Confidentiality law
Identify and protect
confidential information
From proprietary formulas to production processes to marketing strategies,
both service buyers and sellers have critical assets that need protection to preserve value.
By Jeffrey A. Hechtman
and Megan M. Mathias
Information that has value should be
protected, and this is true in contract
packaging as well, whether you’re a service
buyer or a service provider. Confidential
information can take many forms. Some
companies have unique processes while
others have formulas, marketing strategies,
or customer lists that have taken years to
develop and need to be protected from
competitors. Other businesses seek to veil a
product or innovative packaging in secrecy
for a limited period of time while the product is being prepared for introduction into
the market.
The common thread among these valuable assets is the need for both consumer
packaged goods companies and contract
packaging companies to prevent disclosure
in order to preserve value.
The starting point for protecting valuable
information is for the service buyer or the
service provider to treat the information it
seeks to protect as though it is confidential.
Failure to do so could dilute a company’s
competitive edge, leave the company vulnerable to misappropriation, and create a
“What information is
essential or unique to
your business? The
value of a business can
be tied to anything
from a secret sauce
to a customer.
”
weakness that competitors can exploit.
The issues related to protecting confidential information are manageable, and
a well-informed CEO or product manager
should thoughtfully consider what information needs protection and take steps to protect that information. This article provides
a roadmap of how to protect confidential
information.
Identify value and access
The first step is to identify the information that needs to be protected. What
type of information is valuable to your
Tips for maintaining confidentiality
Here are five ideas to provide a roadmap for contract packaging service buyers and
providers for protecting their confidential information. Both consumer packaged
goods companies and contract packagers require specific and tailored strategies to
protect their information.
• Know and define the scope of your confidential information.
• Determine who needs access and limit access.
• Physical protection mechanisms and password protection are critical.
• Lock down employees, OEMs, suppliers, vendors, and visitors.
• A well-crafted nondisclosure agreement is essential.
company? What information is essential
or unique to your business? The value of
a business can be tied to anything from a
secret sauce to a customer list. Therefore,
knowing the source of value is critical to
adequately protecting a business.
Products, packages, customers, or processes can take years and significant cost
to develop. To best maintain confidentiality, the appropriate strategies to protect
valuable information need to be tailored to
the nature of the information. An effective
strategy for one type of confidential information may be less effective for another
type of asset.
For example, food products with secret
recipes can be delivered in pre-mixed
batches so that users do not know all of the
ingredients, while customer lists cannot be
similarly protected. Sometimes a contract
packager has developed an extensive list
of vendors and pricing that is unique to
its business. Each business must examine
the aspects of its operation and customize
its information protection strategy
accordingly.
Identifying valuable information is only
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Confidentiality law
Define confidential information to avoid ambiguity
There are a number of ways that contract
packaging service buyers and providers
can keep confidential information private,
and one of them is a nondisclosure
agreement (NDA). These agreements are
designed to preclude harmful disclosure
of confidential information. A nondisclosure agreement is not one-size-fits-all;
it requires an analysis of the business
at issue and a strategy tailored to that
business.
The following tips can go a long way
to mapping out a strategy to protect
confidential information.
• A typical NDA defines the scope
of confidential information. Though
the definition of confidential information seems obvious, it is an important
consideration that should be tailored
to the business at hand. For example, a
food company that has particular recipes
or formulas imperative to the quality of
its products has a much different scope
than a company whose information relates to a particular marketing strategy.
Any ambiguity in the definition of confidential information may be construed
against the company and, therefore,
a key piece of information could be
excluded if not specifically included in
the first step in maintaining confidentiality. The next step requires the company to
identify the people with access to the information and narrow access to those that
actually need the information to perform
their job functions. Frequently, information is available to employees who do not
require access to the information, exposing
the business to unnecessary risk. A CFO
usually has no need to know secret formulas or processes needed to operate a plant,
while the plant manager does not need
access to financial information unrelated to
the plant’s operations.
As most employees change employers
over the course of their careers, exposing
information to employees who do not have
a “need to know” creates additional risk to
outsiders. Likewise, suppliers and service
the definition. Similarly, exclusions from
the definition of confidential information
also should be addressed.
• The disclosure period or limitation
period is important. Some information
requires protection longer than other
information. The recipe for Coca-Cola
is something the company would argue
against ever disclosing. A new package
for an established product may require
a shorter time frame within which the
confidential information should be
protected because the “cat is out of the
bag” as soon as the product is launched.
The disclosure period is important
because the NDA must be reasonable
to be enforceable. Narrowly tailoring a
disclosure period can impart reasonableness to the scope of the NDA, thereby
enhancing the likelihood of successful
enforcement.
• Permissible disclosure should be
described. The NDA should identify
exactly what the permitted uses for
the confidential information are, both
in terms of use and disclosure. An
employee, for example, must be able to
use the confidential information to perform his or her job functions but should
be precluded from using the confidential
information for any other purpose. Is the
employee permitted to download the
information onto a personal thumbdrive
or computer? Defining permissible conduct will reduce the risk of an employee
exploiting confidential information (and
increase the likelihood of proving what
was done was impermissible). If the
employee is not permitted to download
information on a thumbdrive, proof of
downloading alone may demonstrate to
a court that the employee breached the
terms of the NDA and may go a long
way to demonstrating improper use.
• An attorney’s fees provision is significant leverage and shouldn’t be overlooked. Often, attorneys’ fees become a
significant consideration in the decision
to enforce an NDA. Attorneys’ fees can
rack up quickly if litigation is necessary
to enforce the NDA to preclude use and
disclosure of confidential information.
The NDA should provide that if a party
seeks to enforce the NDA, it can recover
its costs and attorneys’ fees for doing
so. This simple provision can be a big
“miss” that costs a company hundreds
of thousands of dollars and a missed
opportunity for leverage, if left out of
the NDA.
providers may have access to confidential
information beyond the scope required to
perform or provide their services or products for the company.
Limit access to information
After a contract packaging services buyer
or provider has identified its valuable information and narrowly constructed the list of
employees, vendors, and service providers
with access to confidential information, the
company should take steps to limit access
and use of information.
Offices and file cabinets containing confidential information should be locked and
access to keys should be limited to such
that people have access only to the information necessary to perform their jobs. In
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addition, computers, including laptops, and
PDAs and software programs, should be
password-protected. Finally, the company
should limit vendors to the relevant portion
of the secret sauce recipe, not all of the
ingredients.
If the confidential information relates
to a process or procedure, all aspects of
that process should be treated as confidential. To the extent the details of the
machine that grinds the food product to
a fine powder, for example, are important,
components of the company’s confidential
process, the equipment manufacturer,
Jeffrey A. Hechtman
ConfidentialityLaw.indd 26
the process design firm, the employees
running the machines, and management
should be required to sign a nondisclosure
agreement or confidentiality agreement. A
security code should be required to enter
the facility housing the processing equipment. If nonemployees sometimes tour the
plant, a physical barrier should be erected
to avoid disclosing sensitive details of the
process to outsiders. Keep in mind that
disclosure—even to a noncompetitor—can
be problematic.
Every person who is privy to the confidential information should be required to
sign a non-disclosure agreement (“NDA”).
Each stage of the process should be considered: employees of the product manufacturer, the OEM, packaging companies, distributors, vendors, and suppliers. Each stage in
the process represents a potential weakness
in the chain of preserving confidentiality.
In the case of employees, the NDA is
often intertwined with an employment
agreement. Omission of a key employee
Megan M. Mathias
or vendor can open the door for a competitor to argue that the information was
not treated as confidential and, therefore,
should not be protected. [CP]
The authors, Jeffrey A. Hechtman and
Megan M. Mathias, are both attorneys servicing mid-market businesses at Horwood
Marcus & Berk Chartered (www.hmblaw) in
Chicago. Hechtman and Mathias represent
privately held manufacturers, distributors,
ad service companies, including packaging
services buyers and providers, as outside
general counsel.
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