The protection of the secret formula of a substance to aid the drying of fruit – especially raisins and sultanas – came under legal scrutiny with the company who developed the formula turning to court to stop a former director from competing in this field by sharing the secret formula.
Pika Chemical, trading as Afritech (applicant), turned to the Western Cape High Court to obtain an interim interdict against its former director and chemist who was instrumental in developing the formula, James Nolte and various other entities.
The applicant wanted the respondents restrained from using its formulation for a fruit drying oil (FDO) known as “Pylene FDO”. The applicant has produced and supplied chemical compounds of various applications since 1997.
According to the applicant, it developed and manufactured Pylene FDO which is used to aid the drying of fruit. It has supplied Pylene FDO to entities such as Safari Dried Fruit in Upington for some time.
The applicant told the court that the formulation of Pylene FDO is proprietary to it and is confidential. It claimed that the formulation is known only to a handful of people and is of significant economic value to whomever is in possession thereof.
Nolte, who is the first respondent, developed Pylene FDO while a director of the applicant. He did this by reverse engineering an FDO manufactured by an Australian company known as Victoria Chemicals.
Victoria Chemicals is the leading brand of fruit drying oil and has dominated the local market. It was able to do so as it is able to produce and offer its drying oil to the market at a competitive rate.
Victoria Chemicals’s ability to do so, and how and why it was able to do so, is what interested Nolte. According to him, he managed to discover how this was done by Victoria Chemicals by researching the FDA requirements for FDOs.
He said he was able to produce the product at a cheaper rate which still yielded the requisite results.
The court was told that the sale by the applicant (and any of its competitors) of dried fruit oil to the South African fruit dried industry is a once-a-year event. Orders are placed in October for delivery in the early part of the following year.
Nolte, who meanwhile left the employment of the applicant, is now the sole member of a company which trades as Baychem and also produces fruit drying oil.
In October last year, Dorian Overberg, sole director of the applicant, inquired from one of its clients in the dry fruit industry Pepsico, whether it intended to place any orders for Pylene FDO for the upcoming year. He was surprised to hear that Pepsico did not require Pylene FDO as it had found an alternative supplier in the form of Southern Oil (Pty) Ltd (SOILL).
SOILL is an oil extractor and edible oil refinery in Swellendam. Overberg was surprised to hear that SOILL had sold an FDO to Pepsico as, to his knowledge, it had never done so before.
Overberg was told later that Nolte was an agent or consultant of some sort to SOILL. Overberg concluded that SOILL was using the applicant’s FDO formulation to produce its competing product and that it did so with the assistance of Nolte and Baychem. His lawyer wrote a letter of demand for them to stop using this product in competition with the applicant.
No undertaking was given, as none of the respondents conceded wrongdoing or the sharing of trade secrets.
SOILL replied through its attorneys that Canola oil is the main ingredient in a specific type of fruit drying oil imported from Australia and widely used within the fruit drying industry in South Africa.
According to SOILL it had been working on developing a local version of the imported product since 2015. It said Nolte acted as a consultant to SOILL with a view to assisting it with the development of the product.
Acting Judge B Manca said while it is correct that SOILL has been in the process of developing an FDO since 2015, it was unable to do so effectively until it engaged the services of Nolte and Baychem.
“Indeed, and perhaps tellingly, Mr Nolte admitted that he is one of only a handful of people who know the formulation of Pylene FDO. This admission in my view, is sufficient to establish, prima facie, that the applicant's formulation of Pylene FDO is confidential to the applicant,” the judge said.
The judge concluded that on the face of things, he is satisfied that the applicant has proved that it owns the formulation of Pylene FDO and that the formulation thereof is confidential to it and that it seems as if this confidentiality is being infringed.
In finding that a small industry like the applicant will not be able to sustain its loses, the court issued the interim interdict preventing the respondents from using the applicants secrets in its drying product. This order is pending a main application to be heard later to finally determine the issues.
Pretoria News
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