Trade Secrets And Competitive Advantage In The Global Food Industry - Lessons For India
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Category: General Law
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TRADE SECRETS AND COMPETITIVE ADVANTAGE IN
THE GLOBAL FOOD INDUSTRY: LESSONS FOR INDIA
Varsha Shree A.I & Sidharth T, SASTRA University
ABSTRACT
Trade secrets are a subset of intellectual property that comprises procedures, practices, designs, instruments, patterns, compilations of information and processes that have intrinsic economic value because their owner takes reasonable precautions to keep them hidden and they are not widely known or easily ascertained by others. In today’s business, trade secret plays a pivotal role on ascertaining the economic success or failure. Food products and recipes are tended to be preserved from the outside world and remain as a secret, so various companies like KFC, Coco Cola formulae and recipes are not disclosed to the outside world other than few people. The main aim of having trade secret laws to protect and safeguard the unique flavors, texture and preparation methods that distinguished their product from other products in the marketplace.
It is the duty of the companies to take measures on protecting their methods by enforcing a non-disclosure agreement, limiting access of information and using compartmentalized production processes. The marketing and branding strategies, design concepts behind packaging, innovative food technologies, manufacturing processes, information regarding the source of raw materials also comes under the ambit of trade secrets on food products. Food labelling requirements that mandate important information about some goods, including ingredients, be disclosed on packaging makes it more challenging to protect a recipe or technique. In this article, we focus on the threat of trade secrets being leaked on the public domain and stake of the secret being protected on the eye of law.
INTRODUCTION
Food industry is a large-scale industry which consists of several clusters such as production, processing, supply and distribution. The current era witnesses the tight competition among major food production companies. As the global competition in food industry is in raise, the trade secret plays an important role in helping the food companies to remain in the competition. Trade secrets are proprietary business information that gives a company a competitive edge and is protected by reasonable measures to keep it secret. It is a unique element that comes out of human mind which is properly applied in the production process. The uniqueness is the main characteristic of trade secret. The history of trade secret can be traced back to Roman empire. The trade law has its roots in Roman law was introduced in 1929 in an article called “Trade Secrets and the Roman Law: The Actio Servi Corrupti.
Slowly the idea of trade secret began to spread across Europe. During the industrial revolution there was an urgency for creation trade secret law and thus law called ‘industrial secrets’ was formed. Trade secret law made its first appearance in England in 1817 in Newbery v. James. In United States, the trade secret law was made its first appearance in 1837 in Vickery v. Welch. The history of codified evolution of trade secret can be traced back to Article 10bis of Paris convention and later it was codified into TRIPS agreement. Article 39 of TRIPS agreement states about protection of undisclosed information. The success of a food product depends upon its recipe, design etc. It involves human idea, effort which has to be recognized. Disclosure of trade secrets negatively impact the inventors. So, protection of trade secret is a serious matter which has to be discussed.
LITERATURE REVIEW
The research paper by Alfred Radauer, Nicola Searle and Martin A. Bader: The possibilities and limits of trade secrets to protect data shared between firms in agricultural and food sectors (2023)1 discuss mainly about whether data sharing gives an adverse effect to trade secret protection. The research deals with the necessity of data sharing in certain cases. There are certain circumstances in which data that are related to production, ingredients to be revealed to others. The paper concludes with trade secret cannot be kept away from others for long time. The food manufacturers have to reveal their trade secrets to certain authorities as it is a part of the legal procedures. In some cases, the consumers might demand to share data. So, the manufacturers have to reveal about the data or else it will lead to reduction in sale of their 1 Alfred Radauer, Nicola Searle and Martin A.
Bader: The possibilities and limits of trade secrets to protect data shared between firms in agricultural and food sectors (2023) products. Rochalle C. Dreyfuss: Trade secrets and deep secrets (2024)2 discuss mainly about the importance of trade secret protection. The difference between the trade secret and deep secret is mentioned in this paper. the paper addresses the challenges in enforcing the trade secret protection. It also necessitates the requirement to disclose deep secrets while fulfilling legitimate goals of trade secrecy law. Dika Federica Shodikin, Agung Sujamiko: Trade secret as a means of protecting the traditional food business (2020)3 deals with Indonesian aspect of trade secret. The study reveals about the necessity of bringing trade secret law to reduce the impact of fraudulent competition or unfair competition among business sectors.
The research paper states violation of trade secret law should be considered as a criminal offence. Babak Zarin: Knead to know: cracking recipes and trade secret law (2021)4 reveals about effectiveness of copyright, trademark and patent laws in protecting the food recipes. It also discusses about the difficulties in protecting the trade secret of recipes. MD Nair: Protection of Trade Secrets/Undisclosed Information (2002)5 gives an overview on trade secrets. The paper provides methods for protecting trade secrets. The study also focuses upon Indian aspect of trade secret protection. RESEARCH PROBLEM There are many countries in which there are legislations that specifically focus upon trade secrets. However; in India, there lacks legislation for trade secret when on the breach of confidentiality of information of which the company needs to preserve. RESEARCH QUESTIONS
How effective are the existing Indian laws in safeguarding trade secrets in the food industry? • How does India’s approach to trade secret protection for food products compare with UK and United States?
RESEARCH
METHODOLOGY
The research paper goes for doctrinal method of research. Various research papers, articles were analyzed in this research paper.
2 Rochalle C. Dreyfuss
Trade secrets and deep secrets (2024)
3 Dika Federica Shodikin, Agung Sujamiko
Trade secret as a means of protecting the traditional food business (2020)
4 Babak Zarin
Knead to know: cracking recipes and trade secret law (2021)
5 MD Nair
Protection of Trade Secrets/Undisclosed Information (2002) The concept of Trade secret and its relevance in food industry Trade secrets are proprietary business information that gives a company a competitive edge and is protected by reasonable measures to keep it secret. It typically covers a wide range of topics, including as formulas, recipes, distribution and sales strategies, customer profiles, advertising tactics, supplier and client lists, and manufacturing procedures. Two strategies can be used to promote trade secret protection: granting a specific set of employees’ access to sensitive information and requiring them to sign non-disclosure and/or non-compete agreements. For food and beverage goods, where procedures and recipes might not be acceptable for patenting, the creation and preservation of trade secrets is particularly crucial.
We stress that trade secret protection is not incompatible with simplicity. As long as the information is kept hidden, it is protected as a trade secret. When a trade secret is made public, it is no longer protected. A company safeguarding a trade secret must constantly be on the lookout for ways to keep such knowledge private, including implementing non-disclosure agreements and taking into account workable security measures. It is becoming increasingly difficult to strike a balance between trade secrets and public exposure. Manufacturers are required to preserve trade secrets in order to safeguard their financial investments. Consumers, on the other hand, are curious about the ingredients and manufacturing processes of food goods. Trade secrets and confidential information are not identical, and individuals who have trade secrets to safeguard suffer from this imprecise definition.
Since trade secrets need to be kept hidden forever to be considered such, the law mandates that they be handled differently from information that is just confidential. It is also required of those who possess "trade secrets" to make a good faith attempt to prevent the information from ever being revealed. Regardless of whether there is a real breach or not, trade secrets deteriorate the moment the holder starts to neglect their protection. Food companies must use thorough confidentiality agreements with all of their business partners in order to safeguard trade secrets. Confidentiality agreements include non-disclosure agreements, non-circumvention agreements, non-solicitation agreements, and non-competition agreements.
The following areas are especially crucial for the food and beverage industry in terms of perhaps obtaining an edge over competitors: Product recipes or formulas to the degree that the details are difficult to determine. Techniques and procedures for manufacturing and processing. Some speculative examples are: how to give a food product a specific texture; how to make a cake reflect photographs; how to create a new colour pigment that is absorbed; how to create a chemically produced flavour that mimics a natural flavour or lasts longer; or how to debone fish more rapidly and precisely. Technology utilized in a business, even if it has nothing to do with making food or drinks (for instance, hypothetical examples include the technology behind a food delivery service or the technology used to process credit cards).
This category is particularly significant since, like other businesses, the food and beverage sector has been driven more and more by technology. An invention may be entitled to trade secret protection even if it is not covered by a patent, and the business may profit from doing so. Ideas, strategies, and studies related to advertising, marketing, and business. Plans and strategies may no longer be considered trade secrets if they are made public (for example, a marketing campaign becomes public upon implementation). However, associated behind-the-scenes plans, methods, and studies may be considered trade secrets (e. g. , the "head start" you get by keeping it under wraps until it is released may provide you a competitive advantage, even though a competitor may steal your marketing campaign once it is implemented).
Numerous companies gather data about their key suppliers, customers, and vendors. The creation of this data may require years, a great deal of work, and a large financial investment. India - Protection of trade secrets and confidential information The concept of trade secret has been developed at the time of liberalisation in 1991 when India became a signatory member of the World Trade Organisation (WTO) and subsequently, signed agreements on Trade Related Aspects of Intellectual Property Rights (TRIPS) in 1994. India doesn’t have any statutory recognition to trade secret but it will be recognised under Indian Contract Act 1872 on the basis of principle equity i. e. breach of confidentiality on contract will result breakdown of such obligation.
It is important for trade secrets that Whatsoever information being protected and preserved under trade secrets on confidential information, such information must be unique and novel and that secret must not be compiled with different resources. If an information is original and unique then that can be secured for protection. Indian courts recognise the pertinence of trade secrets and guidelines are been provided for the protection of trade secrets. In cases like: Bombay Dyeing v Mehar Karan Singh, Niranjan Shankar Golikari v Century Spinning and Mfg6 specifies the criteria to identify and enforce trade secret rights, such as: • The information should be kept confidential • There must be a commercial utility attached to the information which is confidential.
6 1967 AIR 1098, 1967 SCR (2) 378, AIR 1967 SUPREME COURT 1098, 1967 2 SCR 378, 31 FJR 332, 1967 LABLJ 743, 14 FACLR 337, 1967 2 SCJ 317, 1967 MAH LJ 606, 1967 (1) SCWR 832, 1967 MPLJ 454, 1969 BOM LR 535
The owner must take specific steps to protect the information and maintain the confidentiality. • Courts uphold the principle of equity at the cases of reluctance of enforcing agreements which unreasonably restrict trade. Usually, the cause of action will only arise under three circumstances:
1. When any person or employee discloses any confidential information during the normal
course of employment.
2. When any outsider or person incites the employee to disclose any confidential
information that is not to be disseminated.
3. When a licensee was under an agreement to maintain the secrecy of information but
failed to abide the agreement. Problem in Indian courts arises at the time where the circumstances are beyond the three and leads difficulties on protecting the aggrieved parties. In John Richard Brady and Ors v. Chemical Process Equipment P Ltd and Anr7, the Delhi High Court in a case involving unauthorized use of trade secrets observed that it would in interest of justice to restrain the defendants from abusing the know-how, specifications, technical information regarding the plaintiff’s fodder production unit entrusted to them under express condition of strict confidentiality.
Indian laws related to trade secret • Indian Contact Act Section 27 - Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is to that extend void • Bharatiya Nyaya Sanhita Section 316 - criminal breach of trust • Information Technology Act 2000 Section 43A - It provides compensation for the protection of sensitive personal data which includes passwords, biometrics and another personal record.
7 AIR 1987 DELHI 372, AIR 1987 DELHI 372
Section 72 - The section deals with penalty for breach of confidentiality. This also includes cases in which trade secrets are shared digitally. • Companies Act 2013 Section 405 - In certain situations, this section might indirectly safeguard trade secrets by prohibiting officials and employees of a firm from sharing sensitive information they have acquired while serving in that role. • Security and Exchange Board of India Act 1992 Section 15G - This section imposes penalties for insider trading. Section 24 - wrongful disclosure of sensitive information. This includes misuse or unauthorized release of sensitive information. • Specific Relief Act, 1877 Through the law of Specific Relief Act,1877 will be applied on the case of providing injunction for infringement of trade secret.
A prima facie case, balance of convenience with irreparable damage must be established, and many cases weren’t approached on the eye of law due to insufficient prima facie. To obtain injunction, there should be an actual concealment of material fact by plaintiff to get equitable relief. Lacunae in Indian laws Trade secret holders rely on non-disclosure agreements (NDAs), confidentiality agreements, and other contracts to safeguard their secrets where there is no statutory protection. These, however, are exclusive to the contracting parties and do not protect against accidental leaks or third-party misappropriation. Since recipes cannot be copyrighted and branding components do not cover essential procedures or formulas, Indian IP rules do not offer strong trade secret protection for those in the food business who depend on maintaining the confidentiality of their methods and recipes.
There isn't a precise legal definition of what a trade secret is under Indian law. To decide what constitutes confidential information, courts apply broad guidelines, although these are inconsistent and vary from case to case. In India, the burden of proof falls heavily on the trade secret holder to establish that a breach or theft occurred, which can be difficult without a clearly defined law. Trade secrets are not adequately protected by India's current intellectual property laws, which include those pertaining to patents, trademarks, and copyrights. For example, the desire for confidentiality and the requirement for public disclosure under patents clash.
Trade Secret laws in other countries United States Uniform Trade Secrets Act 1985 deals with the protection of trade secrets. It provides the types of information eligible for trade secret protection. The act clearly provides the misappropriation and the remedies for trade secret holder in case of misappropriation. The advantages of this act are any information that has value to the owner and is not known to others. There are no territorial limits in the application of the act. The act ensures the information to be remain disclosed. Obtaining and maintaining the trade secret depends upon the owner action not on governmental entity. A single unprotected trade secret can be lost in any ways such as speech, technical paper, PR, photograph, legal reverse engineering of a product to discover the trade secrets, independent development by a computer etc.
There are reasonable measures to protect the trade secret in US under the act, they are: • With respect to employees, providing information about trade secret to them. The employees who have access to trade secrets to execute confidentiality agreements. There should be limited access to the trade secret. Conducting exit interviews ensures the protection of trade secret. • With respect to facilities, restricting public accessibility by fences, posted notices and restricting areas. Marking on documents, locked storage areas secure disposal of documents and electronic files are some forms of trade secret protection. • With respect to third parties, using non-disclosure agreements in dealing with third parties protects the trade secret. Case laws
1. Nationwide mutual insurance vs Mortensen8
In this case former nationwide agents competed using client list, which was compiled by former employee. The computer lists were stored in a secure computer system. Paper lists were left with agents and was not secured. There was no contractual requirements
8 Nationwide Mutual v. Mortensen, 606 F.3d 22 (2d Cir. 2010)
to protect the paper list. The US court held reasonable measures were not taken and thus trade secrets will not be protected.
2. Coca Cola case
In this case three employees were sentenced to prison conspiring to steal trade secret from Coca Cola and sharing the information to Pepsi Co. The trade secret includes samples and information of new products which was yet to launch. They were imprisoned for the term of 8 years for trade secret theft under Economic Espionage Act. They were ordered to pay $40000 in restitution.
3. KFC Case study
The coating of the chicken and the cooking conditions are the two main factors that go into making KFC chicken. Col. Harland Sanders submitted a patent application for a "method of producing fried chicken under pressure" on September 26, 1962. According to Col. Sanders, the method for preparing fried chicken is "coating said [chicken] with a moist layer of breading material" and using pressure to cook the breaded chicken in hot oil. The patent took three and a half years to issue, but once it was, the world could study the exact method Col. Sanders employed to manufacture his renowned chicken. This is the trade-off with patents, you receive a 20-year legal monopoly on the patented invention, but in exchange you are required to disclose everything you know about the invention. It should be noted that Col.
Sanders left out of his patent the exact composition of the "moist layer of breading material. " Evidently, the "moist layer of breading material" is Col. Sanders' well-known "original recipe of 11 herbs and spices," which was reportedly only recorded on one piece of paper by Col. Sanders and is only known to a small group of people. Col. Sanders became extremely wealthy because of the trade secret. By revealing the formula to the world, patenting the "original recipe" would have allowed rivals to try to replicate the recipe and flavour without violating the patent (also known as "reverse engineering" and "engineering around"), and the patent protection would have ended decades ago. Rather, Col. Sanders decided to keep the formula a trade secret and patent the method of producing the chicken. As a result, Col.
Sanders had a way to enforce the law (the patent) to initially suppress competition and something to sell to others (the pre-mixed breading) to generate revenue and establish his brand. He also kept the trade secret, which is arguably the most significant component of his product, to preserve the brand after the patent protection ended.
4. Case study on Twinkies trade secret
When food writer Steve Ettlinger released "Twinkie, deconstructed," an article that reveals the snack delight, Hostess found itself on the other side of a trade secret battle. Although the Twinkies' owners did not file a lawsuit against Ettlinger, they did not assist in documenting the ingredients that go into making Twinkie. Though not entirely, Ettlinger was able to reverse engineer the manufacturing process partially. The Twinkies recipe is retained as a trade secret rather than as a marketing gimmick because the corporation is afraid that consumers won't know what the ingredients are and will stop eating or giving them to children. Although many of the ingredients are safe, their chemical names might occasionally seem dangerous to people who are not involved in the food industry.
5. McDonald’s mac sauce and trade secrets
A trade secret that no longer enjoys the confidentiality status. The special sauce recipe had been protected vigorously that Mc Donald’s to change the recipe for special sauce for a few years. However, when Mc Donald’s makes its hamburger, even the process of making sauce is also mentioned there. Subsequently, the sauce lost its trade secret protection. Once a trade secret is lost, we cannot retain the original nature. United Kingdom UK has two major laws for protecting the trade secrets: Common law of confidentiality and Trade Secret Regulations 2018. Trade secrets have not been deemed a type of property by UK courts. The individual who owns a trade secret is therefore a "trade secret holder," which is defined as "any person lawfully controlling a trade secret". A claimant must demonstrate a valid interest in the information's protection in order to prevail in court.
Confidential information must possess "a necessary quality of confidence," meaning it cannot be something that is public property or known to the public, according to common law. Campbell Engineering Company v. Saltman Engineering Co. 9 (1948). According to Regulation 2(1) Trade secrets are defined as information that "is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information in question," according to the Regulations, which develop and outline this concept of secrecy. Although it would be
9 Saltman Engineering Company Ltd v Campbell Engineering Company Ltd [1963] 3 All ER 413
uncommon for a case to make it to the courts if the confidential information lacked financial value, the English common law does not compel it to. Instead, documents designated as confidential and proof that access to the information was limited are pertinent to a secrecy assessment. Examples of information that may be protected as trade secret include: chemical formulae, recipes, designs and invention. There is no requirement for revealing commercial value of trade secret to the courts for getting legal protection. In case disclosure of trade secret, the affected party can claim relief in form of damages. The injunction, which will remain in place for a predetermined amount of time after the knowledge is correctly made public, will prevent the infringer from utilizing the trade secret while allowing other third parties to utilize it, thus eliminating the benefit gained from its misuse.
Kerry Ingredients v Bakkavor10 Confidential information on the process of making edible infused oils had been misused. The judge in this case stated that he did not believe the knowledge could be regarded as being second nature to a developer or as being able to be reverse-engineered without a great deal of effort or "special labors. " Because the claimant and its predecessors provided the defendant with the sensitive information for safety and regulatory purposes, the court also declared that the material had been transmitted in a confidential manner. The court issued a springboard injunction after ruling that the defendant had violated confidentiality by using the private information. Faccenda Chicken limited vs Fowler11 In this case, the court stated that appropriate actions to be made in order to maintain the confidentiality of the information.
By signing the Non-Disclosure Agreement and designating each page as "confidential," information access should be limited and shared with a limited number of individuals. It is important to avoid arbitrarily designating information as "confidential," as this could diminish the term's meaning. In this instance, the claimant's case was harmed by the indiscriminate assertion of confidentiality during the proceedings, even though the pertinent evidence was not marked as "confidential. "
FINDINGS
Unlike laws of aforementioned countries, it is viewed that India has no statutory
10 Kerry Ingredients (UK) Ltd v Bakkavor Group Ltd [2016] EWHC 2448 (Ch)
11 Faccenda Chicken Ltd v Fowler and Others [1986] IRLR 69, CA
recognition on trade secrets. • Trade secrets in India has been limited to three circumstances, but it hasn’t mentioned the dissemination through other means such as through accidental exposure, reverse engineering that explicitly mentioned in other countries law. • Need of reasonable measures in the case of public disclosure of ingredient or food product. • The concept of confidentiality should be broadened, and the definition of other terms on the regards of trade secrets should be included, as like the laws and regulations in U.S and U.K respectively.
RECOMMENDATIONS
These days, protecting trade secrets is crucial for small business owners and entrepreneurs. They will always become more popular if the goods or services get a lot of innovation from these trade secrets and help the firms succeed. There will be fierce rivalry as a result, particularly from large companies that have established themselves in the market. Operations and innovation utilizing the trade secret will become easier as a result of these large, powerful companies' improved R&D operations and wealth, while tiny enterprises and entrepreneurs will be hurled off the boat with relative ease. Encourage loyalty among employees Companies must realize that when HR rules and overarching business strategy are properly aligned, employees are more committed. To a certain degree, employee loyalty is more significant than client loyalty.
Employee satisfaction has a significant impact on how they operate, therefore providing incentives and other benefits is essential. Keeping an eye on employee activity It is crucial to ensure that employers maintain the value of safeguarding trade secrets in order to foster employee loyalty. Employers should keep an eye on their workers' activities at work, but they should also respect their privacy and avoid giving them the sense that they are being mistrusted. Drafting a comprehensive trade secret policy for workplace A comprehensive trade secret policy should be drafted for employees and the staff making them aware of the sensitivity of the issue as well as the nature of such confidential information along with the potential consequences of breaching such trust.
Creating legally binding employment and confidentiality agreements in India Enforcing agreements and contracts that are enforceable in India can fairly protect confidential information, such as trade secrets. These clauses in contracts ought to forbid the improper disclosure and theft of private data. The kind of the information that is likely to be shared, how it should be utilized, and the limitations on disclosure after termination should all be covered in these agreements. Maintaining non-disclosure agreements and exercising due diligence Due diligence is crucial in order to verify the employee's history of secrecy and secret-keeping. Due diligence is carefully reviewing agreements and documentation, paying particular attention to non-disclosure clauses, without excluding the possibility of error. Performing audits of trade secrets Determine which trade secrets are important.
Confirming that the business is the owner of these trade secrets. Confirming that confidentiality protocols are appropriate and adhered to.
CONCLUSION
Confidentiality on maintaining a food secret is a central part of trade secrets in the case of breach of confidentiality taken place. To ensure the confidentiality to be maintained, various set of guidelines has been derived through case laws in the case of India. On the other side, countries like United States and United Kingdom have laws and regulations to address the problem of trade secrets on the regard of public disclosure. India doesn’t have a statutory regulation to address the problem. However, it is recommended to bring a new law with regard to trade secrets as like other intellectual properties. Legislation has taken several attempts to protect trade secrets in India:
1. Confidential information should be protected through the application of National Innovation
Bill, 2008
2. US has been intervened on the protection of trade secrets through addressing the regular
mention in the annual Special 301 Report. In this case, both governments affirmed to provide stronger protection of trade secrets.
3. Intellectual Property Rights (IPR) policy, 2016 recognised the importance of trade secrets
and legislative protections are been suggested to strengthen the intellectual property framework. The proposed “Protection of Trade secrets Bill, 2024” has been recommended by the Law Commission of India in their 289th report. This bill highlights the:
1. Definitions
2. Rights and responsibilities of holders
3. Whistleblowers protection and exposure of information for public interest.
4. Compulsory licensing.
As a result, this bill will offer advantages like offering opportunities on research and development activities. The effect of bill will also lure investors to commence business in India through stringent trade secrets protection. Subsequently, this will bring a greater economic output and job creation. Thus, securing trade secrets provides benefits to society and ensure economic growth in India.
REFERENCES
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