Drinks Development, Initial Legal Concerns and Protections

By:  Louis J. Terminello, Esq. and Bradley Berkman, Esq.

It’s invigorating to be in the presence of a creative. A glance at the dictionary reminds us that the definition of creative is one who is capable of creating original things. The drinks business has no dearth of creatives. The industry is replete with driven and creative people who generally take the form of winemakers, brewers, distillers, and brand developers/owners. Their palette is in fact their palate and their medium is a must, mash and/or unique package design. Praise the beverage entrepreneur – they take our tastebuds to new and exciting places. But, as the poet Robert Burns instructed in 1785, the best laid schemes o’ Mice an’ Men Gang aft agley (Scottish for often go wrong). In more contemporary words, without proper planning, and a bit of luck, all original ideas risk plummeting from the lofty perch where creatives reside.

  Enter stage left; The drinks lawyers who can assist with legal issues surrounding brand creation and launch.  Careful business planning coupled with a punch list of the legal issues likely to be encountered during the process of drink creation is a harbinger of success. What follows are the first few legal concerns that should be considered and sorted through prior to a project launch.

The Novel Idea and the Need to Protect It

  For the entrepreneurial brand developer, creative inspiration can come from anywhere and at any time. Ideas for beverage flavor profiles may come while preparing a unique meal or from stumbling on an accidental blend of flavors while creating a cocktail at home. Brand names may be inspired by a song, or book, or emerge from the ether like an apparition. But the apparition must take physical form if it is to ever end up on the shelves or back bars of saloons everywhere. For the brand developer, without their own means of production, a manufacturer is required. Choosing the right producer is a complicated process with many sub-parts. 

  The first step of course, which may seem obvious, is discussing formulation and taste profile with potential brewers, distillers, or wineries, but how do we protect the novel idea from being misappropriated by a dishonest party. Clearly, the process requires the brand developer to share his secret idea with others to determine if, in fact, the producer can make the stuff.  The dangers of disclosure are obvious – the producer has the ability to take your idea and bring it to market on his own leaving the brand developer out in the cold. In fact, this could happen with anyone the brand developer discusses their new concoction with.

Nondisclosure Agreements-Protecting the Secret

  Prior to engaging in any discussions with any potential producer, it is incumbent on the brand developer/owner to have a well-drafted nondisclosure and confidentiality agreement (“NDA”). The core function of the NDA is to prevent a producer, or any other party, from disclosing the developer’s idea to another or independently producing the product without remuneration to the brand developer. The NDA should call for injunctive relief in order to stop the activity complained of as well as other damages, including money, should that be an available remedy. Commencing good faith negotiations with an honest opposite party is what we all expect and want. However, the developer’s next million, maybe even billion-dollar idea should be protected from the outset with a well-crafted NDA and should be entered into with any party prior to discussing the novel idea.

Intellectual Property Including Trademark

  More importantly, there is a greater area of concern related to protecting one’s brand ownership. The next area of concern and of paramount importance is that the brand name and associated designs and logos be protected. The reader is likely aware that the next item on our brand launch checklist is protecting one’s intellectual property through a trademark (TM). For the uninitiated, trademark applications are submitted to the United States Patent and Trademark Office (USPTO), which once granted, identifies the brand owner of the product, and protects ownership of the name, design, logo, or symbol. A trademark allows the holder of the TM to pursue legal action against a party who may try to use the mark as its own and without the consent of the true trademark holder.

  The first step in the TM process, once the brand developer has come up with a name and/or logo, is to search the USPTO database to be sure the mark is not held by another person or entity, and that the name is available for use. There are only a few more disheartening things than investing resources in brand name development only to find out that it has been trademarked by another party. It should be noted here that all is not lost if the mark is already held by another party.

  These issues are best explored in another article but suffice it to say, there may be ways to gain control and ownership of the TM. Also, as brand sales grow and the brand increases in value significant equity will reside in the brand name. Protecting that equity is paramount particularly if an interested and significant buyer knocks on the door and desires to purchase the brand for enough money which allows the brand developer to retire to their own Caribbean island for the remainder of their days.  It’s important to note that there are various legal mechanisms available to trademark holders that protect their ownership rights to the mark while allowing other parties to use the mark to fulfill contracted obligations.

  Generally, trademarks can be licensed to another party for any use whatsoever but generally, in the world of beverage alcohol, nonexclusive licensing agreements are often used in production and distribution agreements granting limited rights to the non-mark holder. Note that licensing agreements can be complex and are discussed here only to point out their existence and present the option. Any licensing agreement must be carefully drafted to protect the rights of the parties and all trademark matters should be handled by a competent Intellectual Property attorney.

Formula Protection & Production Agreements

  After sourcing a reliable producer for the drink idea, the next crucial step is negotiating and entering a formulation and packaging agreement. It is highly probable that the producer selected will assist in developing the formulation. It is also not uncommon to secure the services of a third-party formula service provider to create the liquid beverage. Whichever avenue is pursued, the brand owner must be sure that they will have ownership rights to the finished product, particularly if the formulation is unique, and that no other party shall have the right to the formula absent the brand owner’s consent. An agreement memorializing all terms of formula ownership must be drafted and executed by the interested parties.

  Well-crafted supply and bottling agreements are the next integral part of the brand development process. In a nutshell, once a partner producer is identified, the brand owner and producer will commence negotiating the essential terms of the business relationship. Essential terms will include items such as production and purchase quantities, pricing and payment terms and delivery terms. Issues such as how to deal with adulterated products and recalls should be memorialized also. In sum, this agreement will memorialize the rights and duties of the parties and ideally will allow for the smoother production of the finished goods allowing the brand owner to focus on securing distribution, selling and marketing to consumers and other brand-building activities.

  In conclusion, the areas above are the first few items that should be addressed when launching a new brand. Protecting the developer/brand owners’ rights in all aspects of product introduction is essential and working with seasoned beverage law professionals should be seriously considered. Experience tells us that brand launch problems can be avoided upfront with proper and competent Beverage Law and business law guidance.

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