In our experience, food business entrepreneurs chronically underestimate the economic value of product formulas and other intellectual properties. The food industry can sometimes be pretty ruthless. Innovators have every reason to be cautious and circumspect with their trade secrets.
What Can I do to Protect My Trades Secrets?
There are famous stories of extreme practical measures being taken to safeguard the formula for Coca Cola or the Colonel’s 11 herbs and spices – half the recipe is know by one person and the other half is known by another, and they never fly on the same plane. While surely apocryphal, stories underscore the importance of a kind of tradecraft that can maintain the integrity of valuable trade secrets.
Practical secrecy is not going to cut it for modern food businesses. Copackers, private label producers, and suppliers are an essential part of the changing food system. If you want to utilize their expertise, sharing a recipe or product formula is inevitable. In order to leverage these crucial resources, our clients need to rely on tightly drafted confidentiality agreements. Our confidentiality agreements can take the form of nondisclosure agreements, non-compete agreements, or combinations of both.
What Should be Included in a Confidentiality Agreement?
We advise our clients to draft confidentiality agreements as soon as they begin speaking to consultants, co-packers, or any other third-party. In general, we advise all of our clients on the following:
- Specificity makes a confidentiality agreement powerful. A draft confidentiality agreement that you rip from the internet is not necessarily reliable. To avoid ambiguity, and to avoid intentional and unintentional ‘misunderstanding’, we encourage clients to identify with particularity the information they wish to keep secret.
- We generally encourage our clients to insist that the party receiving the information gains no interest or ownership in the information.
- The receiving party should be limited to using the information only for the benefit of our client and only in support of the continuing business transaction between them.
- The receiving party understands that as a consequence of disclosure, our client is entitled to injunctive relief, indemnification, or liquidated damages.
A good confidentiality agreement has enduring value. We routinely merge the same terms into the final drafts of co-packer agreements, supplier agreements, private label agreements, or retainer agreements with consultants.
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