Welcome back to our course on Protecting Business Innovations via Trademark.

Today we're going to talk about an interesting case where Trademark is used as a weapon.

Let me introduce the company.

The company is the Snack Factory,

the makers of Pretzel Crisps.

You might ask, what is Pretzel Crisps and why do I care?

Well, you can see the packaging here.

You can see kind of what Pretzel Crisps is.

But let me introduce you to this product which is a snack food that I really enjoy.

This is a pretzel crisp.

It looks like a pretzel from one dimension but from another dimension,

it's extremely thin and you can't really see this from the packaging exactly.

But it's as thin as the thinnest of potato chips.

It almost vanishes as you turn it sideways.

It's a very thin, crispy,

crunchy snack like a potato chip.

Not at all unlike a potato chip.

It's a different flavor, it's made of wheat instead of

potatoes but it's sort of like a potato chip.

Now, you might say, so what?

I like potato chips or I don't like potato chips,

why do I care?

Well, this is a different product in another way.

When you look at the nutritional label on this product,

it has zero fat.

Zero grams of saturated fat,

zero grams of trans fat,

zero grams of total fat,

zero fat of any kind.

That is unusual.

If you look at a package of potato chips,

it's about 60 to 70 percent fat.

It's a lot of fat.

And even low fat chips,

baked chips are still close to 50 percent fat.

So, you're still talking about a lot of fat and even quote,

unquote, "healthy snack foods."

This one has zero. That is unusual.

It doesn't mean it's completely good for you,

it doesn't have much protein either but very, very low fat.

And that is appealing,

that is attractive, and that is hard to do.

So, what have they done?

Well, this is a family-owned business.

And in order to achieve this result,

they've spent years in engineering and testing and development,

and have spent years in the patenting process and have gotten a patent on

the process of making this super thin, crunchy, crispy product.

And so, they have a patent that gives them a monopoly on producing Pretzel Crisps.

Now, someone else might be able to come up with

a different method of making the same product and they can do that.

They could make it in a different way if they can come up with a way that taste as

good and is equally low fat. But it's hard.

And so, Pretzel Crisps has at least an advantage in time in doing that.

They also want an advantage in their name,

that they want Pretzel Crisps would be identified with this product,

their company, their name.

And so, they've trademarked the name Pretzel Crisps.

This is where the lawsuit comes.

Frito-Lay sues the Snack Factory

after the trademark has been issued and says, "No, you don't.

We don't want you to have that trademark."

What right does Frito have to object to Snack's Factory trademark?

Well, Frito is saying in their lawsuit,

Pretzel Crisps is too generic as a name and never should have been trademarked.

Now, what does Frito win,

if they win this lawsuit?

They win the right to stop

Snack Factory from having the Pretzel Crisps name as a trademark.

That's all they win. They don't get any money,

they don't get any rights,

they don't get any property,

they win nothing except taking something away from Snack Factory.

What does Snack Factory lose?

An important differentiation factor in marketing their product.

So, Snack Factory has to respond and they spend millions on litigation.

Frito is spending millions to fight a battle where if they win,

all they get is the right to stop Snack Factory from doing something.

If Snack Factory wins,

they get the right to protect their brand stronger.

They fight for years and they're spending millions of dollars on this litigation.

And it's an interesting case where many lawyers are

looking at both sides and saying this is a real battle.

Of course, now you're seeing Frito owned by Pepsico who is fighting and saying,

Pretzel Crisps is too generic as a name.

But keep in mind,

this is the company Pepsico that owns other brand names like Taco Bell.

You might ask, is that too generic?

Or Pizza Hut, or Kentucky Fried Chicken,

all kind of generic sounding names but all have

secondary meaning that is associated

with the name and successfully defended its trademarks.

Snack Factory is trying to do the same thing and say,

Pretzel Crisps is more than just two words that are generic.

It has distinctive meaning.

This is a Pretzel Crisp.

Pretzel Crisps is not just a generic pretzel that is crispy.

This is a Pretzel Crisp and this is our product.

And this is what consumers identify with.

And go away Frito and leave us alone.

That's what Pretzel Crisps was trying to say or the company, the Snack Factory.

And so, this is the lawsuit.

Now, Pretzel Crisps eventually loses this lawsuit.

That's bad. And they want to appeal but they've already lost a lot of money in lawsuits.

And why is Frito doing this to them?

Well, keep in mind Pretzel Crisps is one of the fastest growing snack foods in America.

Frito is one of the largest snack food companies in America.

Every sale that Pretzel Crisps makes,

cost something to Frito-Lay of lost revenue.

So, Frito would sell less Doritos, less Lay's,

and less other brands because Pretzel Crisps was selling more.

Every million that Frito can force Snack Factory to spend on

lawyers is a million that Snack Factory does not have to spend on marketing.

And if we can drain their marketing budget and turn it into a legal budget,

we can slow down their growth and this is good for our bottom line.

We'll make more money selling Doritos if we can

drain their marketing budget and turn it into a legal budget.

So, Snack Factory is already suffering.

It's a family business that's under pressure because of the millions cost for litigation.

They've lost their first lawsuit.

The trial court has said that Frito is right,

pretzel crisp is a compound generic name.

And Snack Factory wants to appeal.

It's going to cost millions of dollars and they've

already drained their marketing budget too much.

They're already under pressure.

They were hoping they would win and be able to raise some money by

going public and getting investors and it's not going to happen.

So, they go find a private equity firm to put some significant money into the company

to give them money to grow the business and to fight the lawsuit on appeal.

They raised millions of dollars from a private equity company but they have

to give up 50 percent of the company to raise that money. It helps them grow.

They grow their business, they grow more,

they grow a lot, they win the lawsuit on appeal.

So, the second lawsuit they won. They now have the name.

They have won. They lost in the first court.

They appeal to a higher court.

The higher court sided with Pretzel Crisps or Snack Factory and said,

"You can use this name.

It has distinctive meaning in the marketplace

beyond the generic terms." So they have now won.

And then, the private equity company helps them to

negotiate a sale to Snyder's of Hanover,

a large snack food company and competitor of Frito-Lay who says, "Yeah.

We'll buy this small business.

We'll buy this family-owned business."

Which is now 50 percent owned by a private equity firm

for a large multiple on what the PE firm put in.

Because the PE firm invested after a losing lawsuit.

The sale to a strategic investor was after a winning lawsuit for a much higher multiple,

and much higher earning,

much higher growth in the company.

So, they won. Bottom line,

investing in brand is a strategy.

Lawsuits are part of a strategy.

You use lawsuits to defend your brands.

But sometimes you also can use them as

a strategic weapon to defend your market share against new entrants,

to harm new brands that might be harming your existing brands.

Pepsi is a brand empire and lawsuits are part

of the arsenal of weapons they use as part of their corporate strategy.

Pretzel Crisps (optional for background info)

Protecting Business Innovations via Patent

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