Shhh: 10 Make-or-Break Trade Secrets
Here are 10 of the most valuable and representative trade secrets today:
Thomas' English Muffins: On the surface, it doesn't seem that hard to reverse-engineer Thomas' recipe; after all, the famous nooks and crannies are basically the product of flour, water, and yeast, with assorted other well-known ingredients thrown in for flavor and texture. Yet the company takes its trade secrets very seriously, and recently went to court to protect them. In January 2010, Chris Botticella -- one of only seven Thomas' executives who knows the exact combination of dough, humidity and baking technique necessary to reproduce the muffins -- left Thomas' for a new job at competitor (and Wonder Bread manufacturer) Hostess. The case is currently on appeal, and Botticella has been barred from accepting his new job until the case is settled.
Coca Cola's Secret Recipe: It's common knowledge that the world's most famous secret recipe once contained cocaine; what's less known is that Coke still uses a coca leaf extract made by the Stepan Company (SCL), the only company in the U.S. that is allowed to process cocaine. Coca Cola (KO) also admits to using African kola nuts, lime extract and vanilla, and various reports suggest other exotic ingredients, including lemon extract, orange extract, nutmeg and neroli. The true recipe remains a mystery, as Coke decided against patenting it. A risky move, the soft drink behemoth's decision has paid off, protecting its distinctive taste from competitors, who could have made their own version when the patent information was made public, 20 years after its filing. Unfortunately, the decision to avoid a patent didn't protect Coke from two of its own employees who tried to sell the formula to Pepsi. Luckily, they were turned in by Coke's competitor.
Google: Many factors contribute to Google's (GOOG) position as the top search tool for the Web, but the biggest is its proprietary search algorithm, PageRank. Rather than simply ordering sites based on their mention of a particular search term, PageRank factors in the number of links to and from a site; in so doing, it considers not only the site's content, but also its place in the Web. Google's founders Larry Page and Sergey Brin developed PageRank while students at Stanford and the university still owns the algorithm, which it has licensed to Google in return for stock in the company.
KFC's Fried Chicken: Every fast food ad promises a special sauce or the best burger in the business, but when it comes to secret recipes, KFC (YUM) has the lock -- literally. The company's still uses Colonel Sanders' original, hand-written list of eleven herbs and spices, and its security precautions put the Pentagon to shame. In 2008, when the company updated its headquarters, it gave reporters a glimpse behind the curtain. The ingredient list is kept in a computerized vault with two separate locks, alongside vials of the eleven seasonings, and only two executives have access to the full recipe. By comparison, when McDonald's (MCD) substituted a cheaper version of its classic Big Mac "special sauce" in the 1980's, it lost the original recipe, only finding it in 2004, when it decided to switch back to the original.
WD40: When Norm Larsen invented WD-40 in 1953, he was looking for a compound that would protect Atlas rockets from rust. The ultimate creation, Water Displacer-40th attempt, has never been patented; the company, like Coca-Cola, wants to protect its formula from the prying eyes of competitors. A few years after he started selling WD-40 directly to consumers, Larsen sold the recipe along with the rest of his company for $10,000. Today, the distinctive spray, with thousands of uses, is used by an estimated 80% of all American homes.
The New York Times Best Seller List: In continuous publication since 1942, TheNew York Times' (NYT) best seller list is the top book-rating system in the U.S. While it is known that the paper polls thousands of chain bookstores, independent bookstores and wholesalers, the actual mechanics of the list are unknown, as release of the details could enable publishers to manipulate sales data. Over its history, the best seller list has run into a few battles with authors and retailers: in 1983, Exorcist author William Peter Blatty unsuccessfully sued the Times for $9 million, citing lost revenues when the list refused to acknowledge his novel Legion. Sixteen years later, the Times again found itself in court when online retailer Amazon began using the list to promote its sales. The two ended up settling: in return for sharing its sales figures with the Times, Amazon got to use the best seller list.
Auto-Tune: When engineer Andy Hildebrand originally developed software for mapping underground oil deposits, he had no idea that it could correct pitch a musical recording. Yet, since its the 1990's, the program has become a popular tool for producers. Originally employed for creative effects -- as in Cher's 1998 hit, "Believe" -- it is now largely used to perfect the pitch of off-key singers. Some musical acts, including Loretta Lynne and Death Cab for Cutie, have refused to use pitch correction, but Auto-Tune has become almost ubiquitous in the music industry, yielding huge revenues for its owner, Antares Audio Technologies.
Chartreuse: Many alcoholic beverages claim a unique recipe, but few have the complexity or history of Chartreuse, the pale green liqueur produced by France's Carthusian monks. Made from distilled alcohol and 132 secret extracts, Chartreuse dates back to 1605, although the recipe has changed over the years. The monks' biggest competitor has probably been the French government, which expelled them in 1793 and again in 1903. The second time, the monks moved to Spain and began making a version of their famous liqueur; meanwhile, a corporation took over the monastery and began churning out an ersatz "Chartreuse" before going out of business. In 1935, the monks came back to France, and have been making Chartreuse continuously since then. To this day, only two monks are allowed to know the recipe at any given time.
Mrs. Fields' Chocolate Chip Cookies: Secret recipes often inspire urban legends: Coke, for example, has been said to contain bugs, while McDonald's once had to deal with a rumor that they used chopped worms in its burgers. One of the most persistent rumors, however surrounds Mrs. Fields' cookies: according to the tale, a customer asked for the company's recipe and was told that she would have to pay "two fifty" for it. She agreed, assuming that she would have to pay $2.50, only to find that she was actually billed $250. In revenge, she allegedly passed the recipe around in order to devalue it. Later, the company's owner, Debbie Fields, publicly denounced the rumor, stating that she has never sold her recipe and it remains secret. Today, the urban legend has shifted slightly, claiming that Neiman Marcus is the overcharging culprit.
Starwood Hotels: Sometimes, a secret recipe isn't a single ingredient, but rather the perfect balance of hundreds of little details. At least, that's the claim of Starwood Hotels and Resorts (HOT): the company, which owns the upscale Westin hotel chain, filed suit in April 2009 when two of its former employees jumped ship to work for competitor Hilton. According to the suit, which is still in court, the two executives stole over 100,000 files that would enable Hilton to duplicate Westin's luxury style.