September 23, 2015 By: Adam M. Tracey
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The Canadian craft brewing industry has experienced unprecedented growth over the past decade, with the Ontario Craft Brewers association reporting that the industry has tripled its revenues in Ontario since 2002. Given this explosive growth, it is important for startup craft brewers to have a consistent intellectual property strategy from the outset, in order to help distinguish and protect its product from a crowded market of worthy competitors.

Contract Brewing Raises a Host of Legal Issues

This becomes particularly relevant when a startup brewer uses an established “contract brewer” to create product on its behalf. The legal details of these arrangements can take a number of specific forms, and are understandably popular as it allows a new brewer to get off the ground and start selling product without requiring a significant capital investment to set up a commercial brewing operation.

However, there are a few legal considerations to note when starting any new brewery, in order to distinguish the resulting beer from competitors and protect market share once the product is available to Canadian beer drinkers.

Confidentiality, Trade Secrets and Ownership of Recipes

Are you hiring a contract brewer to make a first commercial batch of a recipe that has been in secret development for years? Do you have a specific brewing technique that was devised completely on your own?

In these contract or tenant brewing scenarios, the contracting brewer will want to ensure that a non-disclosure, confidential information and trade secrets clause is included in the brewing contract. This will clarify exactly who owns the recipe and brewing process, to demonstrate how the recipe and process are unique.

On the other hand, if a contracting brewer has hired a brewmaster to create a custom beer that will be branded with the contracting brewery’s name and logo in a “brewmaster-for-hire arrangement”, it will be important to establish who owns the newly created recipe and any new procedural steps that the brewmaster has devised when concocting the new beer.

For example, are the contract brewer and brewmaster free to use the newly developed recipe and process in its own competing products? Are there geographic restrictions on where such competing products can be sold? Is the contract brewer able to sell the competing product to the contracting brewer’s established clientele?

These are all serious considerations that must be negotiated before entering into a brewmaster-for-hire arrangement as described above.

In both tenant brewing and brewmaster-for-hire situations, it is imperative to establish these important terms at the outset of the business relationship. Some proper due diligence at the outset can pay great dividends down the road when the business is flourishing. Also, from a practical perspective, it is much easier to negotiate terms before a product has become a blockbuster and is available in every corner pub!

Branding: Trademark Clearance and Filing

Beer drinkers are extremely loyal customers once they have found a beer that they enjoy and identify with. Accordingly, the global macrobrewing conglomerates have spent incredible sums protecting and promoting their brands to the beer-drinking public. It is therefore important to consider whether the names that have been chosen for the brewery and beer are freely available for use.

This is where trademark searching and filing comes in. It is infinitely easier to decide on a new name for a latest product, than it is to fight a legal battle with a macrobrewer.

As such, it is highly recommended to complete a trademark clearance search before settling on a name for any aspect of the craft brewing venture. It makes far more business sense to print labels, stamp cartons and design websites after it has been ensured that both the brewery and the beer’s names are free and available for use.

Further, once it has been confirmed that the chosen name is indeed available and free for use, it is strongly advised to file an application to register these names as trademarks. Trademark registration is a relatively affordable form of intellectual property protection that confers a host of advantages that can be of great value in a business where branding plays a big part in finding and keeping customers.

Licensing Intellectual Property

Finally, it is important to note that once the intellectual property rights surrounding the craft brewing venture have been established, one must ensure that appropriate licenses are in place between the relevant parties so that the goodwill and reputation associated with the product flows back to the craft brewer.

For example, if a brewmaster-for-hire is brewing, bottling and distributing a beer under a contracting brewer’s trademark, it is highly advisable to have a license agreement in place to ensure that any reputation associated with the trademark can be linked to the contracting brewer.

Similarly, if a proprietary recipe is jealously guarded and maintained as a trade secret, it is subsequently possible to license that trade secret to a third party for an additional revenue stream.

Takeaway for Startup Craft Brewers

The craft brewing industry has been a true Canadian star in a time of economic uncertainty across Canada. All indications point to this renaissance continuing to grow, leading to a more crowded marketplace. It is therefore essential that startup craft brewers heed all legal precautions at the outset of their venture, to ensure the viability and success of their craft brewery – hopefully leading to more types of delicious beer in the hands of Canadian consumers!

Click here to read the full article by Adam Tracey on the Nelligan O'Brien Payne Website.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.