If You Do Not Know It, It Is Not Your Trade Secret

On August 8, 2012, in Trade Secrets, by Brian A. Hall

UnIP (UnIntellectual Property): Trade Secret for an Unknown Formula

This case from the United States District Court for the Northern District of Indiana involved a former employee of a beverage company who left and started his own beverage company, which produced an energy drink called BAM. The former employee, Plaintiff, sought declaratory relief that his former employer, the Defendant beverage company, did not own anything eligible for protection under the Indiana Uniform Trade Secrets Act. Plaintiff sought summary judgment for his claims for declaratory judgment as well as the counterclaims asserted by the Defendant beverage company. I will focus on the trade secret claim.

The Court granted summary judgment to Plaintiff as it related to the Defendant beverage company’s claimed trade secret in its Energy Drink Formula. The Defendant beverage company used an outside flavor company for the formula of its Bonzai energy drink. The Defendant beverage company itself admitted to not even know what the formula happened to be (i.e. what made up the formula). Despite finding that, as a matter of law, the formula was not the Defendant beverage company’s trade secret, the Court held that the identity of that flavor company could be a trade secret, finding:

“Additionally, any economic value that a competitor, like Bodemer, would gain from this information is not merely from the knowledge of the flavor houses’s existence, but also from the knowledge that this flavor house was Swanel’s flavor house. The fact that the flavor house was well known in the industry does not mean that the flavor house was well known in the industry for being Swanel’s flavor house. A competitor seeking to replicate a Swanel product would be able to do so more quickly knowing which flavor house Swanel had used to develop that product.”

Put another way, the Court recognized that it did not matter that it was generally known that the flavor company existed and produced formulas, there could be value to competitors, such as Plaintiff, in knowing that this flavor company was indeed Defendant beverage company’s flavor company. It recognized, and rightfully so, that a competitor could avoid the time, effort, and resources required to identify, try, replace (negative know-how) and select a flavor company and, as a result, benefit.

While this blog is indeed about unintellectual property, and thus items held not be a trade secret, the identification of those converse items that may qualify for trade secret protection is instructive here. The Court denied summary judgment for Plaintiff as it related to the following trade secrets claimed by the Defendant beverage company due to contested issues of material fact:

1. List of distributors
2. Distributors’ supply requirements
3. Product recipe
4. Production techniques
5. Pricing arrangements with suppliers
6. Locations with higher sales volume
7. Profits from distributors
8. Product cost information
9. Product pricing structure given contested issues of fact

It remains to be seen whether these would indeed qualify as a trade secret.

Ultimately, the Court took the prudent course of action, based upon the evidence, and allowed the matter to proceed to a finder of fact. In doing so, its only finding of unintellectual property was for a formula that apparently was created by, maintained by, and only known by a flavor company that merely supplied it to Defendant beverage company for inclusion its own recipe. Not surprisingly, the Court would not allow the Defendant beverage company to claim exclusive ownership rights in and protection for something it did not even know. It seems to logically flow from this ruling that one can not claim trade secret protection in a trade secret owned by another (remember compilation trade secrets combine items from the public domain). However, at the very least, this case stands for the proposition that one surely must know that which it is claiming to be a trade secret. Put another way, if you are not in on the secret, you are out of luck!

Did we not all learn early on that “secrets, secrets are no fun, secrets, secrets hurt someone”? Ironically, the Defendant beverage company seems to have been hurt in its attempt to claim trade secret protection for a formula to which it was not in on the secret.

Bodemer v. Swanel Beverage, Inc., 2:09 CV 90, 2012 WL 3138097 (N.D. Ind. July 31, 2012).


 

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