It became a symbol of patent abuse for some, but JM Smucker Co.’s vigorous defense of its rights to the sealed, crustless PB&J sandwich exemplifies the difficulty food companies face in staking their turf in the innovation minefield.
Dakotans Len Kretchman and David Geske came up with the idea in 1995 while serving their children peanut butter and jelly sandwiches with the crust trimmed away and the edges folded down. They began mass producing their sandwiches for school cafeterias and, while awaiting the issuance of patent No. 6,004,596 in 1999, sold the rights and their production facility to a subsidiary of Orrville, OH-based Smucker. Christened as Uncrustables, the frozen disc-shaped sandwiches rang up $8 million in sales in 2000. Expansion to retail helped propel Uncrustables sales to $126 million last year. Along the way, a dedicated facility in Scottsville, KY was built in 2003 and subsequently expanded. The planned closing of the original plant in West Fargo, ND has been continuously postponed to help meet demand. Uncrustables are, without question, one of Smucker’s greatest new product successes.
At the same time, the patent protection for Uncrustables touched off howls of derision. Critics cheered in 2005 when a US Court of Appeals rejected an effort by Smucker’s to expand protection to include a compression machine that seals the sandwich’s edge. (Kretchman earlier had patented a sandwich crimping tool.)
To many observers, the sealed, crustless sandwich patent was the poster child for a system run amok, where many of the 200,000-plus patents granted each year are little more than legal cudgels to beat off unwanted competition for sales of prosaic products. But to manufacturers who invest time, intellectual sweat and capital to turn ideas into profit centers, patents simply help protect their investments. From their perspective, knockoffs are the enemies of innovation, not litigation meant to protect it.
Litigation also provides muscle for nondisclosure agreements (NDAs) underpinning trade secrets. Just as patents have proliferated, so have NDAs. Outsourcing of engineering and other technical expertise increases the need for collaboration, and that has produced more complex NDAs. The question is: Do those agreements ultimately work against collaboration and retard innovation?
“There is a lot of secrecy in the food industry and very few secrets,” observed Scott Butler, vice president-engineering & technical services at Del Monte Food Co. at a panel discussion on intellectual property at Food Engineering’s 2006 Food Automation & Manufacturing Conference, to which many industry professionals would add a heartfelt “Amen.”
Fellow panelist, Eldon Roth, president and founder of Beef Products Inc., was almost sanguine in his approach. An owner of 41 US patents, Roth turned beef trimmings into value-added products with innovative machines and process steps. Rather than hoarding those innovations, he prefers to lease them to others as a way to sell more product. “Sometimes the more you give away and work with people, the more product you sell,” Roth says.
His philosophy extends to machine shops that have developed custom components for BPI. A recent example is a water-cooled, midsized stainless steel motor that has to withstand operating conditions up to 4200 rpm in an oppressively hot room. Three trials were required in BPI’s compressor room in Dakota Dunes, SD, and patience was frayed by the third trial, recalls John Oleson, the supplier who engineered the motor. While many manufacturers would demand at least partial rights to such an innovation or perhaps exclusive rights, Oleson was granted full control of his invention (see Engineering R&D on pages 75-76).
Innovation pump-primingNew products are one barometer of innovation, and by that measure, food and beverage companies may be near the top of their inventive game (see chart on page 36). While the 20,049 new food and drink introductions in 2008 tracked by Mintel was off 4% from 2007, they are bullish compared to recent years and mark a 27% increase over 2003.
On the other hand, most of those were line extensions, new formulations or new packages for old products, Mintel reports. In fact, the 7,549 line extensions rival the 9,031 new-to-the-market introductions tracked by the consumer research firm.
Machine development groups once were found in most manufacturing organizations. Today, they are few and far between, leaving food companies reliant on outside machine shops to fabricate equipment that can provide a competitive edge. As engineering and technical staffs have shrunk, the role of those outside firms in innovation has expanded. But demonstrating the new equipment requires trials in a commercial setting, blurring the ownership line. “Even if the manufacturer doesn’t invest capital, if the equipment improvement has an impact on their operations, they might want the intellectual property, and that can be a deal breaker,” notes Mark Swanson, head of business development for consumer products at Burns & McDonnell, a Kansas City, MO engineering firm.
Borden Foods Corp. spent six years in the 1990s developing a fully cooked and shelf-stable pasta-and-meat sauce meal. A unique servo-driven indexing system was engineered, leading to intellectual property (IP) squabbling between the manufacturer and developer over the software rights, recalls Karl Landgraf, a project manager with The Dennis Group, Solana Beach, CA. Since the manufacturer only purchased four of the indexers, the developer insisted on the flexibility to sell his concept to others.
The tale took a turn when a mechanical engineer involved in the project devised his own controls for a superior indexing solution and was subsequently sued. The engineer was vindicated, but the case demonstrates the challenges faced by innovators and the chilling repercussions they can face. “Typically people are pretty reasonable and common sense rules the day,” says Landgraf, “but some people are litigious.”
Firms like The Dennis Group, Burns & McDonnell and Hixson Inc. tout long-term relationships as their bulwark against client squabbles over intellectual property. For an A/E firm, the line between yours, mine and ours usually is clear-cut, though defining ownership still can be sticky. “Unless a high level of trust has been built up over time, upfront discussions on confidentiality and nondisclosure agreements can really slow a project down or result in us not having a full understanding of the (manufacturer’s) issue,” points out Mike Steur, director of client development at Cincinnati-based Hixson.
Equipment fabricators make a living selling metal, and surrendering ownership of a machine innovation is done reluctantly, if at all. Two-tier pricing may come into play: If the manufacturer fails to purchase a threshold number of machines, a higher unit price prevails. Firms that engineer one-off systems and exclusive innovations are an endangered breed.
One of the few remaining is Foster-Miller, a Waltham, MA technology firm with hundreds of engineers on staff. When they develop an innovation for a client, all the rights to the intellectual property are assigned to the client.
“Our general recommendation to a client is to file a patent, but a lot depends on your ability to defend a patent,” says Ed Goldman, senior vice president. Legal costs for filing and maintaining a patent over the course of 20 years are typically $60,000. For firms with limited resources, a trade secret might be the best approach.
The power of a well-crafted patent claim is substantial. Confidentiality agreements prevent Goldman from discussing most of the firm’s projects, but an exception is Fruit Gushers, a snack food Foster-Miller helped develop for General Mills in the 1980s. Two patents were assigned to Gushers, a gelatinous food surrounding a viscous fruit-juice center that gushes out when the snack is bitten. Whether the absence of competing snacks is a testament to the complexity of the process, or the prowess of General Mills’ legal department is unclear, maintaining exclusivity for a score of years is a notable accomplishment.
Lapping the fieldFoster-Miller’s work in pharmaceuticals, the defense sector and other industries sustain it today. Food projects are fewer. “It’s not the business it used to be, to be quite honest,” says Goldman. Today’s food companies are satisfied to get a jump on the market rather than gain exclusivity.
Depending on the level of technological risk, the competitive jump can be substantial. Don Bowden of Fort Worth, TX was the first and, for several years, only food industry buyer of presses for high-pressure processing (HPP) from ABB and then Avure Technologies. Metals and other industries also use high pressure, but Bowden’s Avomex Inc. (now Wholly Guacamole) drove modifications necessary to make the technology suitable for batch processing of food (see “One step back, two steps forward,” Food Engineering, October 2008). “The technology was so much better that we didn’t have to put in citric and ascorbic acid” to preserve avocados shipped from Mexico to the United States, Bowden relates. “Our competitors didn’t take us seriously for a long time.” By the time other guacamole firms started using HPP, Bowden had eight years’ worth of operating experience and solid relationships with supermarkets and foodservice distributors that fortify the company’s category leadership position.
Hormel Foods Co. also used HPP to gain a competitive edge for Natural Choice deli meats. Another commercial hit is Compleats, Hormel’s line of shelf-stable microwaveable entrees. These convenience products are carving out more shelf space thanks to a tripling of sales in its first three years. It has done what Hormel Top Shelf failed to do 20 years ago. Private-label manufacturers now are trying to catch up with Compleats.
Hormel was issued a peripheral patent in 2004 for a pressure indicator for food processed in a high-pressure vessel, though the core technology is available to all. Most food companies prefer to treat their innovations involving commercially available technology as trade secrets, as is the case with Vegetable Products Inc.
The inventor of V-8 founded the Bedford Park, IL juice maker 81 years ago. Since 2004, James E. Hurley has guided Vegetable Juices as president and CEO, making innovation a core focus. A new R&D center opened in 2006, and managing the risk of innovation initiatives is a company focus. “We’re not afraid of failure, only the cost of it,” says Hurley.
Nondestructive processes such as reverse osmosis have been studied with the help of subject matter experts including Dan Farkus, coincidentally one of the contributors to pump improvements for HPP systems while a researcher at Oregon State University. Readily available R/O equipment from GEA Filtration is used by Vegetable Juices, and the process engineering the firm develops is a closely guarded competitive edge, says Hurley.
“People find unwarranted safety in patents,” he believes. “There are a lot of smart people all over the world who study patent disclosures and then do one thing differently.” Better to play process breakthroughs close to the vest and then continuously improve them.
Although he has a patent pending on his water-cooled motor, Stainless Motor’s Oleson seconds Hurley’s view. “Unless you have $1 million to defend a patent, there’s no point in getting one,” he sighs. “A foreign company can buy my motor, copy it, and our government will let it come back here.”
Perhaps the best defense for his innovations is neither patents nor trade secrets but solid customer relationships. Instead of paying attorney fees, Oleson prefers to focus on engineering improvements that solve manufacturers’ problems. As proof of the soundness of that approach, he cites less than $2,000 in unpaid invoices over 20 years.
The only sin greater than losing ground to a knockoff might be a failure to innovate. Regardless of how companies choose to defend their product and production improvements, the need for innovation remains. Standing pat is not an option.
For more information:
Mark Swanson, Burns & McDonnell, 816-822-3812, email@example.com
Karl Landgraf, The Dennis Group, 858-847-9633, firstname.lastname@example.org
Chris Roach, FKI Logistex, 513-881-5272, email@example.com
Ed Goldman, Foster-Miller, 781-684-4168, firstname.lastname@example.org
Mike Steur, Hixson Inc., 513-241-1230, email@example.com
Dean Ford, Maverick Technologies, 443-876-5217, firstname.lastname@example.org
John Oleson, Stainless Motors Inc., 505-867-0224, email@example.com
Maintaining automation vs. compromising IT securitySome of the most confidential information about a manufacturer’s processes today is wrapped up inside computer code, making access to a company’s information network extremely sensitive. Strict confidentiality accords are demanded before an automation project can begin, systems integrators say. When it comes to recipe control and similar data, outsiders are privy to “the keys to the palace” after all, points out Dean Ford, director-enterprise application integration at Columbia, IL-based Maverick Technologies.
Integrators typically turn over the source code and let the client maintain the software. The hand-off is not so clean with OEMs, who often prefer closed systems that protect their intellectual property. That can result in difficulty when the automation system develops a problem. The IT department must approve network access for remote diagnostics, a delay that can keep a plant down longer than necessary. “It’s like spending 90 minutes looking for your toolbox,” says Chris Roach, vice president-customer service support in FKI Logistex’s Cincinnati office. Additional delays can occur while navigating the firewalls erected by IT to safeguard the network.
Modems help circumvent the security issue, and that’s fine for minor fixes. In the event of a lightning strike or other disaster causing a critical failure, downloading a software program can take hours by modem, Roach points out. FKI has responded with NetLok, a “virtual private network.” Besides encryption and monitoring, NetLok delivers an audit of every portal visited by service technicians.
Access networks like NetLok are not new, but networks that satisfy the needs of both maintenance and IT are in short supply. “There have been way too many solutions, resulting in companies that are not in the IT business having large IT departments,” concludes Roach. By offering manufacturers a standardized solution, the OEM hopes to ease the burden of protecting clients’ intellectual property.