Trade Secrets

30 Years Ago - Coca-Cola's New Coke "Fail"

Yesterday marked the 30th anniversary of Coca-Cola's public admission that "New" Coke was a commercial failure.  As the linked article reminds, in April 1985, Coca-Cola, Inc. announced that it would abandon the original Coca-Cola formula and switch to a "new" formula that resulted in a slightly sweeter taste similar to Pepsi.  Yet, a mere 79 days after its launch, Coca-Cola announced on July 11, 1985 that it would resurrect the original formula in the re-branded "Coca-Cola Classic" (or "Coke Classic") while maintaining the "New" Coke product as well. Whether this was a massive failure in understanding one's product and it's market, or a cleverly designed scheme to shelve the original formula for a short-time to drive up publicity and demand for that product, the return of the original formula ("Classic") to shelves resulted in improved sales and better competitive footing with Pepsi (which would later endure a similar "misstep" with Crystal Pepsi in 1992 - coincidentally, also set for a revival soon).

While the public tends to have a basic understanding of trade secret protection, many know that the original Coca-Cola formula is perhaps the most famous trade secret in business history.  It is one of the great examples of the value of a trade secret.  It also represents the leading alternative to the patent process.

With any new/improved technology, process, or technique, the innovator(s) is faced with the dilemma of whether to patent the improvement or protect the innovation by trade secret.  While there are instances where both forms of protection may be utilized to protect different aspects of the overall improvement, each separate aspect of the new/improved innovation must be held in secrecy (trade secret) or disclosed (patent).  The two (different) forms of protection compel the different approaches, since these forms of protection are the opposite sides of the same innovation coin, in several legal and practical ways.

Trade secret laws are based in common law, and have since been codified at the state level and/or through interstate compacts (e.g., UTSA, the  Uniform Trade Secret Act).  Despite adoption in all states and in uniform acts, most versions are virtually identical in form.  Something of value must be held in secrecy and protected using reasonable means to guard against public accessibility.

Notably, one does not "apply" for a trade secret or await "approval" from a governmental agency.  Thus, there is no governmental cost to obtaining a trade secret; the only costs are business and legal.  One simply holds the technology, process, technique, information, or data in secret (well, more simply stated than simply accomplished).  If the tech/info is pilfered by another, then "misappropriation" of a trade secret has occurred and is actionable.  And unlike patent law, trade secret law has both a civil penalty and a criminal penalty aspect (exemplified by the unlikely team of Coca-Cola and Pepsico assisting the FBI in prosecuting three individuals for the theft and attempted sale of Coca-Cola info to Pepsico).

Conversely, patent laws are based in the U.S. Constitution (as are copyright laws).  To obtain a patent, one must file an application with the U.S. Patent and Trademark Office (USPTO or PTO).  The application must include at least one written claim defining the scope (the metes and bounds like the written description of a property deed), as well as an inventor's declaration, and the appropriate filing fees.

The application will often endure a 2-4 year road through examination, hopefully with issuance of at least one claim and a patent resulting thereafter.  In exchange for the limited monopoly of the granted patent, measured as a 20-year term from the filing date, the inventor/applicant must disclose all information necessary to practice the invention.

Thus, the flip-sides of the coin:  secrecy and potential protection into perpetuity (trade secret), or public disclosure and limited monopoly (patent).  Sometimes the dilemma is easy to resolve; other times, it is the decision that determines the livelihood of the business going forward.  If you have such a dilemma, do not hesitate to contact York Law LLC to determine which path is the best for your business.

(Cosmo) Kramer Teaches the Importance of an NDA

As it perpetually cycles through its Seinfeld inventory, last week TBS aired one of the early episodes ("The Pick") showing the entrepreneurial spirit of (not-yet Cosmo) Kramer.  "The Pick" is thematically connected to the previous season's "The Pez Dispenser" episode because of Kramer's concept for a fragrance based on the smell of the beach. In season three's "The Pez Dispenser", Kramer labels his fragrance "The Beach".  Through an acquaintance of Jerry's, Kramer gets an opportunity to pitch "The Beach" to an executive at Calvin Klein.  But, that is as far as the pitch goes, and to Kramer's knowledge, the idea dies a quick if not bloodless death.

Yet, in season four's "The Pick", Jerry begins dating an attractive model photographed for Calvin Klein's advertisement for the new fragrance "The Ocean".  The model visits Jerry in his apartment sporting the new fragrance, and despite his best efforts to keep the model (Tia) and Kramer from crossing paths, Kramer discovers the scent and declares (to Jerry) that CK had ripped off his idea: "I could've been a millionaire.  I could've been a fragrance millionaire!!"  Kramer confronts Calvin Klein, but allows himself to get sidetracked by an offer to model men's underwear for CK.

There are several important lessons in this episode for entrepreneurs and innovators.  First, if one believes s/he has a valuable idea, concept, or product, one should try to envelope the idea/product in some form of protection.  At a bare minimum, one should disclose a proprietary idea to an outside entity only if the entity will execute a non-disclosure agreement (NDA).  An NDA binds the parties from engaging in the unilateral disclosure of the proprietary information received.  Any unilateral / unauthorized disclosure of the non-public/proprietary information would (potentially) be actionable as a breach of contract claim.  However, NDAs are problematic because even if one proves a breach occurred, the damages for such a breach are often highly speculative.  Consider:  how does a judge or jury evaluate the commercial value or potential of an idea/concept that likely has few if any antecedents in the market?

Accordingly, an NDA should be only one of the several arrows drawn from the entrepreneur's quiver.  In addition to an NDA, one should consider the use of a provisional patent application, esp. in light of the US's move to a first-to-file application system (an abandonment of the first-to-invent system).  Without a provisional patent application on file prior to disclosure to a third-party, even if an NDA is used, the novelty of any inventive subject matter is forfeited and the validity of any claims issuing from the subject matter will be in serious jeopardy.  The ease (and relative low cost) of filing a provisional patent application, and the twelve-month secrecy in which it exists, also allows the innovator to abandon the patent pathway for trade secret protection if it becomes evident that trade secret protection is more beneficial than one or more issued patents.

The most conservative route includes waiting for the issuance of one or more claims in a patent issued by the USPTO, in combination with an NDA and/or other beneficial contractual clauses.  However, the major draw-back of waiting for an issued claim (and patent) is that an inventor is likely pushing off commercial enterprise by three-to-five years as the administrative examination process moves at a less-than-optimal pace.  Yet, there may be limited circumstances where this strategy makes the best sense.

Looking back, Kramer would have been better off to use an NDA with Calvin Klein, while also utilizing the quick and low cost of the provisional patent application system to put him at the head of the line (and protect against the alleged theft that occurs after "The Pez Dispenser" episode).  Had Kramer had these two pieces of the puzzle in place, and had Calvin Klein proceeded with manufacture and/or sale of "The Ocean", Cosmo would have had several options in cutting the knees of Calvin Klein, and may have had a good shot at a significant monetary damages award (or a hefty settlement to save both parties a lot of litigation costs).

If, like Kramer, you have a fun idea or concept that you want to present to another business, but you want to prevent your idea/concept from being taken without any potential for compensation, please contact me and my office (olyork at gmail dot com) for a consultation on what options you may have to protect your intellectual property.