Psst. Can you keep a secret?

Confidential DocumentsOne of the fun things about talking with smaller companies in the spirits industry is that they’re often very open.  It is a very welcoming community – filled with individuals who, in most part, like to share what they’re doing and how they’re doing it.  Take, for example, Westland Distillery’s Matt Hoffman.  If you attend a Westland tasting hosted by Matt he will quite delightedly tell you that Westland has developed a secret mix of malts for their products.  And then he’ll tell you exactly what goes into that secret mix – and the approximate proportions of each.

This isn’t by accident.  Matt, and many similarly bearded pioneers in this space, are committed to passing along their knowledge – distiller to distiller – for their mutual benefit.  This is done not only at the individual level, but also institutionally through organizations such as the American Craft Spirits Association, the American Distilling Institute and various state guilds.  [Full Disclosure, I am pleased to serve on the board of the Washington Distillers Guild, as well its education committee, and the education committee of the ACSA.]  And while this transparency makes for lively conversation (and better booze), if I’m honest it also makes me a bit nervous.

The nervousness stems from the fact that some things are occasionally better left kept secret.  Specifically, I’m talking about things that might constitute trade secrets under the law.

If you chat with an intellectual property lawyer for any period of time, you’ll probably hear her talk about trademarks, copyrights and patents.  You may not necessarily hear her discuss protecting trade secrets.  But trade secrets are just as important (often more important) as any of the other forms of intellectual property.  Consider, for example, the secret formula for Coca-Cola.  Widely regarded as one of the world’s most valuable trade secrets, the secrecy around the formula has even spawned its own exhibit in Atlanta.  Consider also the uproar last year when the secret recipe behind Kentucky Fried Chicken was allegedly leaked to (and published by) the Chicago Tribune.  KFC has denied that the leaked/published recipe was – in fact – the true recipe.  For the Company’s sake I hope they’re correct.

Just as these formulae derive independent value from being secret (so that customers and competitors cannot reproduce the companies’ products) – so too are there valuable trade secrets in the hooch business.  A famous example may – or may not, depending on who you ask – be found in the case of Benedictine.  The trade secrets supposedly relating to benedictine center around the product’s recipe (which as the linked article correctly points out is likely pretty easily replicated by competent chemists with access to modern laboratory facilities).  But other trade secrets could just as easily relate to the process of producing the hooch – or the specifics of the yeast strain you’ve cultured and nurtured for years for your fermentation – or anything else which isn’t necessarily subject to easy replication by scientists in lab coats operating fancy gizmos.

If you think your business (distillery or otherwise) has a trade secret – it is usually best to protect it.  Thankfully, the approach to doing so is pretty straightforward: keep it secret. That means taking some pretty simple (but meaningful) steps to protect it.

First, figure out what it is that you think is actually a trade secret.  This is your product’s secret sauce.  If the secret sauce is widely known, you’re not going to be able to protect it.

Second, be vigilant.  This means figuring out where confidential information is stored and monitoring those locations.  It doesn’t necessarily need to be as secure as the Coca-Cola vault – but it should be secure.  That means putting passwords on computers containing any secret information.  It also means only providing the secret sauce to individuals who have a need to know it (and who have agreed to themselves keep it secret).

Third, consider your relationships with outside vendors.  If you’re working with a vendor to help develop the secret sauce – you need to spend some time and energy focusing on the terms of that relationship and make sure that you’ve got good (i.e., enforceable) language in the confidentiality section of your contract with them (you have a contract, right?).

Taking these steps will help you prevent unanticipated (and unauthorized) disclosure of information that – if protected – might have helped you generate significant enterprise value.

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