An acquaintance offered to teach me the recipe for a popular brand of fast-food fried chicken. He said that a friend of his once did business with that particular restaurant chain and discovered, or was inadvertently given, its famous secret recipe. I marveled that such simple ingredients could produce fried chicken that’s so crunchy on the outside and yet tender and juicy on the inside. More than that, however, I marveled at the utter laxity of that particular restaurant chain in guarding its proprietary recipe.
One would think that the franchise owners would guard that recipe with their very lives, considering that it’s been the key to the restaurant’s success all these years. However, it turns out that by its mere execution of a contract for the supply of ingredients, that famous restaurant chain had signed away its lifeblood. So now, countless families who are related to or are acquainted with that particular person who had done business with that famous chain are enjoying crunchy, juicy fried chicken in exactly the way it is served at that restaurant, but this time in the cozy privacy of their homes.
This obviously represents a huge loss of revenue for the restaurant. Still, contracting with strangers for the supply of raw materials or even of service is an indispensable part of any business. So, if dealing with potential information thieves can’t be helped, how then could you protect yourself as a business owner?
Using an appropriate confidentiality or nondisclosure agreement can help safeguard your trade secrets. But what exactly is a nondisclosure agreement? It is a contract by which the parties agree not to disclose any information covered by their agreement. As such, it creates a confidential relationship between the parties as a means for protecting certain business information or trade secrets.
Nondisclosure agreements are usually executed by two companies doing business with each other. It is considered mutual if both parties are prohibited from disclosing information; usually, however, it is the bigger company that demands confidentiality since it has more to lose. The best way to maintain your trade secrets is, of course, to never disclose them to anybody. But if it can’t be helped, you need to compartmentalize your suppliers and disclose information strictly on a need-to-know basis. For example, if you’re in the fried chicken business, don’t get all your ingredients from one supplier.
Transact with one supplier for chicken, another supplier for cooking oil, and so on, then, make sure that they sign iron-clad nondisclosure agreements stipulating that, at the risk of a costly lawsuit and possible jail time, they can never disclose to anybody (whether competitor or not) what products they are supplying to you. If you want to make it even stricter, stipulate that they can’t disclose to anybody that they’re transacting business with you in the first place.
Nondisclosure agreements give you a legal remedy in the event of a breach. Depending on the information disclosed, you may have other legal remedies available to you, like when there’s a violation of your copyright or trademark. In any case, make sure to update your nondisclosure agreements or contracts once in a while so that you’re always ahead of some of your suppliers who might be comparing notes behind your back.
Here are three important things that you should stipulate in your nondisclosure agreements. You need to insert
clauses in them stating that:
1. The confidential information cannot be directly or indirectly disclosed, published, transferred, or copied, or otherwise made known to third persons without your prior express written consent.
2. The confidential information cannot be used or replicated by the receiving party for its own use.
3. The obligation not to disclose shall survive the expiration or termination of the business contract or agreement.
Reeza Singzon is a lawyer specializing in civil, commercial, and labor law. Before becoming a lawyer, she worked in media for more than 10 years, writing and producing news programs for TV and working as an editor and columnist for a newspaper. For questions or comments, Atty. Reeza may be reached at firstname.lastname@example.org, or post your own legal question here