In the race to get new products to market, food and beverage businesses sometimes neglect their critically important intangible assets — their valuable trade secrets. Through advance planning and diligence, businesses in that industry can avoid losing the competitive advantage afforded to them by their proprietary information. In our last post we discussed the 7 potential areas of trade secrets in this industry. In this post, we discuss how to protect the secrecy of your proprietary information, which is required to enforce information as trade secrets.
Respond to “Red Flags.” Do not ignore potential threats to your trade secrets. Consider the following potential “red flags”:
- A company manufactures a commercial oven. The company’s chief technology engineer is hired by a competitor. A month later that competitor launches a commercial oven that is substantially similar to the company’s oven, even though certain aspects of the technology could not have been reverse engineered without the benefit of the company’s confidential information.
- A company’s sales representative goes to work for a competitor. The sales representative starts calling the company’s customers and tries to win their business by undercutting the company’s confidential pricing terms.
- Shortly after an employee leaves a company, the company realizes that a good amount of its trade secret information is missing. Or, the company notices that shortly before an employee left, he downloaded a large amount of trade secret information.
- An employee leaves a company and lies about where she is going. The employee said she is going to be working in an entirely different industry. However, the company then notices that the employee is working in the same industry, for a competitor, in a position where she could misuse her knowledge of the company’s trade secrets for her new employer’s benefit.
- In the exit interview, an employee repudiates her obligation to maintain the confidentiality of a company’s trade secrets. Or, the employee disputes that a company’s trade secrets are in fact trade secrets or that the company owns them.
Proactively Protecting the Secrecy of Trade Secret Information. It is imperative that businesses protect their proprietary information before any misappropriation or “red flags” occur. Although what constitutes reasonable efforts to protect the secrecy of information generally depends on the circumstances (such as the nature of the information, the size and sophistication of the owner, etc.), here are 2 important measures for consideration:
- Restrict access to the information to “need to know” personnel, monitor access, and use appropriate technology to restrict access (e.g., password protection, encryption, etc.). For instance, if an employee does not need to know the recipe for your flagship meatloaf, do not give that employee access to it. On the other hand, it is not necessary to restrict access to the recipe to the point of jeopardizing its continued existence (e.g., only the chef knows the recipe and she maintains it in her head and leaves the company). Further, do not give others the ability to hold your trade secrets hostage (e.g., an IT consultant is terminated and will not give her employer access to the trade secrets that she was hired to maintain on the cloud, unless she is paid $1 million).
- Require anyone who needs to gain access to the protected information – employees, suppliers, manufacturers, franchisees, licensees, investors, consultants, etc. – to first sign a NDA that obligates that person or entity not to disclose any protected information without its owner’s permission, including after the relationship terminates. Additionally, the NDA should require that the information be used only for the benefit of its owner, and clearly state who owns the information. Without appropriate NDAs in place, a business may find itself at a disadvantage if there is a future dispute about whether the information is a trade secret. Consider the following hypothetical situations:
- A restaurant hires a bartender because she has a fabulous recipe for sangria. The restaurant incorporates that sangria into its drink menu. The sangria becomes incredibly popular and tourists come to the restaurant because of it. The sangria increases the restaurant’s profits by 200%, because, while customers initially come in for the sangria, they end up ordering food. The bartender leaves to go work at the restaurant next door and gives the sangria recipe to her new employer. There is no NDA in place and the bartender takes the position that the recipe is hers, not her former employer’s, and she is free to do whatever she wants with it.
- A manufacturer has a great idea for a new food manufacturing business based on a new process that lengthens the expiration date of food. The manufacturer needs to attract investors to get the business off the ground. In an attempt to persuade potential investors to invest, the manufacturer discloses information about the new process. There is no NDA in place. Years later, a potential investor misappropriates the process for her own use. She takes the position that a trade secret misappropriation claim fails because the manufacturer did not take reasonable efforts to protect its secrecy when the manufacturer gave the investors access to it without a NDA in place.
These are just a few examples. There are many other potential protection measures that may or may not be appropriate for a particular business.
Call-to-action: Be proactive. Take steps to protect proprietary information before any misappropriation occurs. Have a damage control plan ready in the event misappropriation occurs. Trade secret misappropriations are very time sensitive. Once a trade secret is out, the competitive advantage it affords the owner will be lost. Individual businesses should confer with qualified counsel to consider what potential protection measures will work for their business and its particular trade secrets.