By Lawrence J. Del Rossi
This is the third article in a continuing series, “The Restricting Covenant.” In restrictive covenant cases, a company’s trade secrets are sometimes referred to as its “secret sauce” or “secret recipe.” The “secret formula” of Coca-Cola soda is an analogy used to help explain the uniqueness of a company’s protectable interest and the need to prevent unauthorized disclosure, misappropriation or unlawful competition. This talk about secret sauces and recipes not only made me hungry, but it also relates to the subject of this article – restrictive covenants, trade secrets and the food and restaurant industry.
What’s in Your Secret Sauce?
Food recipes can constitute trade secrets. In Tavern Restaurant v. Brandow, for example, the Supreme Court of Iowa held that a restaurant had successfully demonstrated at trial that its former manager and his new employer (a competing restaurant) had misappropriated “secret recipes” for pizza sauce, pizza crust and grinder sandwiches. To win at trial, the plaintiff had to show that its recipes derived independent economic value and that it took reasonable steps to maintain their secrecy.
As to the independent economic value requirement, the plaintiff’s owner testified that he had purchased the restaurant (including its recipes) for almost half a million dollars, and that his restaurant had won several “highly-prized local food awards.” In addition, the plaintiff presented an expert from the Culinary Institute of America, who concluded that he could not determine the exact amount of specific ingredients found in the recipes “without access to prohibitively expensive chemical analysis machinery.” Even the defendants’ expert conceded that he could not determine the underlying process by which the pizza and grinders were assembled. The court explained that, “[w]hile the core ingredients were determinable with the resort to a rare and expensive machine, the exact assembly and baking processes used could not be determined.”
With respect to secrecy requirement, the plaintiff-restaurant presented evidence that its recipes were not generally known or ascertainable in the public domain. The owner told its employees that the recipes were confidential. All recipes, including the crust recipe, were locked in a safe deposit box. Even though the kitchen employees who prepared the dough knew the crust recipe, the court found that the restaurant’s secrecy procedures were “reasonable under the circumstances.”
Based on this evidence, the Iowa Supreme Court upheld the jury’s award of money damages, as well as the restaurant’s request for a permanent injunction that prevented the defendants from “using, divulging, and communicating to anyone else any of the trade secrets or confidential information which includes all or any part of the plaintiff’s recipes for pizza sauce, pizza dough or grinders or any substantially similar recipes thereto.”
That’s the Way the Cookie Crumbles?
Courts will enjoin a competitor from using a food recipe if it is a trade secret and the holder of the secret has taken steps to protect it from the public. The opening two sentences of the Massachusetts appeal court’s opinion in Peggy Lawton Kitchens, Inc. v. Hogan is priceless. The court begins: “Nothing is sacred. We have before us a case of theft of a recipe for baking chocolate chip cookies.”
The owner of Peggy Lawton Kitchens (“Kitchens”) had mixed the chaff from walnuts, which he called “chaff, nut meal, nut dust, and nut crunch” in his chocolate chip cookie batter. This produced “a unique and distinctive flavor.” The appeals court found that while the basic ingredients of flour, sugar, shortening, chocolate chips, eggs, and salt, would be common in any chocolate chip cookie, and therefore not a trade secret, “the insertion of the nut dust served to add that modicum of originality which separates a process from the every day and so characterizes a trade secret.” This cookie recipe led to immediate commercial success for Kitchens, and according to its creator, “did to the cookies what butter does to popcorn or salt to a pretzel. It really made the flavor sing.”
The owner had carefully guarded the cookie recipe by locking the only copies in an office safe and in his desk drawer. The baking process for the cookies was divided into three separate components and was written on three separate cards. Access to the cards was limited to long-time trusted employees, including the defendant, Terence Hogan. The appeals court found that Kitchens had taken “reasonable steps to maintain its mystery and to narrow the circle of those privy to its essentials.” The court also concluded that the “absence of admonitions about secrecy or the failure to emphasize secrecy in employment contracts (if there were any in this relatively small business)” was not fatal to the plaintiff.
The defendant Hogan, who had no prior experience in volume baking before working at Kitchens, left Kitchens and established a competing bakery business under the trade name “Hogie Bear.” Hogie Bear’s first product was chocolate chip cookies, which included the “miraculous nut dust” and looked “similar in appearance, color, cell construction, texture, flavor and taste.” At that time, about 40 brands of chocolate chip cookies were sold in New England. Except those made by Kitchens and Hogie Bear, no two of them were alike. The record established that Hogan had “employed a ruse to examine the ingredients cards and may have helped himself to a look at the formula tucked away in Kitchens’ safe or [its owner’s] desk.” The trial court did not award Kitchens damages because the evidence was “too vague and speculative.” However, Hogan was enjoined permanently from “making, baking, and selling chocolate chip cookies which use the plaintiff’s formula.”
Inevitable Disclosure of the Secret Formula?
The Third Circuit’s decision in Bimbo Bakeries USA, Inc. v. Botticella is another interesting case discussing the intersection between food recipes, trade secrets, restrictive covenants, and injunctive relief.
Bimbo Bakeries is one of the largest baking companies in the United States, producing and distributing baked goods under popular brand names including Thomas’ and Entenmann’s. The defendant, Chris Botticella, was responsible for five of Bimbo’s production facilities and oversaw a variety of areas including product quality and cost, labor issues, and new product development. As one of Bimbo’s senior executives, Botticella had access to and acquired a broad range of confidential information about Bimbo, its products, and its business strategy. For example, he was one of only seven people who possessed all of the knowledge necessary to replicate independently Bimbo’s popular line of Thomas’ English Muffins, including the secret behind the muffins’ unique “nooks and crannies” texture. He signed a “Confidentiality, Non-Solicitation and Inventions Assignment Agreement,” in which he agreed not to compete directly with Bimbo during his employment, not to use or disclose any of Bimbo’s confidential or proprietary information during or after his employment, and to return every document he received from Bimbo after his employment. The agreement, however, did not include a covenant restricting where Botticella could work after he left Bimbo.
Botticella accepted a job at one of Bimbo’s primary competitors in the baking industry – Hostess Brands, Inc. However, he did not disclose his plans to work for Hostess for several months, continued to engage fully in his work at Bimbo, and had access to Bimbo’s confidential, proprietary and trade secret information after he accepted the job with Hostess. After Botticella’s departure, a computer forensics expert concluded that the person logging in as Botticella had accessed confidential documents during the final weeks and days of his employment at Bimbo, including 12 documents in 13 seconds on his last day within just minutes after Botticella had disclosed to Bimbo his plans to work for Hostess.
Bimbo brought a lawsuit in Pennsylvania federal court against Botticella seeking to protect its trade secrets and to enjoin him from working for Hostess. Even though Botticella did not have a post-employment non-compete in his employment agreement with Bimbo, the District Court granted Bimbo’s motion and preliminarily enjoined Botticella from working with Hostess and from divulging to Hostess any confidential or proprietary information belonging to Bimbo. The court found there was “substantial likelihood, if not an inevitability, that [Botticella] will disclose or use Bimbo’s trade secrets in the course of his employment with Hostess.”
On appeal, the Court of Appeals for the Third Circuit affirmed the District Court’s rulings. After discussing the contours of the “inevitable disclosure” doctrine under Pennsylvania law, the court concluded that “(1) a determination of whether to grant injunctive relief in a trade secrets case and, if so, the proper scope of the relief, depends on a highly fact-specific inquiry into the situation in the case the court is considering[,] and (2) a court conducting this inquiry has discretion to enjoin a defendant from beginning new employment if the facts of the case demonstrate a substantial threat of trade secret misappropriation.” Proof of actual misappropriation was not required. Note that many states do not recognize or have rejected the inevitable disclosure doctrine.
The Third Circuit found that the trial court had not abused its discretion in concluding, at the preliminary stage of the case, that Bimbo would suffer irreparable harm absent injunctive relief because the disclosure of its trade secrets to Hostess would put Bimbo at a competitive disadvantage that a legal remedy could not redress. Additionally, the private and public interests in preventing the misappropriation of Bimbo’s trade secrets outweighed the temporary restrictions on Botticella’s choice of employment with Hostess.
Caught with Your Hand in the Cookie Jar?
Although trade secret and non-compete laws are state-by-state specific, there are some common ingredients that are baked into most state laws. The three cases discussed above highlight some recurring themes and common ingredients found in food recipe restrictive covenant cases (and many non-foody non-compete cases). First, unique and distinctive recipes that derive independent value can constitute trade secrets and are protectable secrets from unauthorized use and disclosure. Second, the holder of the recipe is expected to take reasonable steps to keep it secret and out of the public domain. And third, bad actors get punished when their hand is caught in the preverbal cookie jar (sorry, that one was too easy).
No One Size Fits All
Finally, on a somewhat foody-related/restrictive covenant note, there has been a recent uptick in enforcement efforts by certain states related to non-competes, particularly for low-wage workers in the fast food industry. The trend is based on the ability of non-executive and non-supervisory employees’ ability to earn a living as long as they do not steal and use trade secrets. For example, in June 2016, the Illinois Attorney General’s Office filed a lawsuit against Jimmy John’s franchises “for imposing highly restrictive non-compete agreements on its employees, including low-wage sandwich shop employees and delivery drivers whose primary job tasks are to take food orders and make and deliver sandwiches.” The agreements barred departing employees from taking jobs with competitors for two years and from working within two miles of a Jimmy John’s store. In December 2016, Jimmy John’s reached a settlement, agreeing to pay $100,000 and to remove non-compete clauses from its new-hire agreements. This deal was reached after Jimmy John’s had settled with the New York Attorney General’s Office and agreed not to use non-compete agreements for most of its workers in New York.
The goal of this Series is to provide a brief overview and some interesting insights and practical pointers when dealing with unique issues that might arise in the context of restrictive covenants and a particular occupation or industry. It is not intended to provide and should not be construed as providing legal advice. Each situation is different, and if legal advice is needed, you should seek the services of a qualified attorney who is knowledgeable and experienced in this area of the law to address your specific issues or needs. Stay tuned for future articles in this Series, which will discuss the restrictive covenant landscape for other occupations and industries, including computer engineers, carpenters, car salespersons, and more.
Click here to view all posts in “The Restricting Covenant” series.