Craft Brewery Intellectual Property Primer

by Baker Donelson

A. Introduction

A name. It all starts with a name. A series of words, individually with little meaning, but collectively, the embodiment of creativity, passion, and inspiration. Whether the name of the craft brewery itself or an individual and unique style of beer, it all starts with a name.

Over time, substantial resources, financial and otherwise, are invested to build and develop those names into a cohesive brand. From recipe development to artwork, packaging, marketing, distribution and sales, as the brand grows, so does the value of the names and all of the imagery associated with those names. The intellectual property of a craft brewery is unequivocally the most valuable asset of the company.

As the craft beer industry continues to grow and expand, the likelihood of craft breweries crossing intellectual property lines amongst one another is likely to increase. More craft breweries manufacturing more products will continue to lead to more situations of infringement regardless of whether such infringement is intentional. Many craft breweries are being much more proactive in the protection of their intellectual property and the subsequent defense of it.

This memorandum offers the organizers and operators of craft breweries an outline of the various and very different intellectual property issues they should consider at not only the beginning of the venture, but also during the product development process. This memorandum will generally discuss copyright, trademark, and trade secret laws in the United States and describe in more specificity how each of these bodies of law impact the craft beer industry.

B. United States Copyright Law Overview

A copyright is one type of intellectual property protected in the United States. Copyright protects original expressions of ideas in various forms and media, but not the ideas themselves. The central purpose of copyright protection is to encourage individuals and businesses to produce original works of authorship by rewarding them with certain exclusive rights to profit from their efforts.

One of the most difficult concepts to understand in copyright law is the idea/expression distinction. Ideas, procedures, processes, and concepts are expressly excluded from copyright protection, even if they are described, explained, or illustrated in a work that is otherwise copyrightable. The specific image, words, phrases, and sentences used to formulate the questions and processes are protected as expression; but, the overarching idea they express is not protected.

For example, the gothic gargoyle image of Stone Brewing Company is copyrightable, but the idea of a gothic gargoyle is not copyrightable. The law recognizes this distinction for two reasons. First, it encourages creativity by giving people exclusive rights in their work. Second, it ensures that no author or creator has a monopoly on an idea or concept which should be available to all.

A work qualifies for copyright protection if it is both, original and fixed in a tangible form. A work is considered original if it is (1) independently created by the author and (2) possesses some minimal level of creativity. The fixed tangible form requirement includes paper and ink, canvas and paint, photographic film, computer hard drives, video, and audio tapes.

A copyright arises automatically when an author creates a work that meets the originality and fixation requirements. While an author does not have to register with the United States Copyright Office, there are certain benefits to registration. Nonetheless, if a work meets the two requirements set forth above, the author of the work gets certain exclusive rights in the copyrighted work. These primary exclusive rights include the right of reproduction, the right of adaptation or derivative work, the right of distribution, and the right of public use or performance.

These exclusive rights do not last forever. Copyrights in works created after January 1, 1978, begin when the work is created and expire 70 years after the author’s death for a single author or 70 years after the last author’s death for a work created by two or more people. For example, if an author, who wrote an original novel when he was 25, died at 75, his copyright would last for 120 years (the 50 years of his life from creation of the copyright to death plus the additional 70 years).

Copyright law is important to craft breweries for at least two reasons: (1) the protection and security of copyrights and (2) the avoidance of liability for copyright infringement. Craft breweries developing artwork, graphics, sales or promotional materials, instruction manuals, training materials, and other policies may want to consider copyright registration for such materials. Although registration is not required to protect work from unlawful copying by others, having a registered copyright affords additional protections, such as statutory damages and attorneys’ fees in the event the craft brewery must either bring suit or defended a claim for infringement.

Craft breweries are likely to create or pay others for the creation of numerous items that are subject to copyright protection, such as artwork, graphics, brochures, websites, and packaging. As such, it is important to understand how copyright law approaches the question of who is the “owner” of a copyrighted work. Contrary to popular belief, just because a business pays for the creation of a copyright work does not mean that it owns the copyrights therein.

“A joint work is a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.” In other words, co-authors may jointly and severally own a copyright if it was their intent to create a work that is inseparable or interdependent. Without an agreement that states otherwise, any co-author may exploit the copyright independently.

Craft breweries that regularly enlist employees and others to create copyrighted works should be aware that the law will view the craft brewery, rather than the individual employee or third party, as the author of the work only if certain conditions are met. A work made for hire is defined as: a work prepared by an employee within the scope of his or her employment; or if not prepared by an employee, a work specially ordered or commissioned for use as a contribution to a collective work and the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Important factors to be considered in determining whether a work was made by an employee or and independent contractor are: (1) the hiring party’s right to control the manner and means by which the product is accomplished, (2) the skill required to complete the work, (3) whether the hiring party has the right to assign additional projects to the hired party, (4) whether the hiring party provided employee benefits, and (5) how the hired party was treated for tax purposes.

Failure to ensure that copyrighted material is created as a work made for hire will result in the craft brewery not owning the intellectual property. In such case, in order to obtain ownership of such work, the craft brewery will have to acquire a written assignment of the copyrights or a license to use all or some of those rights. This can get tricky if done after the fact; so, if the craft brewery is contracting with an independent contractor for the development of artwork, logos, designs, graphics, or packaging, the craft brewery should make sure that the work is being performed pursuant to a work-for-hire agreement.

C. United States Trademark Law Overview

A trademark represents another type of intellectual property protected by United States law. The best way to understand trademarks is to think of them as brand names or logos. When you think of a particular brand name, you likely link the brand with the products it produces. This mental link helps you know when you go to a store that what you are about to purchase will be the same or substantially similar to other items you have purchased associated with the brand.

For example, Stone Brewing Company is a trademark. If you like Stone Brewing Company products and want to purchase more, you can look for the name or the logo and feel confident you will get a quality craft beer that was, in fact, manufactured by Stone Brewing Company. Trademarks benefit the consuming public because they prevent brand confusion. They also benefit trademark owners because they ensure that the goodwill the craft brewery has created is not diminished by products produced by other businesses.

Trademarks are words, designs, symbols, devices, and names used to identify the source of one good from goods made by another source. Typically, brand names and logos are trademarks. Under certain circumstances, colors, sounds, and scents can also be trademarks.

Because trademarks are important they are protected at the federal level by the Lanham Act. The United States Patent and Trademark Office (“USPTO”) administers the Lanham Act and regulates the registration of trademarks. In order to register your trademark, it has to meet the requirements for trademark protection.

For a designation to be a trademark under the Lanham Act, it must be (1) distinctive and (2) used in interstate commerce. A designation is considered distinctive if it has the ability to identify a single source of goods or services. Designations that are inherently distinctive fall along a spectrum of distinctiveness. This spectrum runs from fanciful and arbitrary terms, which receive the greatest trademark protection to generic marks, which are never protectable under trademark law.

Trademark protections attach through the use of a protectable mark in interstate commerce in connection with goods or services. Essentially, you must make actual use of the trademark in the market place.

If a trademark is both distinctive and used in commerce, you can register it with the USPTO. Federal registration is not required for protection of trademark rights; however, it does provide substantial benefits. These benefits include evidentiary presumptions regarding the ownership of the mark, the validity of the mark, and the exclusive right to use the mark nationwide in connection with the goods or services connected to the registration. Further, absent federal registration, the right to the exclusive use of the designation is limited to the geographic area where the mark is used.

Trademarks can be registered with states as well. While state laws vary, this process usually involves only the filing of a simple form and a small filing fee. There usually is no review process, so registration is quick, although it can be challenged by a competitor. Registration provides some protection against infringement in the state only, but it is a good preventive measure, since global computerized trademark searches will reveal the state registration and may discourage someone from using a similar mark.

D. Trade Secrets

Every craft brewery is likely to possess information that it considers confidential and that it does not want its competitors to obtain. In order to protect such information, the common law developed a cause of action for trade secret infringement that is now codified in the statutes of most states in the United States.

Most states have adopted a version of the Uniform Trade Secrets Act, which defines a trade secret as: information, without regard to form, including, but not limited to, technical, nontechnical, or financial data, a formula, pattern, compilation, program, device, method, technique, process, recipe, or plan that (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Trade secret rights are easier to acquire and easier to lose than other forms of intellectual property such as patents, copyrights, and trademarks. To protect them, trade secret owners are required to keep them relatively secret and to exercise efforts that are reasonable under the circumstances to maintain their secrecy. What is reasonable will depend on the nature of the trade secrets and the extent to which others are using them. Unfortunately, there is no way for a craft brewery to know in advance that their secrecy efforts are enough; however, doing nothing is generally not a good idea.

Craft breweries need to worry about the misappropriation of trade secrets for two reasons. First, they want to institute measures to ensure that their trade secrets are not misappropriated by their employees or by third parties. Second, in order to avoid liability for trade secret infringement, they want to ensure that their employees and associates do not misappropriate the trade secrets of others.

Misappropriation of trade secrets occurs when trade secrets are acquired, disclosed, or used without the consent of the owner. Trade secret owners can impose contractual covenants on persons who learn the trade secret as a part of employment (or for other reasons) so as to try to discourage misappropriation by those who have legitimate access. Misappropriation can also occur through theft, bribery, or electronic espionage or when secret information is uncovered despite reasonable efforts of secrecy.

When a new craft brewery starts to organize its management team and hire employees, it should make it clear to all new employees that they should not bring any trade secrets of their former employer with them. All employees should be instructed not to bring any materials, including document storage devices, to their new employment unless it is first determined that such materials do not contain trade secret information. Craft breweries should also inquire whether the people they wish to hire are subject to any confidentiality or noncompete agreements and, if so, whether they can be hired without causing a breach of such agreements.

In the event of a misappropriation of a trade secret, both injunctive relief and monetary damages may be available to the trade secret owner. The time period of the injunctive relief depends upon whether the trade secret is still confidential, and may include affirmative acts such as royalty payments from the misappropriator or requiring continued secrecy regarding the trade secret.

E. Practical Application and Key Takeaways

In General

A craft brewery can infringe on the intellectual property of another craft brewery even in the absence of actual knowledge of the existence of such intellectual property rights.
A craft brewery must ensure that any intellectual property created by its employees in the course and scope of employment belong to the craft brewery.
A craft brewery must take care to ensure that employees do not misappropriate the craft brewery intellectual property.
A craft brewery must educate employees about the intellectual property rights of others to ensure that such rights are not infringed.

A craft brewery regularly engaging graphic artists or brand development agencies should always commission such work pursuant to a work-for-hire agreement and assignment.
This is especially true in situations where the craft brewery is contracting with a graphic designer for label design work.

Trademark

A craft brewery should be careful not to mistake corporate name clearance for trademark clearance.
Since descriptive marks, geographical terms, and certain names are not immediately protectable (and may never be protectable) by trademark law, the better short- and long-term strategy is to select a unique and distinctive trademark.
The following are suggested steps when researching names and concepts:
Search for names on craft beer community websites, such as BeerAdvocate and RateBeer.
Search for names through Google.
If you do not find anything in these searches, search the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) and Certificates of Label Approval system database.
If you do not find anything after searching the TTB database, you still need to conduct a search on the USPTO website.
If, after all of these searches, you still do not have any hits (which is doubtful), there are third party service providers that will undertake more comprehensive searches for a fee.
If a craft brewery does not address a potential infringement of one of its trademarks, it can later be construed as complicit acceptance of the other company using that mark.

Trade Secrets

It is never too early for a craft brewery to begin protecting their trade secrets.
Recipes and processes are considered trade secrets.
Make sure that key employees that have access to trade secrets are subject to non-competition, non-use agreements at the time of hiring.
If a craft brewery is going to joint develop a product with another company and there is an exchange of any information, make sure that the information being exchanged is subject to a non-disclosure agreement.