Earlier this month, New York Pizzeria, Inc., a pizzeria chain with over thirty restaurants in the United States and the Middle East, filed a complaint in federal court in Texas alleging trade secret misappropriation. New York Pizzeria alleged that a former employee, as well as individual restaurant owners, were conspiring to misappropriate its trade secrets for the purposes of creating a competing business. According to New York Pizzeria’s allegations, a former employee and the owner of a competing business conspired to steal and use the company’s trade secrets. The defendants allegedly used this unlawfully obtained information to start a competing franchise chain.
According to the complaint, the former employee previously owned a New York Pizza franchise. His employment with the company was terminated in March 2011, and in October of that same year, the company sought to terminate his franchise as well. The parties allegedly agreed that New York Pizzeria would assume ownership of the restaurant, and would buy the former employee out. However, the former employee allegedly failed to honor certain obligations from this contract, and sued for breach of contract. In response, New York Pizzeria filed a counterclaim, alleging misappropriation of trade secrets. The suit eventually settled, however, after the settlement, New York Pizzeria alleged that the former employee continued to steal New York Pizzeria’s product, and the company filed a second lawsuit, asserting independent trade secret misappropriation claims.
According to Plaintiff’s allegations, the former employee ”had access to . . . confidential, proprietary information, including NYPI’s recipes, ‘plate specifications,’ supplier and ingredient lists, and training and restaurant operations manuals. . . [and the former employee] provided that information to the . . . [the other] defendants, without privilege to do so.” Additionally, Plaintiff alleges that the former employee and cohorts illegally accessed New York Pizzeria’s online portal by using one of New York Pizzeria’s company user names and passwords. This login information allegedly enabled defendants to obtain New York Pizzeria’s confidential and proprietary information, including special recipes and concepts for pizza, eggplant parmesean, baked ziti and pizza.
From a legal standpoint, it remains to be seen whether and to what extent New York Pizzeria has a protectable interest in the recipes and concepts and whether it will be successful in obtaining injunctive relief for their alleged use. This case, like the previous recipe case that we recently blogged about, serves as a reminder that those in the restaurant industry must closely guard their cooking secrets and employ effective non-disclosure and confidentiality agreements. Additionally, franchisors must carefully guard the proprietary aspect of their franchise systems through appropriate agreements. No other hearings have been scheduled as of yet, but we will continue to keep you updated with any material developments in this tasty case.