Today’s New York Times has an interesting article about trade secrecy and the Coke recipe, which I wrote about earlier this week.
Of particular interest for students of law and economics is the following excerpt:
“But no company has a history of secrecy quite like Coke, which claims that only a handful of senior executives know how to make the soda flavoring it calls ‘Merchandise 7x.’
The company does not file trademark lawsuits against imitators because it would have to reveal the actual formula in court.”
In other words, suppose someone were to discover Coke’s recipe and publish it. The company would weigh the costs of suing that person (i.e., legal fees, the discounted sum of forgone profits from the existence of perfect substitutes in the future, etc.) versus the benefits of doing so (i.e., settlement monies or awarded damages) in order to decide whether to sue that person.
Considering the profits Coca-Cola Co makes every year, the discounted sum of forgone profits from the existence of perfect substitutes likely drives that decision. Any one individual who would publish Coke’s recipe would more than likely be worth much less than that sum, so suing them would not be worth it.