Written by MEG BURNHAM and SCOTT PRANGE
S
tarting a new distillery and inspiring innovation by bringing to life new, creative, and possibly disruptive spirits is an exciting time. Often working around the clock, these are the times when distilleries are distracted with the legwork of impressing investors, obtaining licenses, establishing a brand, perfecting spirits, and negotiating complicated relationships with potential distributors to get products out to the market. While it may not be top-of-mind, it is especially important during these early days to strategize how to protect emerging trade secrets that yield a competitive advantage while still encouraging the development of new ideas and open communication. But how does a distillery reach that balance? Take it one shot at a time.
SHOT 1: WHAT MAKES YOUR DISTILLERY SPECIAL? Established and new distilleries alike want to maintain a collaborative reputation in the distilling community, but also protect the ideas that make them a unique player in the market. How is this possible? The first step is to determine what ideas belong to the distillery versus its employees. Distilleries can protect a myriad of information so long as it has commercial value and reasonable efforts are taken to maintain its secrecy. For example, protectable information may include closely held distillation processes, recipes, marketing strategies, distribution processes, customer lists, and even pricing. Once confidential information is disclosed, a distillery can take steps to mitigate the potential damage from the disclosure, but it cannot un-ring the bell. It is therefore imperative to take steps to identify the information that demands protection and to keep that information confidential from the outset, such as by limiting access to the information to only those employees who need to know it to perform their job duties and requiring employees to sign agreements that they will not disclose the information. But what about information, resources, and ideas that employees develop while W W W . ARTISANSPIRITMAG . C O M
What’s Mine Is Not Yours PROTECTING TRADE SECRETS AND LEGAL CONSIDERATIONS
working for the distillery? Does the distillery have an ownership interest and the right to prohibit employees from disclosing such information? It depends. While some states restrict a distillery’s ability to claim ownership over employee work product, generally a distillery can claim ownership over, and protect from disclosure, ideas or resources that were developed in the course of employment and related to its business. However, for a distillery to be entitled to an ownership interest, it should obtain an explicit inventions assignment agreement from the employee that all work product created in the employee’s scope of employment that is related to its business is assigned to the distillery. This takes us to the next step — reaching an understanding with employees on what information they are obligated to keep confidential.
SHOT 2: LOOSE LIPS SINK SHIPS. The culture of the distilling industry thrives upon collaboration and trust, and handshake agreements often carry significant weight. But obtaining signed agreements from employees
is one way to honor commitments to collectivism and resource sharing while taking a more textured approach to clearly identify what is yours and what is theirs. This will emphasize that employees must maintain the confidence of what they learn about your distillery in the course of their employment or face consequences. Inviting lawyers to the party may not be your first instinct (or even a second or third) when thinking about expanding or improving your business, but to prevent headaches down the road, having a legally binding non-disclosure or non-competition agreement at your fingertips is good practice. To improve the likelihood that the non-disclosure or non-competition agreement will be enforced, it should be tailored to the employee’s scope of employment, specifically identifying the information the distillery wants to protect, describing the employee’s responsibilities in protecting that information, and providing a duration for those obligations. Distilleries also would be wise to strategize the timing of when to present these agreements to employees. Some states require that new employees be provided the agreements prior to starting or current employees
Established and new distilleries alike want to maintain a collaborative reputation in the distilling community, but also protect the ideas that make them a unique player in the market. How is this possible? 41