KFC, Trade Secrets, and Conspiracy
posted by Deven Desai
Trade secrets play an important and growing role in American business. Legends about Coca-Cola’s secret formula and the protection of it include the claim that only two people know half of it at one time which Snopes says is false. Instead the two people know the entire formula. As Snopes notes the confusion may be with KFC which does separate knowledge and keeps the names of the people with access secret. KFC is moving the formula, and the details are just too much fun.
According to AP the recipe is locked away in KC’s main office. The locking system (file cabinet with two combination locks) can only be reached by gong through a vault and three more doors. Which reminds me of:
To move the recipe, the company used the old put the document in a locked case and handcuff it to someone’s arm trick. That one appears in many spy films but reminds me more of Trading Places and Clarence Beeks, the security guy the Dukes use to get access to the secret crop report.
Now in all seriousness when a secret like this one is possibly stolen a fair amount is at stake. The Coke and Pepsi incident a few years ago was a nice moment. Some people contacted Pepsi saying they had access to a new Coke drink and would sell it. Pepsi turned them in.
I am a huge fan of Coca-Cola, the drink. I don’t drink it as often as I used to, but listen to me pop a cold can and drink it, and as my brother said “Dude, you need help.” KFC’s recipe may be even more powerful:
September 9, 2008 at 3:21 pm
Posted in: Culture, Humor, Intellectual Property
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Responses (9)
James Grimmelmann - September 9, 2008 at 4:21 pm
Publicity stunt.
Vegetarian - September 9, 2008 at 5:05 pm
Honestly, if the KFC recipe were stolen, would it make the slightest difference to anyone? Let’s remember, Kentucky Fried Chicken is disgusting.
Bruce Boyden - September 9, 2008 at 5:20 pm
Legends about Coca-Cola’s secret formula and the protection of it include the claim that only two people know half of it at one time
Since we’re playing pop-culture free association here, that bit reminded me of this:
http://www.youtube.com/watch?v=gvj1QGqfQyg
Michael Risch - September 9, 2008 at 5:29 pm
These examples ironically highlight the limits of trade secret law. One theory of trade secret law (which I and others have written about) is that it exists to provide a remedy when a secret is wrongfully taken. The result is an incentive to decrease the amount of effort spent protecting the secret because there is a redress.
The fact that Coca-Cola and KFC fragment information in a costly way (it would surely be more efficient to spread the information in the company) implies that those companies do not trust trade secret law to provide an adequate remedy if the cat were to exit the bag.
A.J. Sutter - September 9, 2008 at 8:55 pm
Michael, having been an IP lawyer in a high-tech manufacturing industry (semiconductor fab equipment), I have to disagree with your theory of trade secrets. We still took great pains to protect our trade secrets. As I’m sure you know, and as we were quite aware, taking “reasonable” steps to protect them is a constitutive element of something being a trade secret.
It’s not clear what you mean by “spreading the information in the company”. Do you mean to make it available in an unfragmented way to many people? Then this would be like driving full force into the wall of your “ironic limitation.” Obviously the more people who know the secret, the higher a risk of loss if an employee who knows it would leave or decide to sell the information to a competitor. In some cases, like the key formula for the main product, it might be questionable whether there even was a trade secret, due to a “reasonable steps” issue. You seem to want to have it both ways: both blame people for being lazy by relying on trade secret law, and then fault them for being inefficient when they do more than the lazy thing.
In most aspects of day-to-day business, only foolish lawyers and businesspeople would trust *any* law to provide an adequate remedy for anything. Especially in the case of trade secrets, when the time delay between injury and remedy can be so long and potentially prejudicial, and where even injunctive relief can’t “undo” the disclosure. But also in the case of contracts, patent law, etc. For example, we had some hesitations about suing our customers for breach or infringement. That’s real life, not theory.
Michael Risch - September 10, 2008 at 7:48 am
Feel free to read my article on the subject (it’s on SSRN) – I discuss many of these issues in more detail (including critiques of the theory).
I will note one thing – if you fragment information and otherwise take “extraordinary” (rather than reasonable) steps to keep information secret, then you don’t need trade secret law because no one will discover the secret. Surely you would agree with me that Coca-cola and KFC are taking extraordinary steps.
That’s OK, but it implies that the primary justification for the law (and this is a point on which people disagree) is to get people to take only “reasonable” steps rather than extraordinary steps. Many companies rely on employee confidentiality agreements and allow wide dissemination (in the company) of their crown jewels – source code, let’s say – knowing that the information is extremely easy to copy and take. Why? Because they have a remedy. Without such a remedy, they might fragment more (and I have had clients that did so).
Does that mean that no one will fragment? Of course not. The more wary a company is of litigation (either due to cost, perceived inability to recover, or risk of high damages), the more likely it will engage in more than “reasonable” protections.
This too doesn’t discredit the justification, it supports it.
Deven - September 10, 2008 at 12:57 pm
Bruce, well played, sir.
Grimmelperson, perhaps.
Michael and A.J., good luck sorting it out and thanks for stimulating me to read more on the serious side of trade secrets.
-Deven
Steve Bainbridge - September 10, 2008 at 4:10 pm
You realize, of course, that the big secret is Good Season’s dry Italian salad dressing mix?
A.J. Sutter - September 11, 2008 at 1:07 pm
Sorry Michael, I looked at the paper, and still believe that the viewing of business through such a reductionist legal and economic point of view is way too narrow. Companies don’t rely on wide dissemination only because they have a legal remedy. They are also trying to motivate employees and make them feel like they’re participating, and also they’re trying to do what they believe will facilitate collaboration that’s helpful to the business and morale. Moreover, if they’re smart they realize that the remedy is a partial one at best.
As for the game theoretical computations at the end of the paper, they certainly don’t reflect any actual decision-making processes at the companies, large and small, I’ve worked at or counseled. And the notion that “In theory, … the owner would spend as much as possible to protect the secrets, up until the point where it is marginally less costly to lose the secret than to protect it” (@69) presupposes a prescience about the value of individual trade secrets that no company has, nor in general endeavors to attain (to say nothing of whether it is even attainable). Even if the theory has some plausible explanatory force ex post, it doesn’t describe how many businesses really work from the inside.
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