For all the challenges faced by agricultural businesses in the past year, one sector of the food supply chain continues to thrive. Over the 12 months to the end of June 2018 alone, sales of organic fresh produce grew by 5.3% (according to market and consumer data provider Nielsen Scantrack).
Businesses tapping into this market recognise that consumers are turning to plant-based diets more than ever. This demand is on a huge scale, as the general public expect to buy from ethical businesses who can prove the provenance of their products. In the South West, Riverford Organic Farmers, and The Flavourworks, are success stories in this field. The latter prides itself on offering experimental new ingredient and flavour combinations to supermarket product developers, whilst maintaining the use of natural, clean ingredients.
Yet even as this organic market goes mainstream, new entrants and existing competitors are under constant threat. How can businesses in the food and drink sector, even those with a strong standing in the organic market, future proof themselves against this oncoming disruption to their supply chains? One answer lies in continual innovation, and launching new products into the supply chain ahead of the competition. There are steps these businesses can take now to protect their new ideas.
To begin with, protecting new products when talking to possible manufacturers, distributors and retailers is key. It is not appropriate to file a patent application for every new idea so, on a more day-to-day basis, crucial and commercially sensitive business information should be protected by confidentiality agreements, known as Non-Disclosure Agreements ("NDA").
For example, an artisan food producer whose innovative organic product has huge market potential, might ask a large retailer or manufacturer to sign an NDA before they meet to discuss manufacturing agreements or distribution deals. The risk of not doing so is that retail buyers could take the recipes they find at meetings straight back to their development team. Even a poorly drafted NDA could result in this unauthorized use or disclosure of your valuable information. Products could be emulated by the retailers in weeks, wiping out the hard work by the smaller business.
A well drafted template NDA should be considered as a fundamental document in any business's toolkit. Here are a few key questions to ask yourself when using an NDA:
- What is the purpose of the NDA? Ask yourself: for what purpose are you allowing the recipient to use your confidential information? The "purpose" should be carefully defined in the NDA, to make sure the recipient does not use the information for something you would not want them to (e.g. to develop a competing product/service).
- When should the NDA be entered into? Ideally, before any sensitive information is disclosed to the recipient.
- What are you disclosing? A definition which says "Confidential Information is information which is confidential to the discloser" is of little assistance. Be specific about what (or, at least, the type of) information you are going to disclose, so that it is clear what will be protected by the NDA. In the food and drink sector, any information that is shared between parties might be considered confidential, including supplier lists, nutrition know-how, production techniques and others.
- To whom are you disclosing the information? The NDA must be clear about who the authorised recipients are. For example, can the recipient disclose the confidential information to their employees, food packers or product labelling providers? If so, in what circumstances and subject to what controls? Generally, the wider the dissemination of the information, the harder it is to monitor and control its use and security.
- What must/can the recipient do with the data? At the most basic level, recipients should be under an obligation to keep the information safe, secure and confidential and only to use it for the agreed purpose. More onerous NDAs sometimes contain obligations on the recipient to keep a register of the individuals to whom the information has been made available and to keep all information password protected.
- Why do you need an NDA if the law provides protection? The common or equitable law of "breach of confidence" protects information which has the "necessary quality of confidence about it" and which has been disclosed "in circumstances importing an obligation of confidence". Inevitably, disputes arise over whether the information in question satisfies both of those requirements.
The benefit of having a well drafted, written NDA is that there is a written contract outlining the parties' rights and obligations. Thus, in the event of a breach, you can bring legal proceedings against the other party for breach of contract, which can often be an easier (and therefore less expensive) case to bring successfully than a breach of confidence claim.
For smaller producers or those starting out in the food and drink sector, an NDA may seem like yet another piece of paperwork which shouldn't take precedence over product development. That said, for those smaller members of the already crowded organic produce market, and across the food supply chain, disclosing commercially sensitive information to a third party without an NDA is a risk to be avoided.
Please contact Andy Braithwaite, if you would like us to provide you with a fee estimate for preparing a template NDA for your future use with third parties.