and possibly costly efforts to preserve secrecy. In India, still many traditional family businesses in food and other related activities believe in trade secret but patent or utility model protection, wherever possible, will give them much stronger protection.

 

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