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Theft of Coca-Cola Trade Secrets Underscores Need to Safeguard Confidential Information
The United States Federal Bureau of Investigation recently arrested three people on charges of conspiring to steal trade secrets from the Coca-Cola Company and sell the information for millions of rand to PepsiCo Incorporated.
Theft of Coca-Cola Trade Secrets Underscores Need to Safeguard Confidential Information
Source: Herman Blignaut of Spoor & Fisher
The United States Federal Bureau of Investigation recently arrested three people on charges of conspiring to steal trade secrets from the Coca-Cola Company and sell the information for millions of rand to PepsiCo Incorporated.
Coca-Cola and PepsiCo are direct competitors and fierce rivals in the soft-drink and food industries. The recipe for Coke is said to be one of the most valuable, if not the most valuable, trade secret in the world. This trade secret combined with the value of the trade mark COCA-COLA (which has been rated by Interbrand in 2005 as the most valuable trade mark in the world at a staggering US$67,5 billion), provide for extremely valuable intellectual property in the hands of its proprietor.
One of the persons accused of stealing trade secrets from Coca-Cola was an employee in the company’s Atlanta headquarters. It has been confirmed that the information did not include the recipe for Coke, but that it consisted of other confidential documents and a sample of a new product the company is developing.
PepsiCo alerted its competitor upon being approached by the alleged offenders and co-operated with the authorities by assisting federal agents to set up an undercover operation to catch them in flagrante delicto. A spokesman for PepsiCo was subsequently reported to say: “We only did what any responsible company would do. Competition can sometimes be fierce, but it also must be fair and legal.”
Against this background, it may be useful to consider a similar scenario in South Africa, and to provide an overview as to what constitutes a trade secret and how it can be protected locally.
Unlike other forms of intellectual property such as trade marks, patents, designs and plant breeders’ rights, no provision is made for the registration of a trade secret from which statutory protection flows. Protection of trade secrets is granted by virtue of our common law, upon showing certain elements that have been identified by South African courts.
Our Courts (Alum-Phos (Pty) Ltd v Spatz & Another [1997] 1 All SA 616 (W) and Transfer & Precision Roll Grinding CC v Carsten & Another [1998] 4 All SA 168 (N)) have held that information must comply with the following requirements in order to qualify as trade secret:
i. the information must relate to and be capable of application in trade or industry; it must therefore be useful;
ii. the information must be secret or confidential and cannot be public knowledge; in this regard the information must only be available and known to a restricted number of people; and
iii. the information must, objectively viewed, be of economic value to the party seeking to protect it.
The difficult question in each case would be to decide what information gleaned by an employee is to be regarded as harmless (and therefore allowed to be disclosed) or general knowledge, and which items should be considered to be confidential or secret. The court in Coolair Ventilator Co. (S.A.) Ltd v Liebenberg & Another 1967 (1) SA 686 (W) held that the dividing line may move from case to case, according to what is held to be general practice or convention in the category of trade or manufacture in which the applicant falls, and with particular reference to its existing or potential competitors. If it is objectively established that a particular item of information could reasonably be useful to a competitor, i.e. to gain an advantage over the applicant, it would seem that such knowledge is prima facie confidential as far as an employee and third parties are concerned, and that disclosure would be a breach of the service contract. The potential or actual usefulness of the information to a rival would be an important consideration in determining whether or not it was confidential.
In Motion Transfer & Precision Roll Grinding CC v Carsten & Another (supra) the Court held that where an employee is still employed, the revelation of trade secrets to a rival during that period will ordinarily amount not only to unlawful competition but will also constitute a breach of an express or tacit term of the contractual relationship between the parties.
As is the situation in each matter before a Court, an applicant’s case would only be as good as the relevant facts and the evidence it can present. In Alum-Phos (Pty) Ltd v Spatz & Another (supra) it was, for example, held that the applicant was involved in an industry where there was a limited number of customers. It was shown to the Court’s satisfaction that the respondent built up a good relationship with three hundred of the applicant’s major customers. The respondent had considerable personal contact with the applicant’s customers and had built up goodwill in the industry; he went to extraordinary lengths in entertaining the customers and enhancing his position with them. The respondent was instrumental in making major sales. A schedule of business trips and meetings confirmed the respondent’s contact with the customers. The Court accordingly held that the respondent was able to influence the applicant’s customers and that his goodwill constituted the proprietary interest of the applicant.
In order to protect the trade secrets of a business all possible measures should be taken to keep the information secret and therefore out of the public domain. As additional steps, a company could also ensure that it has certain other measures in place with its employees, e.g. non-disclosure (confidentiality) agreements, restraints of trade, and where applicable, assignments of any intellectual property that may come into existence not provided for by legislation.
Businesses should realise the potential value of what they may consider as mere day-to-day intangibles. These procedures and information should be seen as assets that may safeguard the future of the company, and as such they should be jealously protected.
