Thursday, February 17, 2011

Coca-Cola's Secret Formula: its Brand

When an entrepreneur starts a new company, one of the first things he(*) worries about is how to protect his new idea. And usually the choices are two: file a patent, or keep it under lock-and-key as a trade secret.

(*-or she, but we'll keep the masculine only here)

The trade-off for patents is clear: in exchange for a 17-year monopoly, the inventor has to disclose his methodology (or other invention) to the world, so that others can build off his patent. Indeed, the entire patent regime is is like a giant Jenga puzzle, with almost each patent "built" in effect upon previously-issued patents.

Trade secrets are the opposite: the inventor makes a decision that protection of the idea would be better served by keeping it private. Although there are some legal protections for stolen trade secrets (for instance, claims for misappropriation or theft, or unfair competition law), but even if an inventor insists on a non-dislosure agreement, if the secret is valuable enough, he may not be able to recover full damages from a breaching party.(*)

(*-The breaching party, even if insured, may not have assets large enough to make the inventor whole, for instance.)

For years the gold standard in trade secrets was the formula for Coca-cola. Urban legend has claimed that the only copy was held in the vault at the SunTrust bank in Atlanta, and that only two Coke executives (at any one time) had access to the document.

But in 1979, a columnist for The Atlanta Journal and Constitution ran an article that identified a ledger book with a formula for "Merchandise 7x"; over the weekend, the popular NPR radio show "This American Life" re-awakened interest in the 1979 story -- and the formula that goes with it. It is currently a viral sensation on the web -- this year's Susan Boyle.

The reality is that the formula -- or something very much like it -- has been "out" in the public domain for years. Type in "coca-cola formula" into a search engine and you'll find a number of recipes that will probably come very close to the taste.

But after a century of making the soda, Coca-cola now relies on a different intellecual property tool to protect itself: its trademarked brand. And trademarks don't expire (if subject to continuous use).

A lot of drinks may taste like Coke.

But only one can call itself (legally) the "Real Thing."

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