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Patents, Trade Secrets, and The Coca-Cola Recipe

One of the questions most often asked on Shark Tank is: "Do you have a patent?" To the investors that's important. A patent means only you can make a certain product or make it in a certain way. If you don't have a patent, the investors are quick to say "I'm out" because someone else can just copy you.

Patents are valuable (in theory) in that they encourage innovation. You come up with something new and valuable, and if you are granted a patent, you get the right (a patent) to be the only one who can make that product, or in that particular way, for 20 years from the date you filed for the patent.

But the trade-off is that in exchange for this 20 years of protection, you have to disclose exactly how your make your product. That means everyone else can see how you do it. And after 20 years, someone can just copy you.

What's the alternative? The alternative is not seeking a patent on your product or your formula. And if you can keep your process, your formula, secret, no one can ever copy you. You don't get 20 years of protection, you get 100 years (or more)!

Maybe the most famous example is the recipe for Coca-Cola. It's not clear that the recipe could ever have been patented because recipes are difficult to patent. Nevertheless, because it's not patented, anyone (not employed by Coke--see below) can come along and make and sell something that tastes exactly like Coke.

The only thing Coca-Cola has going for it is that no one has ever figured out the recipe. It's considered the most closely-guarded formula in the history of food and drink production, and only two people in the world know the actual recipe.

The only intellectual property protection Coca-Cola has is that a Coca-Cola employee (or someone affiliated with Coke or otherwise in-the-know) cannot give out the recipe. So in that way the recipe is protected as a trade secret, which is not as strong as patent protection.
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