Pepsi’s Deepest, Darkest (Trade) Secret Might Soon Be Revealed

Pepsi’s Deepest, Darkest (Trade) Secret Might Soon Be Revealed

In 2007, Pepsico (“Pepsi”), makers of its namesake fizzy drink did their competitors, The Coca Cola Company (“Coke”) a good turn, by turning in two Coke employees who tried to sell its secret recipe to Pepsi. This decision on Pepsi’s part can be read as a mixture of sound business acumen, legal sense and some Good Samaritanism. While admitting that the risk of being found out would have been disastrous to its reputation and credibility, Pepsi also pointed out that its actions were only what could be expected of competitors, as standards of fairness and ethical behaviour had to be adhered to in the economic market.

Pepsi, on the other hand, does not seem to be having the same such luck, in the marketing department or otherwise, even as it will soon be fighting to keep its trade secret confidential. The heirs of Richard John Ritchie, the co-inventor of the current formula, are seeking a court’s judgment that would allow them to release the recipe to the public as part of their ancestor’s legacy.

In seeking a declaratory judgment, the heirs are asking the court to decide that Mr. Ritchie did not transfer his intellectual property rights to the company, and that the recipe is not a trade secret. If deemed so, it will be an interesting testament to the power of the intangible (the Ritchie Invention) over actual physical property (the Ritchie Documents) -- even though both kinds of property are the subject of litigation here. This tension is played out in the case, especially since the issues have been divided into the “real” and “intellectual” (or intangible) categories.

The case (“Silleck et. al. v PepsiCo) which has been filed in a New York state court,  centres around the following four issues:

1) Whether the “physical and legal control” that has been exercised over the formula by the Ritchie family for sixty years entitles it to be deemed the legal owner of the Ritchie Documents and Invention;

2) Whether Richard Ritchie was the sole inventor of the formula, and agreed to assign his rights to PepsiCo at any time (related to this is if Pepsi’s allegations that it is the sole owner of the formula, are true);

3) Whether, if the formula is found to be protectable by intellectual property law, its release to the public by the Ritchie family will become a misappropriation of Pepsi’s trade secret;

4) Whether Pepsi’s claims of ownership, and its “threats” to the heirs to prevent their usage of the formula are unjustifiable and improper interventions of the Ritchie family’s use, transfer, enjoyment and exploitation of the Ritchie Documents and the Ritchie Invention.

Justice Furman conducted a thorough review of facts when determining that there was a legitimate case between the parties, and that it did not warrant a declaratory judgment. The dispute in the ownership of the formula arose because when Mr. Ritchie invented it, he was not an employee of Pepsi, and neither signed his ownership nor intellectual property rights over to the company when he was officially hired to work there in 1939. The Pepsi formula was invented in 1931. For the next ten years, Mr. Ritchie and another associate at the company were the only two people with knowledge of the formula’s components. Then, Pepsi requested that it be provided a written copy of the recipe, which Mr. Ritchie provided, although he kept an additional copy for himself, to Pepsi’s knowledge. It is this document that is at the heart of the current litigation. In 1951, Mr. Ritchie signed a Consulting Agreement with Pepsi, which cancelled all of his rights, obligations and duties or prior agreements with Pepsi, and imposed a personal obligation on him not to disclose the formula to anyone. However, as Justice Furman noted, there was never any mention of transferring or assigning intellectual property rights to Pepsi, nor any stipulation requiring Mr. Ritchie’s heirs to carry the non-disclosure agreement forward. He also noted that this agreement did not make demands as to the return of the Ritchie Documents to Pepsi, or impose a duty of confidentiality to keep the formula a secret, on either Mr. Ritchie or his heirs.

Analyzing the issues against the above facts, Justice Furman deemed that there was enough dispute in the ownership of both the Ritchie Documents and Invention for further litigation to debate on. He also found that because Pepsi had not adequately protected the formula’s secrecy over the last 60 years, it could not be understood to be trade secret, and therefore, the heirs’ rights to use and exploit the formula would be protected under the First Amendment.

At trial, both sides will no doubt try to prove ownership of the formula, and question or validate its status as a trade secret. It will also be interesting to note if the parties choose to settle, and for what amount; right now, it seems as though Pepsi has a lot more at stake in the battle – its reputation, brand and recipe among other things. For the Ritchie heirs, whose primary aim is to release the information for scholarship and research purposes, an out-of-court settlement might bring major economic benefits. Stay tuned to IP Osgoode for upcoming coverage on the case.

Mekhala Chaubal is a JD candidate at Osgoode Hall Law School.