The Restaurateur’s Dilemma: Should Owners Force Chefs To Sign Ndas?

http://blogs.orrick.com/trade-secrets-watch/files/2014/02/6feb14-200x150.jpgShould restaurateurs wonder each time they hire someone: Will this person steal their recipes — the bread and butter of their business?

Trade secret law offers limited comfort. Restaurant owners who have pursued such recipe bandits on trade secret misappropriation grounds have a mixed win-loss record. And like a fine paring knife, trade secret law can cut two ways: while it can help protect intellectual property, enforcing these laws in the restaurant business may also drive talent away. Would Michelin restaurant SPQR’s executive chef Matthew Accarrino have joined if he had been required to sign an employment agreement stating that any recipes developed during his employment become the intellectual property of the restaurant? Probably not.

Call it the Restaurateur’s Dilemma: Judges and juries have sometimes awarded trade secret relief when confidential recipes are stolen. But restaurateurs like Victoria Libin — a media attorney and co-founder of SPQR as well as the nationally-acclaimed A16 Italian eateries — does not seek to enforce these rights. Rather than risk inhibiting creative  talent, Libin features new culinary delights, thereby bypassing any need to preserve recipe confidentiality.

But not all eating establishments thrive on culinary change. Indeed, casual dining chains build fame and fortune on predictable staples such as chicken and coca cola. America is the home of the hungry entrepreneur, many of whom have built billion-dollar industries on secret recipes. KFC has kept Colonel Sanders’ mélange of 11 herbs and spices tightly under wraps for decades, and Coca-Cola’s secret “Coke” formula has been called one of the best-kept trade secrets in the world.

But recipe protection has not been limited to large American companies. Privately owned restaurants have sought trade secret relief upon losing their top chefs or other employees, accusing them of walking out to create competitive eating establishments founded on their prior employers’ recipes. Recent cases include 50 Eggs Rest. Co., LLC v. Chef Bee et al., No. 13-027964-CA-01 (Fla. Cir. Ct. Aug. 27, 2013) and Torchy’s Tacos v. Mario DeJesus et al., No. 2013-34135 (Tex. Dist. Ct. Aug. 19, 2013)). In both cases, restaurant owners claimed that departing employees pilfered the owners’ recipe boxes, thereby committing trade secret misappropriation and unfair competition by using the recipes to establish new, competitive eateries. For example, in Torchy’s Tacos, the restaurant’s management group alleged that a former employee stole its “Taco Bible”—a document that included a start-to-finish recipe and process guide for each of its food products—and used it to start his own taqueria.

Some claims of trade secret protection for proprietary recipes fail. Take the recent case of the alleged salted caramel brownie heist, in which Amelie’s French Bakery in Charlotte, North Carolina claimed that Todd and Carole Binkowski absconded with Amelie’s famous salted caramel brownie recipe, secret ingredient and all. (See Vraiment Hospitality, LLC v. Todd Binkowski et al., No. 8:11-CV-01240-VMC-TGW (M.D. Fla. June 6, 2011)).  The Binkowskis’ pastry chef denied the allegations, and said he independently created the recipe through his own research and based on his 15 years of baking experience. After reviewing the alleged “secret ingredient” in Amelia’s salted caramel brownie during an “under seal” proceeding, the judge was unimpressed by the purported uniqueness of the ingredient and, more importantly, believed the recipe already existed in the public domain. Amelie’s was denied any trade secret relief. In a separate case, the Eleventh Circuit dismissed trade secret claims between two Miami fine-dining establishments based on New York’s three-year statute of limitations, as Trade Secrets Watch reported last month.

Handled carefully, recipes can fit squarely in the definition of a trade secret: confidential information that is reasonably kept secret and from which its owner derives value as a result of being secret. But if there is evidence that the recipe has been made public, any trade secret protection will be lost. This means that restaurateurs must keep their commercially successful recipes confidential, sometimes at the expense of losing lucrative marketing deals such as cookbooks or foregoing public cooking sessions that may divulge ingredients and techniques.

This is no small dilemma in the context of restaurant employees, who often hop from job to job to ensure employment by the trendiest eatery. To protect their recipes, owners most likely would have to require chefs and other employees to sign employment agreements acknowledging that all recipes are the property of the restaurant and must be kept confidential, and that unauthorized disclosure may result in litigation. Owners may then need to enforce such provisions and take other measures to ensure that the recipes remain confidential.

Which brings us back to the Restaurateur’s Dilemma. Should restaurateurs such as Libin require chefs and other employees to sign a pile of NDAs as a condition of employment, and risk losing up-and-comers to competitors’ kitchens?  And whose intellectual property is it, anyway?  Is it the restaurateur, who invests time, money, and other resources to help perfect commercially successful recipes, intricate cooking  and presentation techniques? Is it the investors, whose dollars ensured the business opened and flourished?  Or does this information belong to the chef and staff who may have created or perfected the award-winning recipes but who were paid a salary to do so?  More broadly, doesn’t society benefit from allowing chefs like Accarrino to create culinary delights and publish their recipes without fear of legal reprisal?

The answers depend on the circumstances of particular restaurants, owners, and chefs. As a practical matter restaurateurs will have to decide how best to solve the dilemma of protecting their trade secrets while continuing to build and grow profitable restaurants with their chefs and employees. Meanwhile, diners can only hope that the creative juices continue to flow unrestrained by intellectual property battles.

Editor’s note: Libin is an Orrick client.

Topics:  Non-Disclosure Agreement, Restaurant Industry, Trade Secrets

Published In: General Business Updates, Intellectual Property Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick - Trade Secrets Group | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »