Introduction: The Strategic Imperative of Trade Secret Protection
In the global food industry, which is worth trillions of dollars, proprietary recipes are vital competitive assets. Historical examples, such as Coca-Cola’s long-standing protection of its formula and the 2016 incident involving the theft of Lao Gan Ma’s chili sauce recipe—resulting in over ten million renminbi in damages—highlight the significant risks at play.
Food companies generally have two main options for intellectual property protection: patent protection, which requires complete public disclosure in exchange for twenty years of exclusivity, and trade secret protection, which allows for indefinite exclusivity as long as strict confidentiality measures are in place. Data from China Judgments Online reveals a troubling trend: from 2020 to 2024, lawsuits related to food trade secrets rose by an average of thirty-seven percent annually, with formulation theft making up sixty-eight percent of these cases.
Risk 1: Inadequate Compliance with Legal Standards for Trade Secret Protection
Corporate practices often reveal significant shortcomings in adhering to legal requirements. A common issue is the excessive reliance on vague confidentiality clauses in employment contracts, which courts invalidate in about forty-two percent of cases. Additionally, there is a risk of unintentionally revealing key processes through compliance with regulations, such as China’s General Rules for Nutrition Labeling of Prepackaged Foods (GB7718).
A fundamental problem is that many companies do not adequately document their proprietary knowledge, leaving crucial formulations solely in the unwritten expertise of technicians without creating verifiable records or clear confidentiality notices.
According to Article 9 of China’s Anti-Unfair Competition Law, successful trade secret claims must demonstrate three elements: non-public accessibility (secrecy), proven economic benefit (commercial value), and reasonable protective measures. Legal precedents show that inadequate safeguards—like a condiment manufacturer’s failure to encrypt research and development documents in the 2023 Shandong High People’s Court casecan lead to the loss of protection.
To mitigate these risks, three essential protocols should be implemented.
First, create a multi-tiered information classification system: label core formulation ratios and process parameters as Top Secret, requiring fragmented storage across secure systems with multi-factor authentication; classify raw material specifications as Confidential, protected through digital watermarking and thorough access logging; and manage general production workflows as Restricted materials with role-based permissions.
Second, implement a three-dimensional identification system that combines physical security measures, such as ultraviolet-reactive coding on documents, invisible forensic watermarks linked to specific user credentials in digital files, and the strategic insertion of decoy data into non-critical production steps to hinder reverse engineering.
Third, adopt a hybrid intellectual property strategy where patentable elements go through standard disclosure processes while keeping core proprietary knowledge protected as trade secrets. For example, a company might patent the range of polyphenol content in a bubble tea formulation while keeping the thermal shock extraction method confidential.
Risk 2: Unnoticed Theft of Proprietary Formulations
Common methods of misappropriation reveal ongoing vulnerabilities. Departing employees are responsible for fifty-one percent of incidents, highlighted by a case where a former research and development director from a beverage company moved to a competitor with milkshake recipes, resulting in a revenue loss of twenty million renminbi. Supply chain leaks account for twenty-nine percent of breaches, as seen when ingredient suppliers sell proprietary soup base recipes to contract manufacturers. Information technology weaknesses contribute to seventeen percent of breaches, including instances where production specifications were intercepted through unsecured communications on consumer messaging apps.
To effectively address these risks, organizations need to establish comprehensive personnel controls throughout the employment lifecycle. From the onboarding stage, companies should require separate Confidentiality Agreements and legally compliant security deposits that do not exceed 20% of monthly salaries. During employment, external messaging platforms should be disabled in research and development areas, replaced with secure internal document transfer systems, and quarterly forensic audits of critical personnel devices should be conducted, focusing on USB usage and email activity patterns.
For offboarding, a systematic approach is essential: thirty days prior to an employee’s exit, IT departments should revoke document export permissions; on the final day of employment, legal teams must secure signed Post-Employment Confidentiality Agreements; and for six months post-departure, compliance teams should conduct monthly reviews of former employees’ industry activities to detect potential breaches. Furthermore, to safeguard supply chains, Multi-Tier Confidentiality Agreements should be implemented to legally bind secondary and tertiary suppliers, and split ingredient sourcing strategies should be utilized—such as having Manufacturer A provide base solutions while Manufacturer B supplies proprietary additives—to compartmentalize sensitive information.
Risk 3: Challenges in Proving Misappropriation with Evidence
Litigation involving food-related trade secrets presents distinct forensic difficulties that make proving infringement more complex. Advanced infringers often alter three to five percent of formulation components to hide their origins, while traditional production methods that rely on implicit knowledge—like subjective assessments of “simmering” temperatures—are difficult to quantify for legal standards.
To create legally sound evidence, a rigorous methodology is essential. Development teams should implement blockchain timestamping services to generate unchangeable records of formulation changes from the beginning, ensuring reliable proof of origin. For demonstrating substantial similarity, they should incorporate chemically identifiable trace markers, such as specific maltitol ratios, which serve as forensic identifiers; this method is accepted by courts in ninety-two percent of contested cases where it has been used. Additionally, organizations need to meticulously document research costs using phase-specific allocation methods that separate expenses linked to individual development milestones. Third-party verification can bolster the credibility of evidence; certified flavor profile reports that quantify sensory characteristics, like the intensity of caramel aroma measured at certain light wavelengths or acidity curve gradients, provide objective standards for comparison.
Risk 4: Challenges in Quantifying Damage Claims
Litigants often encounter difficulties in proving economic losses, as courts frequently dismiss damage claims due to insufficient documentation. Common issues include the inability to distinguish research expenses related to specific products and the failure to obtain financial records from defendants that would demonstrate illicit profits.
To create legally valid evidence, a triaxial cost documentation approach should be adopted. This involves keeping detailed chronological records of expenditures for each stage, such as noting the allocation of four hundred twenty thousand renminbi for culture medium development from March to June 2025. Additionally, a process-oriented accounting system should be established to isolate costs for each technical phase, including three hundred fifty thousand renminbi specifically for extraction research. Personnel audits should also be conducted to track the time spent by technologists, such as logbooks that confirm a lead researcher dedicated twelve hundred billable hours to the development of a specific formulation.
In legal cases, a bifurcated damages model should be used to calculate actual losses based on demonstrable reductions in sales volume multiplied by unit margins, while also assessing the infringer’s gains through verified production volumes multiplied by the difference between market prices and industry-average costs, all subject to statutory limits currently set at five million renminbi.
Enhanced Protection Framework: Twelve Integrated Safeguards
- Information Segmentation: Split formulations among three separate departments
- Access Control: R&D systems secured with biometric and OTP verification
- Data Security: Isolated servers for essential formulations (USB ports disabled)
- Activity Monitoring: Document operation logs recorded at millisecond intervals
- Supply Chain Concealment: Coded labels for ingredients (e.g., “A-37” represents β-carotene)
- Decoy Strategy: Distribution of counterfeit formulations on the black market to trace leaks
- Legal Readiness: Annual unannounced drills for evidence preservation
- Post-Employment Restrictions: 30% of annual salary considered for two-year non-compete agreements
- Emergency Procedures: Cryptographic self-destruction of documents upon unauthorized access attempts
- Financial Oversight: Separate R&D accounts with specific audit trails
- Employee Responsibility: Confidentiality performance metrics linked to pay
- Forensic Marking: Isotopic tracers used in non-essential processes (detectable in labs)
Conclusion: The Necessity of Formulation Protection as a Key Business Priority
In conclusion, prioritizing formulation protection is essential for business success. Companies should view it as a strategic necessity rather than just a compliance requirement. Forward-thinking organizations should adopt three key practices: invest 0.5 to 1 percent of their annual revenue to enhance their secrecy infrastructure, hold quarterly meetings of Trade Secret Steering Committees that include legal, technical, and executive members, and regularly update their protection strategies in line with research developments. To assess their current vulnerability, executives need to address critical questions: Can key formulations be fully exported electronically within 120 minutes? Do former employees who left more than 180 days ago still have unnoticed access? By rigorously applying both technical and organizational measures, businesses can protect their innovation processes from increasingly advanced threats of appropriation.
The article cited some viewpoints from <食品配方商业秘密保护：四大痛点 + N个TIPs> https://www.kwm.com/cn/zh/insights/latest-thinking/food-formula-trade-secrets-protection-pain-points-and-tips.html.