The craft beer business is often a tight-knit group, with friends starting businesses and hiring other friends. But as a brewery grows, the business becomes more than a small endeavor things become real. Disagreements arise, decisions need to be made, and sometimes your friends have opportunities to start their own businesses.
Key employees leaving your business can raise a number of questions: Are they starting a competing business? Are they taking beer recipes with them? Is there anything I can do to stop them? How will this impact my business?
Like most things in life, the best way to answer these questions is to proactively plan for this situation. We recommend three tools to proactively protect a craft brewery’s intellectual property: trademark registration, trade secret organization, and non-compete agreement implementation.
Trademark Registration for Craft Breweries
Trademarks identify the source of goods or services. In other words, when consumers see your mark (generally your business name/logo), the consumer connects your mark with the type and quality of goods you provide. When the consumers positively react to seeing your mark, you have successfully created goodwill in your mark.
The best way to protect your mark (and that valuable goodwill you just created) is to obtain federal registration of your mark. Failure to do so can leave the door open for other breweries to use the same or similar mark in connection with another beer. If this happens, you will be forced to hire attorneys to sort out the situation with no guarantee your brand will be able to expand as you planned. This type of uncertainty prohibits business growth.
On the other hand, federal registration of your mark is a smart business investment. It locks in your position giving you nationwide rights to use your mark in connection with your beer. The cost to maintain your federal registration is minimal. And if competitors select a similar name, you will have a superior position in any negotiations.
Trade Secret Organization for Craft Breweries
Trade secrets are an often under-utilized form of intellectual property protection, probably because businesses don’t understand the basics. In general, trade secrets are protected under state laws, usually adopted from the Uniform Trade Secrets Act.
A trade secret is information, including a formula, pattern, technique, or method that is economically valuable because it is a secret. But of course, to qualify as a trade secret, the information must actually be a secret. In other words, reasonable efforts to maintain the secrecy of your recipes or processes are required for protection as a trade secret.
No formal registration is required for trade secret protection, but businesses should organize their efforts to ensure this form of protection is available. This means an attorney should review the processes your businesses undertakes, the employees playing a role in those processes, how and where confidential information is stored, and the contractual agreements in place between a business and its employees.
Non-Compete Agreements for Craft Breweries
Non-compete agreements are a strong tool for employers to protect their legitimate business interests. In short, non-compete agreements prevent an employee from working in the same or similar field, in a specific location, for a specific duration. All three elements, being scope, location, and duration must be reasonable. State law controls on the reasonableness determination, although some states prohibit non-compete agreements in whole.
If you are concerned that a key employee could leave and start a business next door, a non-compete agreement is a must. Employers may hesitate at requiring employees sign a contract, but possessing the right to limit the competition to your business is extremely important and valuable. Businesses should fully investigate and understand how these agreements work and then make a decision about whether it is right for them.
When it is time to mature as a business, craft breweries should looks to three primary forms of protection: trademark registration, trade secret organization, and non-compete agreements. These tools serve to proactively protect the businesses’ intellectual property. An ounce of prevention is worth a pound of cure. And when these protections in place, your business will have a solid foundation to continue expansion.