Intellectual Property Protection in the Food System: Don’t Forget the NDA

The article in our Winter issue titled, “Have You Copyrighted Your Trademarks?” addressed trademark and copyright protections for brands in the food system. We thus know that with a bit of effort, there is a lot of protection available from brand protection. But how does one protect the contents of the proverbial secret sauce or other valuable information? That is more challenging, but the short answer is to make careful use of Non-Disclosure Agreements (NDAs). The recent experience of the Pine Valley food company in litigation against the Ajinomoto food companies illustrates.

NDAs Are Usually Essential Under Trade Secrets Law

Pine Valley was a tiny company that had hit a business jackpot: in the late 1990s Trader Joe’s decided to purchase its various fried rice products. Pine Valley outsourced the preparation, packaging and shipping of the products to another company. All of that worked very well for more than a dozen years.

During that time the packaging company was acquired by Ajinomoto, an international food conglomerate. After a series of mergers over a period of years, Ajinomoto decided to undertake an end run around Pine Valley. Ajinomoto’s end run was successful in that it convinced Trader Joe’s to deal directly with Ajinomoto, and Trader Joe’s stopped doing any business with Pine Valley.

Pine Valley brought suit against Ajinomoto, and in January it won a multimillion dollar verdict (the exact amount is still being determined) in a trial in Los Angeles. Pine Valley asserted a half-dozen legal claims, including things like Unfair Competition. The lynchpin of its case, however, seems to have been that it had in place from the very beginning a Non-Disclosure Agreement with the original packaging company, to which Ajinomoto was bound as a successor.

It is usually difficult in food system businesses to assert that recipes are trade secrets. A trade secret is by definition information that is secret and valuable. When ingredients are apparent, are listed on packaging, or are easily ascertainable by laboratory analysis, there is a narrow window of information that can then qualify as “trade secret” under the Uniform Trade Secrets Act.
The reason that laboratory analysis is a legitimate way to obtain a recipe is that purchasing a product for reverse engineering purposes is perfectly legal, and to be a “trade secret” the information must not be readily ascertainable by someone skilled in the particular trade. As a result, in most recipes the only potential for trade secret information is when some ingredients are themselves cooked or processed in certain ways, and that information is defined as confidential in an NDA.

A well-drafted NDA in the industry will also define the business information inherent in the original relationship (the Pine Valley and Trader Joe’s relationship in the example above), as confidential. In the case above it belonged to Pine Valley and not to the packaging company.

Such an NDA should be in place from the very beginning of any business relationship. It would require legal ju-jitsu for a company to disclose information to any outsider without an NDA in place, and to later claim that the information is really a valuable trade secret that the company always carefully guarded. After an unprotected communication takes place it is often impossible to un-ring the bell of public disclosure.

NDAs Can Also Be Essential Under Patent Law

NDAs also have broader usefulness in some cases. At various stages of the food system — from GMO experimentation, to protein in beverages, to packaging — novel inventions may be patentable. Patent protection for inventions has radically different legal requirements, however, than trademark protection for brands.

When a company starts to use a brand publicly, it starts to accrue “common law” trademark rights under U.S. law. So long as the company does not attract copy-cat imitators of the brand, those common law trademark rights then can be incorporated into the valuable rights of a federal trademark registration. Previous public use of a brand can thus extend the legal strength of a registered trademark.

In stark contrast, public disclosure of an invention can destroy the ability to obtain patent protection for the invention. Patent law requires that the inventive details of a novel process or product be maintained in secret as a requirement of patentability. When the information gets disclosed, it is on its way to becoming part of the public domain, and then can never be patented. This usually includes, for example, disclosure to others in the industry at a trade show. Distributing prototypes that embody the invention is also a public disclosure.

Most inventors in the food industry, however, want to test and collaborate about their innovations with outsiders, both individuals and other companies. The way that this must be done, so as to preserve the potential for patentability, is to have an NDA in place.

If someone has disclosed trade secrets that are the basis for a potential patent, is patentability lost as soon as the disclosure is made? Unlike trade secret protection in which it is very difficult to un-ring the bell of disclosure, U.S. patent law is more lenient. Public disclosure of the secret aspects of an invention do not forfeit patentability until one year after the disclosure.

The U.S. is one of a very small number of countries in the world, however, that has this one year grace period before patentability is lost. In most countries patentability is indeed lost at the time of disclosure when there is no NDA in place

Alan Haus
ahaus@rroyselaw.com
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