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October 24, 2019

Food & Beverage IP

Trademarks & Trade Secrets are great ways to build value in the food & beverage industry. Why?

Any company that sells (ultimately) to consumers needs a brand, because a good brand builds loyalty. Brand loyalty means that your customers will pay more for your branded product than for a generic.

But what about trade secrets? Most food and beverage companies won’t file patents, even if the product is technically patentable. As it turns out, the subjective nature of taste and mouth feel for food and beverage products depends not only on ingredients but also on the preparation, i.e. processing steps. Scale up can be a trick, also. This lends itself to trade secrets.

Coca-cola’s formula for its cola beverage is a well known trade secret. The formula was first reduced to writing in 1919 and is locked behind a reinforced steel door in a vault with palm scanner and numeric code access required. The company takes measures to prevent most employees from learning the entire formula by departmentalizing and managing vendors that under obligation of confidentiality. Only two executives know the entire formula, which includes the specifications for the water used in the process. (Different water sources taste different.) In order to successfully litigate a trade secret infringement case, a company must show that it has taken reasonable measures to protect the trade secret from public disclosure. Coca-cola has managed to keep its secrets for a century.

Kentucky Fried Chicken has a secret recipe for its fried chicken. Aunt Claudia wrote down a recipe for fried chicken that was discovered by Joe Ledington, a descendant of Colonel Sanders, in a scrap book. It is only trade secret infringement if the trade secret is “misappropriated” by someone. In this case, Joe wasn’t under any obligation to keep the family recipe secret. However, commercial recipes are seldom the same as a family recipe. Scaling up a recipe to a commercial process usually requires changes to a family recipe. It’s not as simple as simply making a bigger batch. At least two different suppliers make portions of the recipe, which prevent suppliers from knowing the entire recipe. These suppliers are sworn to secrecy in nondisclosure agreements. So, the “secret recipe” is still secret and is locked up in at least two safe deposit boxes to keep it both safe and secure.

McDonald’s has a “special sauce” that is prepared only for its Big Mac. Unfortunately, it was once reported that McDonald’s lost the recipe for its secret sauce, and for a few years its recipe changed, until the recipe was recovered from a vendor that had a copy of the original recipe. Then, McDonald’s made a video public that showed how to make its special sauce. A secret loses the ability to be protected if the secret is disclosed publicly. Therefore, the “special sauce” is no longer a secret sauce, because McDonald’s did not take reasonable measures to protect the secret from public disclosure. Once secrecy is lost, a trade secret is lost forever. On the other hand, so long as the secrecy is protected, trade secret rights never expire. McDonald’s loss of its trade secret is probably not significant, because the value of its “special sauce” has been transferred to its brand.

If you have information that derives economic value from being kept secret and make reasonable efforts to maintains its secrecy, then you have a trade secret. Trade secrets can give you a competitive edge. If use the value of your trade secret to build value in your brand, then even if your trade secret is discovered, later, by reverse engineering or dumb luck, it won’t matter. The value of your company will be greater than it otherwise would have been. For that reason, trade secrets are valuable intellectual property. Don’t ignore them.

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