By James Yu

Apparently it’s not just the sweet, delicious taste of Magnolia Bakery cupcakes that had people lining up in droves for a box or three since it opened its first store in Greenwich Village, New York over 15 years ago.

According to a Complaint filed on September 20, 2012 by Magnolia, entitled Magnolia Intellectual Property, LLC v. Buba Trawally, et al., Civ. A. No. 12-7102, in the U.S. District Court for the Southern District of New York, the cupcakes are also distinguishable and highly valued because of their “unique, distinctive, and immediately recognizable look — the ‘Magnolia Signature Swirl’ icing topping.” Magnolia maintains as trade secrets its cupcake recipes, including the Signature Swirl, which it claims has become well recognized and associated with the Magnolia name. According to articles attached as exhibits to the Complaint, it takes anywhere from 8 to 40 hours of training to perfect the Signature Swirl. It should come as no surprise, therefore, that the company requires each of its bakers to sign confidentiality agreements to protect its trade secrets, as well as other proprietary and confidential information.

The Complaint alleges that one of Magnolia’s former bakers, while still employed with Magnolia, started a company called Apple Café Bakery Corporation, then opened up a competing retail bakery shop in Greenwich Village shortly after he left Magnolia’s employ. According to the Complaint, Apple Cafe Bakery created “Knock-Off Cupcakes” with the same swirled icing topping “in an attempt to capitalize upon Magnolia’s unique and distinctive Magnolia Signature Swirl Trade Dress.” The Complaint also accuses the defendants of misappropriating Magnolia’s cupcake recipes. The Complaint asserts a total of eight causes of action, including federal and state statutory trade dress infringement, trade dress dilution, breach of contract, trade secret misappropriation, unfair competition, and tortious interference. Defendants have not yet responded to the Complaint.

While the Complaint seeks permanent injunctive relief, in addition to monetary damages, no motion for a preliminary injunction has been filed by the Plaintiff yet.  This action may be an investment by Magnolia to further protect its trade secrets and to serve as a warning to other bakers and competitors that Magnolia will aggressively enforce its confidentiality agreements and protect its business interests through litigation. An important lesson that many companies learn after the fact is that a failure to take any legal action against misappropriation or unfair competition could arguably be construed as either an unintended waiver of a trade secret or embolden other employees to ignore their confidentiality or non-compete agreements.

From a legal standpoint, it remains to be seen whether and to what extent Magnolia’s signature icing swirl is a protectable interest or sufficiently distinctive and famous in its look to entitle Magnolia to injunctive relief against any trade dress infringement or dilution arising from a competitor’s alleged use of the same or similar topping. Magnolia has indeed brought suit against another alleged competitor in the past for infringing on the Magnolia mark (see Magnolia Operating, LLC v. Jennifer C. Appel, No. 10-cv-9312 (S.D.N.Y.), but that case appears to have settled shortly after it was filed. We will keep you posted on this tasty new case.