Take three restaurants, add the spice of strangely similar menus and a garnish of accusations. The end result? A piping hot federal lawsuit.
Recent cases of trademark infringement and trade secret misappropriation serve as a reminder to small business owners to invest in protecting their trademarks, trade secrets and brand equity. According to the American Intellectual Property Association, a $1 million trademark case costs an average of $373,000 to litigate through trial.
One of the most effective ways to ensure employee compliance is to use a Non-Disclosure Agreement (NDA). Small business owners should read these cases like a recipe for avoiding similarly unappetizing situations.
Dumpling Daughter vs. Dumpling Girl
Last year, Dumpling Daughter’s owner Nadia Spellman filed a case against her former assistant and chef for stealing her original, proprietary family recipes, and using intricate knowledge of her company’s operations to create Dumpling Girl. Spellman claimed that in addition to their “virtually identical” name, branding and trade operations, 41 out of 52 of Dumpling Girl’s menu items were basically identical to hers.
Although the case has been settled, it begs the question, “Could a Non-Disclosure Agreement (NDA) have helped Spellman win her case?” If Spellman had asked her employees to sign an NDA, she would have a stronger case in proving that her employees knowingly stole legally protected recipes and business practices.
Wild Ginger vs. Jujube Tree
Claims of original “secret sauces” being illegally licked up and used by a competitor is at the heart of this deliciously captivating lawsuit involving two vegan restaurants that continues to rage on. The plaintiff, Wild Ginger, was so committed to protecting its secret sauces that the co-owner went in every single day to personally prepare them so no one else would need to.
When Wild Ginger spotted alarming similarities at Jujube Tree, the company sued the apparent culprits: its former kitchen supervisor and chef of six years for stealing trade secrets and replicating its copyrighted menu and interior decor, protected under trade dress. Like Dumpling Girl, Wild Ginger faced a higher burden of proof because employees were not asked to sign an NDA. Instead of simply showing that its ex-employees breached its NDA, Wild Ginger had to establish that Jujube unlawfully conspired to unfairly compete and misappropriate their goodwill.
Torchy’s Tacos vs. Texas Taco Co.
Torchy’s Tacos is a successful Austin institution that also felt the sting of trademark infringement when it discovered that its propriety recipes, menu designs and presentation style had been seemingly ripped off by Texas Taco Co. Torchy’s case claims former cook Mario Dejesus stole and supplied Texas Taco with its sacred “Taco Bible” of recipe instructions.
Torchy’s argues that Texas’ menu is an unauthorized carbon copy of theirs in almost every respect. Amongst other consequences, the similarities have led to substantial customer confusion. Interestingly, the case remains ongoing in part because of a disagreement as to whether Torchy’s has evidence of Dejesus signing an NDA.
What are the lessons for small businesses?
In order to ensure that the name, trademarks or confidential operations of your small business are not compromised, it is critical that you employ legal safeguards like an NDA to protect your company.
A competitor taking advantage of your intellectual property can have major repercussions on your business. It is easiest to conceptualize these as “lost opportunity costs,” which present in four ways:
- Loss of money
- Loss of fame
- Loss of name recognition
- Loss of future viable business
Businesses whose intellectual property is infringed upon also become embroiled in a sticky mixture of lawsuits and cease and desist letters instead of spending valuable time and money on furthering company objectives.
How can an NDA help?
On a preventative level, it is an effective mechanism for encouraging employees to abide by the stipulations established in the document. Employees are far less likely to act opportunistically if they must sign an NDA which alerts them to the fact that doing so will be an infringement of intellectual property and exposes them to a lawsuit. Furthermore, it is a valuable opportunity to clearly define to employees which information is confidential or constitutes trademarked property.
An NDA, however, is not a blanket solution to stop employees from taking off with your company’s intellectual property. It should be one part of multiple efforts to protect your company.
What an NDA does offer is an avenue to make explicit to employees what is confidential and legally protected. It encourages employees to comply with the stipulations you set out, even after they depart from your company. And should your business’s trademarks, operations and property be compromised by another party, an NDA will be an invaluable resource to have in your arsenal. If you protect your business in this way, you hopefully won’t ever have to sample the bitter taste of trademark or trade secret infringement.
