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Food Hubs Archive

“Local” As A Trademark Opportunity

October 26, 2015

by Lauren Handel

ATKearney’s recently released third annual report on consumer opinions about “local” food has lots of interesting information relevant to food hubs and anyone who markets local food. One of the findings is that consumers don’t buy local food because they don’t know which products are local. This finding suggests that food hubs and producers could do more with branding and labeling to identify local food. I see this as an opportunity to use trademark law for the benefit of local and regional food systems by creating marks that signify “local” to the relevant community. Such marks can be valuable intellectual property if used and protected appropriately.

For example, a food hub’s trademark (e.g., its name or logo) signifies to consumers not only that products bearing the mark come from the hub but also that those products come from a particular locality. Of course, the hub needs to invest in marketing so that consumers will recognize the mark and know that the hub sources from growers in the area.

Certification marks also are useful tools for identifying local food. Many states own certification marks (such as “Jersey Fresh” and “Certified SC Grown”) certifying that a product is produced in the state. The purpose of a certification mark is to indicate that goods meet certain standards. A food hub could operate a certification mark program for growers in its area to identify their products as local (defined however the hub sees fit) and, perhaps, as meeting other production and/or quality standards.

Another possibility, particularly for cooperatively owned food hubs, is collective marks. A collective mark signifies that a product comes from a member of a group. Through the group’s marketing, consumers will come to recognize that products sold by group members are local.

From a legal perspective, a food hub should secure its rights in its trademarks, certification marks, and collective marks by registering the marks with the US Patent and Trademark Office and by controlling the use of the marks. Registration provides nationwide rights in a mark and helps to prevent other people from using confusingly similar marks. The owners of trademarks, certification marks and collective marks must control the use of their marks or else they risk losing all rights in them. Therefore, it is very important to have licensing agreements with anyone permitted to use a mark and to not allow others to use a mark (or a similar mark) without such a license. Licensing agreements need not be complicated, but they must specify conditions for the use of the licensed mark.

Legal Tools for Food Hubs, Part 3: Planning to Minimize the Burdens of FSMA

April 11, 2014

by Lauren Handel

Food hubs and the farmers who supply them will be significantly impacted by the new regulations FDA is promulgating under the Food Safety Modernization Act (FSMA) — in particular, the rules relating to produce safety and preventive controls. The rules are only in draft form now, and new drafts are due to be released this June. So it remains to be seen exactly how the exemptions will be defined. We will be looking closely at what changes, if any, are made to the exemptions for small businesses. Businesses that might qualify for the exemptions also should pay attention and plan ahead to minimize their regulatory burdens to the extent possible.

Under both the preventive controls and produce rule, businesses will be exempt from all or most requirements if their annual food sales are below certain dollar amounts. Both rules provide a qualified exemption from most of the requirements if a business’s average annual food sales are less than $500,000 and if the majority of its sales are direct to consumers or to local retailers or restaurants. The preventive controls rule also provides a qualified exemption for “very small” businesses, meaning those with annual food sales less than $250,000, $500,000 or $1 million (FDA has not yet decided which limit to use). Also, if a farming business’s annual food sales do not exceed $25,000, it would be completely exempt from the produce rule.

What food sales count toward these limits differs under the two rules. For the preventive controls rule, all food sales of affiliated companies count. In other words, all food sales of separate food processing or handling facilities under common ownership or control will be counted toward the exemption limit. In contrast, for purposes of the produce rule exemptions, the relevant food sales are those of a “farm,” which is defined as a physical place. Thus, as the produce rule is currently drafted, a farming business with multiple farms in different locations might qualify for an exemption on one farm, but not another, depending on the relative food sales from each farm.

When the rules are finalized, small food and farming businesses should consider whether they can structure their businesses or operations to avoid taking on more of a regulatory burden than necessary. It may be possible for a food hub enterprise to keep various parts of the operation under separate ownership and control so that their total food sales will not be aggregated for purposes of determining whether any one facility is exempt from the preventive controls rule. Similarly, a farming business with more than one farm location should consider the exemption criteria when planning what crops to plant on each farm. Of course, such considerations will have to be weighed against business needs and practical concerns.

We will be monitoring this issue as the FSMA rules continue to take shape. If you would like to discuss strategies you might employ in your small food or farming business to plan ahead for FSMA, feel free to contact me or Jason at (888) 908-4959 or info@foodlawfirm.com.

Legal Tools for Food Hubs, Part 2: Contracts Are Not Evil

April 10, 2014

by Lauren Handel

Earlier this week, I wrote about intellectual property as a valuable legal tool for food hubs and all food businesses.  This second installment on legal tools for food hubs is about contracts. In particular, supply and sales agreements can be important tools for risk management and to take advantage of special protections afforded to produce sellers.

First, I feel the need to dispel some misconceptions about contracts. Contracts are critically important legal tools for food businesses. Yet, so many values-based businesses seem to feel that contracting is a hostile act. But legal contracts are not inherently antagonistic, unfair, or devoid of values. To the contrary, a contract should be the foundation for a cooperative, mutually beneficial relationship. And a contract can be instilled with the parties’ values — for example, by requiring that suppliers use sustainable practices, raise animals humanely, and pay workers fairly. Parties to a contract have enormous flexibility to define the terms of their relationship and transactions. However, if parties do not spell out their agreement in a contract, the law will apply default rules, which may not be consistent with the parties’ intent. 

Contracts are an essential part of an overall risk management strategy. Food can be a risky business. And every seller in the supply chain — from the farmer or manufacturer to the distributor to the retailer — is potentially on the hook if a consumer gets sick from tainted food. Therefore, food hubs, or anyone selling food produced by someone else, should use their supply contracts to ensure that producers and processors use safe practices, that the buyer will be indemnified for harms it did not cause, and that the suppliers have sufficient insurance coverage. With regard to insurance, buyers should require that their suppliers name them as additionally insured on the suppliers’ general liability policy which must include product liability coverage. Contracts also can address what will happen in the event of a product recall by defining the parties’ roles and their responsibilities for the costs of the recall.

In addition, food hubs should use their sales contracts and invoices to take advantage of the special protections afforded to produce sellers under the Perishable Agricultural Commodities Act (PACA). PACA applies to dealers, brokers and commission merchants of fresh or frozen produce who, on any given day, buy/sell/broker the sale of at least 2,000 pounds of produce. The law does not apply to retailers until they sell at least $230,000 worth of produce in a calendar year. In general, food hubs are subject to PACA and, therefore, required to be licensed by the US Department of Agriculture.

PACA provides some extraordinary protections for produce sellers, including food hubs, provided that they take steps to preserve their rights. PACA requires produce sellers to be paid promptly, which means within 10 days unless the parties agree in writing to a longer term, not exceeding 30 days, before the transaction takes place. The law also creates a trust for the benefit of unpaid produce sellers, by which the buyer must hold in trust all produce in the buyer’s possession, all of the buyer’s inventory of goods derived from produce, and any proceeds the buyer receives from the sale of produce until full payment is made to the seller. These rights can be lost, however, if the seller does not notify the buyer of its intent to preserve its rights under PACA. If the seller is a PACA licensee, such notice may be given in the invoice using particular language specified in USDA regulations.

It is not possible to discuss here all of the contract tools available to food hubs and other food businesses. Feel free to contact us at (888) 908-4959 or info@foodlawfirm.com to discuss your business’s contracting concerns.

Legal Tools for Food Hubs, Part 1: Intellectual Property

April 7, 2014

by Lauren Handel

I recently spoke on Legal Tools for Food Hubs at a conference put on by the Wallace Center’s National Good Food Network. (By the way, the conference was truly excellent, and I recommend that anyone working in food hubs, or local food generally, attend next year.) For those who don’t know, a “food hub” is a business that connects farmers to local markets by providing various services, such as aggregating products, marketing, and distribution. There are many legal tools that are potentially useful for food hubs or any food business. I focused my presentation on three issues of particular relevance to food hubs: (1) intellectual property; (2) contracts; and (3) business planning to minimize upcoming regulatory burdens associated with the Food Safety Modernization Act (FSMA). I thought I would share here some of what I told the group. Today’s post is about intellectual property. Later this week, I’ll cover contracts and FSMA issues.

Every business should have a strategy for identifying, protecting, and leveraging its intellectual property (IP). Food businesses are no different. Trade secrets, copyrights, and trademarks are valuable assets. But, if these assets are not carefully protected, they will be lost. The first step in protecting IP is to know what you have. An IP audit should be done and periodically updated to consider what IP the company has, what it is doing to protect that IP, and whether any steps should be taken to better protect the IP. The audit should consider the company’s patents or patentable inventions, copyrighted works, trade secrets or other confidential business information, and trademarks.

Each form of IP is acquired differently and protected differently under the law. For example, patent rights exist only if a patent is obtained from the government, but copyright is protected by law as soon as an “author” creates an original work in a fixed, tangible form. A trade secret is a property right in some piece of information or know-how — such as a proprietary recipe, formula, customer list, or pricing information — that gives the owner a competitive advantage precisely because it is not generally known. A trade secret is protected under the law only if it is kept secret. Thus, if a company with trade secrets does not take steps to maintain confidentiality, it loses the ability to protect those secrets legally, and competitors will be free to use the information. A trademark is a symbol, logo, words, or anything that distinguishes goods or services as coming from a particular source (i.e., the manufacturer or service provider). Trademark rights are derived from the use of a mark in connection with the sale of goods or services in commerce. A trademark owner who does not continue to use the mark, or who freely allows other people to use the mark or similar marks, will be deemed to have abandoned his or her rights.

Company policies and contracts are key to protecting and maintaining IP rights. For example, when a company hires a designer to create a website or marketing materials, the designer generally will be the owner of any copyright in the works created unless the company and the designer enter into a work-for-hire agreement or assignment of copyright to the company. Companies with valuable trade secrets should have internal policies in place to maintain confidentiality and nondisclosure agreements with employees and outsiders to whom trade secret information is disclosed. Whenever a company allows someone else to use its trademark, it should have a written license agreement controlling the use of the mark. Without such control, the trademark owner risks abandoning its rights.

Trademarks are especially important to “good food” businesses because the only way that a small, local, sustainable food company can compete in the marketplace is by distinguishing itself from conventional, industrial food. Even though the owner of a trademark has legal rights without registering the mark with the US Patent and Trademark Office, registration is a good idea. Without federal registration, a trademark owner’s rights extend only to the geographic area where the mark is used in commerce. That means that a trademark owner has no right to block a competitor in another state from using the same or a similar mark. In contrast, national registration on the Principal Register confers nationwide rights to block trademark infringement. Federal registration of a trademark provides other benefits as well, such as a presumption that the mark is valid and, after 5 years, “incontestability” status, which makes it much harder for anyone to attack the mark in court.

A particular challenge for local food businesses is to choose a brand name that can be protected under trademark law. A brand that includes the name of a geographic place (for example, “Pleasantville Food Hub”) is descriptive and, therefore, would not qualify for full trademark protection. Because trademarks are meant to distinguish the source of goods or services, the less distinctive the mark, the less likely it is to be protected. If a mark is descriptive, one option is to register it on the Supplemental Register. Although such registration does not confer the full set of rights that comes with registration on the Principal Register, it can deter others from using a similar mark and will block the registration of confusingly similar marks. Through continuous use and marketing, a descriptive mark can acquire so-called “secondary meaning” — that is, it comes to be associated with the owner of the mark such that it then can be registered on the Principal Register.

This is far from a comprehensive discussion of IP issues that may be relevant to food hubs or other food businesses. Feel free to contact us at info@foodlawfirm.com or (888) 908-4959 to discuss your business’s IP concerns.