The Importance of Trade Secrets in the Food and Beverage Industry

– An interview with Kojo Brifo, Freddy Hirsch WA MD, and Uduak Koka, Intellectual Property Expert and MD of Baesault
In this interview, Kojo Brifo, Managing Director of Freddy Hirsch Nigeria and West Africa and Uduak Koka, an Intellectual Property expert and Managing Director of Baesault, an intellectual property consultancy speak on trade secrets in the food and beverage industry, stressing the importance of IP.

Can you give us an overview of trade secrets, IP, and how this connects to the food and beverage industry?

The food and beverage industry is a highly competitive and dynamic industry that thrives on innovation and creativity. Globally, companies in this sector are constantly looking for ways to gain a competitive advantage, whether it is through new product development, marketing strategies, or operational efficiencies. One way that companies can gain an edge in this industry is by protecting their trade secrets.

Trade secrets are confidential information that is critical to the success of a business, such as customer lists, product formulations, manufacturing processes, and marketing strategies. Unlike patents or trademarks, which must be published as a trade-off for the monopoly of protection, trade secrets are kept confidential and can remain so indefinitely. In the food and beverage industry, trade secrets are particularly important, as the success of a company often depends on its ability to create unique and innovative products. Companies invest significant time and resources in research and development to create new recipes, formulations, and production processes. These trade secrets give companies a competitive advantage by allowing them to create products that are not easily replicated by competitors.

Can you explain trade secrets in more detail?

Trade secrets are the most prized crown jewels in any company. A trade secret is a type of intellectual property right that companies keep very close to their chest and do all they can to ensure the information remains secret. A more general definition of a trade secret is any information, unknown to its competitors that gives its owner an advantage over its competitors.

With such a broad definition, various types of information have the potential to fall within this category. For example, customer/ supplier lists, pricing strategies, manufacturing/production methods, formulations, data (both positive data and data from failed research) equipment, and the integration thereof – the list goes on. However, there is one caveat. For information to be considered as a trade secret in most legal systems, the owner (of the confidential information) must also make reasonable efforts to ensure that the information is kept confidential. We’ll explore what this means in practice later but the requirement of reasonable efforts to ensure the security of the information is understandable when you think about the value of trade secrets in certain industries. If a unique production process combined with a unique formulation of ingredients/materials form a part of a company’s core offering, the ability to keep that process and formulation (and various other aspects of their business) a secret is vital as it is their life blood.

This rings true for the food and beverage industry as well as most engineering, pharmaceutical and cosmetic companies. However, trade secrets are just as important for non-manufacturing companies like fintech, software, and a host of other industries too.
Many well-known food and beverage companies have enjoyed and continue to enjoy success because they have been able to maintain the secrecy of certain information over a period of time. If you have ever tried to recreate the flavors savored in a restaurant you once visited (or better yet, flavors created by the best cook you know) you’ll understand that figuring out the ingredients and the know-how i.e. the recipe to get something to taste exactly the same is no easy feat. I am yet to taste KFC flavors outside of KFC or a Coca-Cola imitation that matches the original. This is no surprise as those are two of the best-kept trade secrets in the food and beverage industry. The Coca-Cola recipe and KFC recipe have enjoyed protection for over 130 years and a little over 75 years respectively.

This is not to say that it would be impossible to independently figure out their recipes; however, it would take quite some resources for a company to do so. This is where time is your friend because in the time it is taking a competitor to research and develop a competitive product, your company has the space to build its reputation and generate goodwill for its brand such that your brand (or trademark(s)) whether registered or unregistered becomes so admired amongst its users that it doesn’t matter if someone brings out a similar product because you will have gained the trust and more importantly, the loyalty of consumers.

What are some types of trade secrets?

Trade secrets are not just important for product formulations, and commercial applications but also for manufacturing processes. Companies in the food and beverage industry may use specialized equipment or techniques to produce their products, which can give them a competitive advantage in terms of quality, efficiency, or cost. By keeping these processes confidential, companies can protect their trade secrets and maintain their competitive edge. Trade secrets play a crucial role in manufacturing, especially when it comes to production processes and recipes. Companies invest significant time and resources in developing efficient and effective production processes that give them a competitive advantage in terms of quality, cost, and speed. Similarly, as we discussed in relation to Coca-Cola and KFC, recipes for products can be trade secrets that provide a company with a unique product that cannot be easily imitated. By keeping these trade secrets confidential, companies can maintain their competitive edge and ensure their continued success in the manufacturing industry.
Business information trade secrets encompass a range of confidential information critical to the success of a business, including customer/client lists, supplier lists, price agreements, distribution methods, contractual conditions, and executed contracts. Customer and supplier lists are valuable trade secrets that can provide a company with a competitive edge by allowing it to establish and maintain important relationships. Sales methods, price agreements, and advertising strategies are also important trade secrets that can help a company differentiate itself from competitors and increase its market share. Distribution methods, contract forms, and business schedules are other examples of trade secrets that can give a company a competitive advantage by ensuring efficient operations and effective management.

In the food and Beverage industry, recipes, machinery, and processes are kept confidential as it serves as a competitive advantage and unique product differentiator. This is true, for example, in Nigeria. Dufil Group, the owners of the Indomie brand, an instant noodle product have a unique boiled chicken flavor that has made it a market leader in the noodle category. In the Bouillon seasoning category, leading brands like Unilever Knorr and Nestle’s Maggi have unique flavor profiles and create a distinct taste for consumers. The quick service restaurants continue to innovate and create new platforms and recipes to ensure a competitive edge over competitors, with, for instance, the fried rice sold at different restaurants; each with different tastes based on the fried note, the vegetables used, rice, and appearance.

Based on the advantages of trade secrets in the food and beverage industry, it is very key to protect recipes, process methods and food-related systems. This is where robust policies and procedures, such as confidentiality agreements, access controls, and security measures are essential to protecting these trade secrets from unauthorized access and ensuring a company’s continued success irrespective of the sector.

Besides customer loyalty and brand recognition, what are the impacts of trade secrets that may be less obvious?

While the impact of trade secrets on innovation and competitive advantage is well-known, there are also less obvious impacts that can have significant economic and national security implications.

An economic impact of trade secrets is that they can create barriers to entry in markets. When a company possesses a unique trade secret, it can be difficult for a new competitor to enter and compete effectively. This can lead to decreased competition, higher prices, and reduced innovation. For example, if a company has a secret formula for a product that cannot be easily reverse-engineered, as long as the trade secret remains a secret, the company can maintain a monopoly on that product, driving up prices for consumers. This may slow technological advancements as it discourages collaboration between companies.
Interestingly the US, Japan, and EU have recently made some updates to their trade secret policies of the last 5 years to, for example, expand protections and include civil and criminal remedies for trade secret theft. When you consider that theft of trade secrets accounts for about 3% of GDP in the global north, it is understandable why updates are being made.
Trade secrets can also have significant national security implications, when related to military technology, weapons systems, etc and are critical to national defence, or are critical infrastructure such as energy systems or telecommunications networks. If these trade secrets are compromised, it could lead to serious disruptions and potentially even pose a threat to public safety. It is thus important to strike a balance between protecting trade secrets and ensuring that information sharing and collaboration can continue to drive progress and innovation in critical industries.

What are some examples of companies that have managed trade secrets well?
The most widely known example is probably Coca-Cola, as it has successfully guarded its formula for over 130 years. A less spoken about, but also popular brand is the soy sauce manufacturer Kikkoman which has held its trade secrets for about 300 years. There’s also Lindt, the Swiss chocolatier which has been in operation since 1845, is present in over 100 countries and has managed to keep their recipes secret – they report keeping one or more of their recipes in a vault in Switzerland.

What does intellectual property mean to Freddy Hirsch Nigeria and what role has trade secrets played in its success?

Freddy Hirsch Nigeria is a flavor and seasoning manufacturer in Nigeria supplying FMCG. Freddy Hirsch works with multiple customers to deliver a unique and innovative flavor to them. Our propriety and confidential information are key assets This includes our flavor formulas and application technologies. As a flavor supplier to many customers, we make sure that each customer’s trade secret, manufacturing process, information, and sources of raw materials are not disclosed to any third party or customer competitors.

For a company like Freddy Hirsch Nigeria, intellectual property is critical to its success so we hold various patents, which give us a competitive advantage in the market. We also have trademarks on the brand name and logo, which helps to distinguish our products from those of our competitors.
By keeping these trade secrets secret, we can prevent their competitors from replicating our products or processes, which helps us to maintain a dominant market position.

How does Freddy Hirsch Nigeria ensure that its trade secrets are protected?
We have a code of Conduct, the values of which protect our intellectual property including our trade secrets.

Freddy Hirsch values and protects its confidential information, and we also respect other companies’ confidential information. Our client’s information is not shared with any of its competitors or other customers. We also ensure that any other information collected is done in an ethical and legal manner. Our employees sign non-disclosure agreements subject to Labour law that stipulates that any technologies developed and created while in the employment of the company is property of Freddy Hirsch Nigeria. It is our responsibility to ensure the proper handling of confidential information. We facilitate IP and trade secret courses during new employee inductions and have periodic reviews to reinforce and update new employees on trade secrets protection. We also have a trade secret policy that advises employees on how to identify and manage and protect trade secrets. Employees are advised not to leave confidential information computers, tablets, flash drives or mobile phones unattended. In addition, access to software, confidential information is restricted and controlled.

Do you see any changes on the horizon for how we think about protecting IP or trade secrets specifically in the food and beverage industry?

The food and beverage industry, like any other industry, is constantly evolving, and as such, there will be changes in the way that companies protect their intellectual property (IP) or trade secrets. One trend that has emerged in recent years is the increasing use of technology to protect trade secrets across various industries and the food and beverage industry is no exception. For example, companies are starting to use blockchain technology to securely store and track information about their products, access records, and supply chain, thereby reducing the risk of theft or unauthorized access to trade secrets. Another trend is the growing importance of protecting data and information in the food and beverage industry. With the rise of digital technologies and the increasing amount of data generated by food and beverage companies, there is a need to protect sensitive information from theft or misuse.

Kojo Brifo is Managing Director of Freddy Hirsch West Africa. Uduak Koka is Managing Director of Baesault, an intellectual property consulting firm operating in EMEA.