We've all seen movies with a little industrial espionage -- Company A instructs one of its employees to get a job at its top competitor, Company B, then steal its coveted business secrets. Far-fetched? Hardly. Just a few years ago, two Coca-Cola employees tried to sell the Coke recipe to rival Pepsi [source: Watson].
Many companies have highly protected trade secrets or confidential business information that gives them some kind of an advantage in the marketplace. Businesses in the manufacturing, industrial and commercial sectors are most likely to have trade secrets, which can be anything from a recipe, formula or design to a device, piece of software or general know-how.
While the Coca-Cola recipe is a famous trade secret, corporate recipes in general often fall into this category, says Scott Testa, assistant professor of business at Philadelphia's Cabrini College -- in part because there's a certain romance involved with food. "When you hear talk of Coca-Cola maybe changing its formula, for example, then veterans remember how they drank Coca-Cola during the war and people start getting upset."
Then there are the trade secrets we know little about, but are worth billions. A prime example is Google's proprietary search algorithm, which helped it achieve dominance over the Internet.
Now let's take a look at 10 trade secrets, listed in no particular order -- that are worth a lot of money to the people that own them.
Back in 1938, a Philadelphia Athletics coach named Lena Blackburne began mixing various batches of mud and water to create a substance that would dull the surface of glossy new baseballs, making them easier to grip. And, of course, it had to work without breaking the rules of baseball. Umpires had previously tried shoe polish, tobacco juice and the dirt beneath their feet to fix the balls, but while these substances did, indeed, dull the balls' surfaces, they also damaged the baseballs in the process [source: Bintliff].
Blackburne's eventual concoction -- crafted from rich mud found in southern New Jersey near the Delaware River (at his favorite fishing hole, to be exact) -- didn't wreck the balls. The Athletics' chief umpire gave it a thumbs-up, and soon other American League teams began clamoring for some. National League teams followed suit, and soon Lena Blackburne's Rubbing Mud was famous [source: Bintliff].
Since Blackburne had no kids to inherit his business, he passed it on to a childhood friend, whose grandson, Jim Bintliff, now runs the company. Bintliff says every Major League Baseball team uses the product today, and he makes five or six trips to the mud hole annually to fulfill demand. But he won't say exactly where the revered mud hole is. "The mud is on public land, but we've always kept the location a secret to keep people from trampling it" [source: Bintliff].
So many people love gooey, chewy Mrs. Fields Chocolate Chip Cookies, it's only natural they'd want the recipe. But it's a secret, says the company. Bakers have long tried to figure out the recipe themselves through a process called reverse engineering, but most want the real thing.
The intrigue surrounding the recipe became so intense, it gave birth to a popular urban legend, which goes like this: A woman and her daughter ask a clerk if they can have the cookie recipe. The clerk says sure, but it costs "two fifty." The woman hands over her credit card, gets the recipe, then later realizes she's been charged $250, not $2.50, as she'd assumed. When she calls the store to have the charge removed, she's turned down because she's already seen the secret recipe. So the woman e-mails it to everyone she knows, asking them to pass it on so it will lose its value [source: Watson].
"The secretness of the recipe helped to build the brand's early buzz, and got people to try the cookies ... and then tell their friends," says Jim Joseph, author of "The Experience Effect." "It's a great example of a trade secret driving the success of the brand."
It's every writer's dream to get his or her novel on The New York Times Best-Seller list, the most influential such list in America, which dates back to 1942. So how do you do it? No one really knows. The New York Times won't reveal what constitutes a best-seller, saying its methodology is a trade secret. We do know the newspaper asks chain bookstores, independent bookstores and wholesalers about their sales figures, but that's about it. The reason for the secrecy is supposedly that if the system was known, publishers could play around with sales data to their advantage.
It should be a relatively easy formula: A book that sells 'x' number of copies in a week or month or year is a best-seller. But one book that sells 32,000 copies can be named a best-seller, while another that sells even more is not. Times employees skirt around the issue, saying there are "official" best-sellers and "unofficial" best-sellers [source: Gould].
This trade secret has gotten the company into legal battles at times. In 1983, William Peter Blatty, author of "Exorcist,"unsuccessfully sued the newspaper for $9 million, saying that amount equaled his lost revenue when the paper didn't add his novel "Legion" to its best-seller list [source: Watson].
Law schools often illustrate trade secret discussions with the example of Listerine. In the 1880s, Dr. J.J. Lawrence invented the antiseptic liquid compound Listerine, then licensed its secret formula to J. W. Lambert and the Lambert Pharmacal Co. Warner-Lambert Pharmaceutical Co., successor to Lambert and Lambert Pharmacal, dutifully made royalty payments to the Lawrence family over the next 70 years, despite the fact that Listerine's formula was revealed along the way. But in the 1950s Warner-Lambert (now Pfizer Inc.) decided it had shelled out enough money -- more than $22 million, to be exact -- for a secret formula that wasn't even secret anymore. So it sued for a judgment that it was no longer on the line for the licensing fees. Unfortunately for Pfizer, the courts sided with the Lawrence family, ruling that the contract makes no stipulation about stopping payments if the trade secret is legitimately discovered by others, which it could have done. And anyway, since Pfizer had obtained the formula in the beginning, when it was still secret, it had received a decided marketplace advantage [source: Warner-Lambert Pharmaceutical Company v. John J. Reynolds].
About 80 percent of Americans use WD-40 [source: Watson]. The spray, which comes in a familiar blue-and-yellow can with a narrow, red straw stuck into its nozzle for dispensing, was originally developed in 1953 to prevent corrosion. The chemist who invented it sold the formula -- which he'd kept secret -- and his company for $10,000 just a few years later.
Today, WD-40 is used for everything from removing sap, tar and adhesives from various surfaces to cleaning tools and equipment. It's the company's only product, and its secret formula was never patented so competitors could never discover what's in it. The company does reveal what's not in WD-40: "silicone, kerosene, water, wax, graphite, chlorofluorocarbons (CFCs) or any known cancer-causing agents" [source: WD-40].
The revered formula has been sitting in a bank vault for years; it was taken out once when the company changed banks, and again when the company's CEO, armored and riding a horse, brought it out for the company's 50th birthday [source: The Wall Street Journal]. To further protect the formula's secrecy, the company mixes the substance in three different cities around the globe, then passes it on to its manufacturing partners [source: Daily Finance].
In reality, says Cabrini College Assistant Professor of Business Scott Testa,scientists have figured out, for the most part, what's in WD-40. "But some trade secrets are kept secret because from a marketing perspective, there's a certain allure if something's secret," he says. "This is probably more of a marketing exercise than what I'd consider a scientific exercise."
Ah, Twinkies, that delightfully spongy, creamy snack of childhood. Old television ads tout their health benefits: "Hostess Twinkies give your child energy to go on, plus protein to grow on." "The inside has a super-delicious cream filling." "Hostess Twinkies supply whole egg protein for rich, red blood" [source: Ettlinger]. Yet despite the snack's popularity, the manufacturer, Continental Baking Company (now Interstate Bakeries Corporation), never wanted to reveal what made the snack, invented in 1930, so tasty.
Steve Ettlinger, author of "Twinkie, Deconstructed,"came up with a list of 39 ingredients in Twinkies, without cooperation from Interstate Bakeries Corporation. He notes there's no cream in the cream filling, and maybe 1/500 of an egg in each cake. So much for the snack giving us rich, red blood. The manufacturer's response was to note that millions say Twinkies simply taste great [sources: Ettlinger, DailyFinance].
Not surprising, says Scott Testa, assistant professor of business at Cabrini College. Companies often keep information secret that they don't wish the public to know about or misconstrue. When you're handing your child that tasty yellow snack, do you really want to dwell on the fact that it's created from ingredients like polysorbate 60, high-fructose corn syrup, Red #40 dye and sorbic acid [source: Ettlinger]?
This Southern delight's origins reach back to 1933, when a man named Ishmael Armstrong bought the Krispy Kreme Doughnut shop in Paducah, Ky., from Joe LeBeau, a Frenchman from New Orleans. The purchase included the shop's secret doughnut recipe, which Armstrong -- and later his nephew, Vernon Rudolph, who grew the business into the one we know today -- kept to themselves. More than 70 years later, that recipe is still under wraps, locked in a safe at company headquarters in Winston-Salem, N.C., where only a handful of employees have access to it [sources: Arai, Shay and Robinson, FoxNews].
It isn't too hard to figure the recipe out, especially if you take a peek at the ingredients listed on the dry doughnut mix (also not difficult -- just ask the company). What makes the doughnuts so popular isn't strictly their ingredients, but the ability to purchase the fresh finished product. In the 1950s the company first created the process that allows the light doughnuts to roll off the assembly line, nice and warm, into your waiting hands. It took a while to perfect, but this process (also a secret) is more critical to the chain's success than the recipe itself [source: WREG].
Rumors persist it's simply Thousand Island dressing, perhaps with some pickle relish thrown in. Others cry foul -- surely it's more than that! This secret recipe is so secret, it somehow got misplaced (as in lost) sometime in the 1980s. It was the restaurant chain's own fault. McDonald's wanted to cut costs, and created a cheaper special sauce. (Did customers even notice?) During the switch, the original recipe was lost, but no one knew because they weren't using it anymore. Years later, a former executive returned to the company, and wanted to bring back the original sauce. That's when employees realized the recipe was missing. Fortuitously, the executive knew who had produced the sauce 36 years prior, and contacted the company, which still had the recipe in its records. The original secret special sauce was back [sources: DailyFinance, Watson].
One of the most famous trade secrets comes from loveable, white-suited Colonel Harland Sanders, who created a recipe for a tasty chicken coating about 70 years ago that contained 11 herbs and spices. That same recipe is still used today at his popular chain restaurant, KFC (aka Kentucky Fried Chicken). Initially, as he drove to visit potential franchise owners, Sanders kept the secret recipe in his head -- and the spices in his car -- although he eventually wrote it all down. His original, handwritten copy is hidden in a safe in Kentucky, and only a few select employees, bound by a confidentiality contract, know what the recipe is. For further protection, two separate companies each blend a portion of the mixture, which is then run through a computer processing system to standardize its blending [source: KFC.com].
Rumor has it the employees-in-the-know can't ever travel together by plane or auto to further safeguard the secret, and that once, when KFC modernized its security systems, the recipe was temporarily moved to another secret, secure location via an armored car, which was further guarded by a high-security motorcade [source: DailyFinance].
"I'm willing to bet if someone released the recipe to the KFC chicken, people would say, 'Oh, well, that's not much different from my grandmother's,'" says Cabrini College Assistant Professor of Business Scott Testa. "And that's pretty funny." What's not in dispute is that this trade secret is quite valuable to KFC.
The most infamous of all trade secrets in America is the recipe for Coca-Cola's Coke. At the end of the 19th century, Coca-Cola had a choice: Patent the recipe for its popular soft drink, which would mean disclosing its ingredients, or brand it a trade secret and keep things under wraps. Execs chose the latter route. Part of the reason might have been because the recipe contained a small amount of cocaine, a fact the company may have wanted to keep to itself. Whatever the reason, its decision has had repercussions.
Since its invention, there have been numerous rumors about Coke's ingredients, including one that said the recipe contained bugs. Another rumor says two employees each know just half of the recipe, and only two people know the combination to the safe where it's stored. "Over the years, the rumors have taken a life of their own," says Scott Testa, assistant professor of business at Cabrini College.
Despite its stringent security measures, in 2006 a Coca-Cola employee and two accomplices tried to sell the Coke recipe to Pepsi, says Testa. To its credit, Pepsi promptly notified Coke officials, and the group was busted.
For more on trade secrets, some of these famous brands and other related topics, head over to the next page.
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More Great Links
- Arai, Juliette; Shay, Wendy; and Robinson, Franklin A. Jr. "Krispy Kreme Doughnut Corporation Records, ca. 1937-1997." National Museum of American History Archives Center. 1998 and 2004. (Nov. 8, 2011) http://www.americanhistory.si.edu/archives/d7594.htm
- Bintliff, Jim, as told to Jonathan Berr. "Joy in Mudville: MLB teams can't get enough of Lena Blackburne's secret substance." CNNMoney.com. Aug. 20, 2008. (Nov. 8, 2011) http://money.cnn.com/2008/08/19/smallbusiness/lena_blackburne_mud.fsb/index.htm
- DailyFinance. "Closely-Guarded Trade Secrets." (Nov. 8, 2011) http://www.dailyfinance.com/photos/closely-guarded-trade-secrets/3657285/
- Ettlinger, Steve. "What's in a Twinkie?" ABC News Video. Sept. 18, 2007. (Nov. 8, 2011) http://abcnews.go.com/WNT/Video/playerIndex?id=3270151
- Gould, Emily. "'Times' Mystified By Definition of Best-Seller." Gawker.com. May 14, 2007. (Nov. 8, 2011) http://gawker.com/260182/times-mystified-by-definition-of-best+seller
- Hostess Cakes. "About Us." (Nov. 8, 2011) http://www.hostesscakes.com/about/
- Joseph, Jim. Author of "The Experience Effect." Personal interview conducted via Joseph's publicist. Oct. 29, 2010.
- KFC. "History." (Nov. 8, 2011) http://www.kfc.com/about/secret.asp
- NewsCore. "Krispy Kreme in Court Fight Over Secret Recipe." Fox News. June 18, 2010. (Nov. 8, 2011) http://www.foxnews.com/leisure/2010/06/18/krispy-kreme-court-fight-secret-recipe/
- NOLO. "Trade Secret Basics FAQ." (Nov. 8, 2011) http://www.nolo.com/legal-encyclopedia/faqEditorial-29099.html
- Quinn, Gene. "Trade Secret." IPWatchdog. Dec. 27, 2007. (Nov. 8, 2011) http://ipwatchdog.com/tradesecret/
- Santa Clara University School of Law High Tech Law Institute. "Frequently Asked Questions (and Answers) about Trade Secret." Chilling Effects Clearinghouse. (Nov. 8, 2011)
- Stein, Mitchell. Partner, Silver & Freedman law corporation. Personal correspondence. Nov. 3, 2010.
- Testa, Scott. Assistant professor of business, Cabrini College. Personal interview conducted Nov. 1, 2010.
- The Wall Street Journal. "More than Squeaking By." May 23, 2006. (Nov. 11, 2011) http://online.wsj.com/article/SB114835056149060280.html
- Warner-Lambert Pharmaceutical Co. v. John J. Reynolds Inc. 178 F. Supp. 655. University of Connecticut. Nov. 16, 1959. (Nov. 8, 2011) http://web.archive.org/web/20080720101348/http://www.law.uconn.edu/homes/swilf/ip/cases/warner_lam.htm
- Watson, Bruce. "Shhh: 10 Make-or-Break Trade Secrets." DailyFinance. July 4, 2010. (Nov. 8, 2011) http://www.dailyfinance.com/story/company-news/shhh-ten-make-or-break-trade-secrets/19531854/
- WD-40. "Fascinating Facts You Never Learned in School." (Nov. 8, 2011) http://www.wd40.com/about-us/history/
- WD-40. "Frequently Asked Questions." (Nov. 8, 2011) http://www.wd40.com/faqs/
- Wilf, Steven. "An Introduction to â€¦ Intellectual Property." University of Connecticut Law School. 2010. (11-1-10) http://web.archive.org/web/20080509145755/http://www.law.uconn.edu/homes/swilf/ip/
- Wolf, David. Intellectual property lawyer, Wolf, Greenfield & Sacks, P.C. Personal correspondence, conducted Oct. 28, 2010.
- World Intellectual Property Organization. "What is a trade secret?" (10-26-10) http://www.wipo.int/sme/en/ip_business/trade_secrets/trade_secrets.htm
- WREG. "Krispy Kreme Original Glazed Doughnut." Dec. 3, 2009. (Nov. 8, 2011) http://www.wreg.com/shows/krispykremerecipe,0,2160344.story