By: Josh H. Escovedo
In the bustling craft brew economy brewers are faced with new issues every day. One that recently came to my attention arises when the craft brewery’s brewmaster or head brewer decides to either start his own craft brewery, or go to work for another brewery. While this may not initially seem like a big deal, it gets much more complicated when that brewmaster or brewer is responsible for the creation of your flagship brew. The question arises: who owns the intellectual property rights to that brew? Of course, the brewery is going to say that they have been selling, distributing, and promoting the brew, so it must be theirs. On the other hand, the brewer is going to say that he created it, so it must be his. The truth is that determining who owns the intellectual property rights to the brew formula can get quite complicated, encompassing numerous factors. But it does not have to be.
With a booming industry such as craft brew, it is imperative that the appropriate precautions be taken to protect the craft brewery’s most lucrative asset: the beer itself. In order to protect a brew formula from being taken from your company and utilized by a competitor when one of your brewers, the creator of the formula or not, leaves the company, the formula must be treated as a trade secret. The California Uniform Trade Secrets Act (“UTSA”) defines a trade secret as:
information, including a formula, pattern, compilation, program, device, method, or technique, or process, that:
(1) derives independent economic value, actual or potential, from not being generally known to the public, or to other persons who can obtain economic value from its disclosure or use; and
(2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
A brew formula easily fits under the UTSA’s definition of a trade secret. It is obviously a formula that derives its independent economic value from not being generally known to others. Simply stated, the formula is valuable because it is not being duplicated by your competitors. If it was, no one would care if they were drinking Stone IPA or PBR. So the formula alone satisfies the first prong of the UTSA’s test for trade secrets, but the second prong can only be satisfied by the brewery itself. It is the responsibility of the brewery to exercise reasonable efforts to maintain its secrecy. What this means is that you cannot post the formula for your brews on the wall of the taproom, or have articles on your website demonstrating how to replicate your brews. And you definitely cannot invite consumers into your brewery to learn how to make your brews. If you do that, trade secret protection is gone. However, absent such actions, and a requirement that all employees execute a non-disclosure agreement promising not to disclose any of the company’s trade secret or proprietary information, it should be relatively easy to obtain trade secret protection.
This leaves the brewer with one last problem protecting its formulas in the hypothetical described above: the ownership of the formula is disputed. Again, this could be quite complicated if there are no preventive measures taken in the situation. There would likely be a multi-factor analysis concerning whose resources were used, when the formula was developed, and other things of that sort. But with the proper agreements in place, it will be clear that the brewery owns the intellectual property rights. In most technology and science based companies, the employees and independent contractors are required to execute employment contracts requiring assignment of the employee’s invention rights. In plain English, this means that after signing such an agreement, any invention created by the employee, including beer formulas, in the scope of his or her employment, and/or utilizing the resources of the company, belongs to the company—not the individual. This instantly clears up the hypothetical posed above absent some exceptional circumstances that exceed the scope of this article. This, however, would not necessarily cover the situation where the brewer creates the brew prior to joining your brewery, but that would simply require an assignment of the intellectual property rights therein. Once that is taken care of, the brew becomes the intellectual property of the company and subject to the UTSA protections discussed above.
Although I have discussed this process as simple and straightforward, it should be left to the care of legal professionals. Again, the intellectual property rights to a brewery’s flagship brew may be its most valuable asset. If that asset was lost, there may not be anything to separate that brewery from the others. So it is of the utmost importance that appropriate measures be taken to ensure that these rights are protected. It may seem unnecessary now, but no one should wait until they have become a cautionary tale.