Why use non-disclosure agreements in the food sector?

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The margins in the food sector are tight and set to get tighter; so being able to out-perform your competitors is key to growth or even survival. You cannot carry out work in total isolation however, so how do you protect yourself when working with partner companies?

A non-disclosure agreement (NDA) often arises when a party wants to discuss information about a product, process or business idea when speaking to other parties – potentially to take it to market, but does not want the other party to then be in the position of taking commercial advantage by moving to launch with a different partner. For a food business this may relate to a secret recipe, new product development or manufacturing process which they wish to exploit by harnessing the expertise or capacity of a third party.

Also referred to as a confidentiality agreement, an NDA binds the parties to non-disclosure of confidential information, which if known more widely could affect competitive advantage. It sets out what each party can do with the information, time limits on keeping knowledge confidential and what happens to the information if the work does not go ahead.

If the agreement is breached by one side, the other party may seek court action to prevent any further disclosures and may sue the disclosing party for monetary damages. By signing the agreement each party demonstrates that they understand the sensitive nature of the discussion.

Are NDAs the be-all and end-all?

Within the food industry NDAs are sometimes used simply as means to start a conversation about working together – maybe when it comes to outsourcing production. However, often, little thought goes into the purpose of the document and a party may find itself signing up to a broadly drafted ‘one size fits all’ type of contract, with an obligation of confidentiality where the information is not in fact confidential.

Therefore it is worth asking whether an NDA is relevant initially – it may be unnecessary in a deal where there really is nothing to protect. However, it can be vital where an innovative idea is at stake which the business wishes to test in the market. The other point to consider is the reputation of the company that you are disclosing the information to. Would the rewards of working with them outweigh the risk?

Is there an alternative?

Sometimes it may not be necessary to enter into a written agreement. Where information is imparted under an ‘umbrella of confidentiality,’ the obligation to keep it confidential arises automatically under common law. To be covered by this, the business must be clear that it considers the information to be confidential.

Standalone NDAs may not be necessary where a ‘confidential information’ clause exists in contracts entered into between the parties. These clauses are often seen in licences which permit businesses to manufacture, sell or distribute a food product, for example, in return for a royalty.

The information may in fact be better protected under a party’s intellectual property rights and could be protected automatically by copyright, for instance, with a copyright notice.

Is it safe to talk to a third parties without an agreement in place?

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Whilst there are circumstances under which an obligation of confidentiality arises automatically, the best safeguard is through a written contract to prevent any argument about whether a party was aware of it. Legally it is easier to enforce a contractual obligation made in writing.

What if multiple parties are involved?

The safest option is to identify all parties and ensure NDAs (or other written terms of confidentiality) are in place for each of them. Sometimes there are a lot of people with access to your confidential information – especially if a manufacturer has to pass information to its employees or consultants to do the job. The NDA should oblige the manufacturer to ensure everyone is equally bound by the same terms of confidentiality and that only the relevant files are shared across the company, thereby not giving larger groups access to all the information.

Should I sign someone else’s NDA or insist they sign mine?

This completely depends on the content of the NDA and what each party is trying to achieve. The disclosing party is likely to want the definition of confidential information to be broad enough to cover any deliberate or inadvertent disclosure of information to the receiving party, whereas the receiving party is likely to want to keep this definition as narrow as possible.

How do you enforce an NDA?

An NDA will typically be limited to a set period of time and can be enforced during this time period, depending on its terms. An obligation of confidentiality can be breached by disclosing the protected information or using it for an unauthorised purpose. If a breach of confidentiality occurs, the remedies that can be taken include an injunction, damages or an account for profits, which will prevent someone from profiting financially at the other party’s expense.

Contact

For a legal perspective, or if you need help in drafting an NDA or alternative agreement, please contact:

Kishan Pattni – Senior Associate – Freeths LLP
0845 070 3811
[email protected]

Contact

To discuss the use of NDAs and whether this makes commercial sense for your business please speak to:

Ruth Dolby – Director – Food Science Fusion Ltd
07931 503302/ 0115 95 16210
[email protected]

Food Science Fusion

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