Cadbury Schweppes Inc v FBI Foods Ltd facts for kids

Quick facts for kids Cadbury Schweppes Inc v FBI Foods Ltd
Supreme Court of Canada
Hearing: April 20, 1998 Judgment: January 28, 1999
Full case name	FBI Foods Ltd., FBI Brands Ltd. and Lawrence Kurlender v. Cadbury Schweppes Inc. and Cadbury Beverages Canada Inc.
Citations	[1999] 1 SCR 142, [1999] SCJ No 6, 1999 CanLII 705 (SCC).
Docket No.	25778
Prior history	Appealed from Cadbury Schweppes Inc. v. FBI Foods Ltd., [1996] BCJ No 1813, 138 DLR (4th) 682 (15 August 1996). Same case as Cadbury Schweppes Inc. v. FBI Foods Ltd., [1994] BCJ No 1191, [1994] 8 WWR 727 (25 May 1994).
Ruling	Appeal allowed; Cross-appeal dismissed
Court membership
Chief Justice: Antonio Lamer Puisne Justices: Claire L'Heureux-Dubé, Charles Gonthier, Peter Cory, Beverley McLachlin, Frank Iacobucci, John C. Major, Michel Bastarache, Ian Binnie
Reasons given
Unanimous reasons by	Binnie J.
Lamer C.J. and Cory J. took no part in the consideration or decision of the case.

Cadbury Schweppes Inc v FBI Foods Ltd is an important decision from the Supreme Court of Canada. It helped explain how trade secrets are protected in Canada. A trade secret is like a secret recipe or special way of doing things that gives a business an advantage. The case also showed the difference between trade secrets and patents under Canadian law. A patent is a legal right that protects new inventions for a certain time.

What Happened?

In 1969, a new drink called the Bloody Caesar was invented in Calgary, Alberta. This drink is usually made with tomato juice, clam broth, and vodka. Soon after, a company called Duffy-Mott started selling a mix of tomato juice, clam broth, and spices called Clamato. The Bloody Caesar became very popular in Canada, which helped sell a lot of Clamato juice.

In 1977, Duffy-Mott let a company called Caesar Canning, from British Columbia, make and sell Clamato. Duffy-Mott shared secret information about how to make Clamato. Caesar Canning used this information and special spice packs to produce the juice.

Caesar Canning did a great job selling Clamato in Canada. With Duffy-Mott's permission, Caesar Canning then made a deal with FBI Foods Ltd. FBI Foods Ltd. started making Clamato for the eastern part of Canada.

In 1982, Cadbury-Schweppes bought Duffy-Mott. A few months later, they told Caesar Canning that their agreement to make Clamato would end. The agreement had a rule that said Caesar Canning could not make or sell any product with clam juice and tomato juice for five years after the deal ended. They also couldn't use names ending in -MATO.

After losing the Clamato deal, Caesar Canning used the Clamato recipe they had learned to create a new juice mix. To avoid breaking the old agreement, their new product had tomato juice but no clam juice. With help from FBI Foods Ltd., Caesar Canning sold this new juice across Canada under different names. In court, judges called all these products Caesar Cocktail.

Even though Caesar Cocktail sold well, Caesar Canning went out of business in 1985.

In 1986, FBI Foods Ltd. bought Caesar Canning's business and kept selling Caesar Cocktail.

Cadbury-Schweppes didn't sue FBI Foods Ltd. right away. They thought FBI Foods Ltd. hadn't broken the agreement because Caesar Cocktail didn't have clam juice.

However, in 1986, Cadbury-Schweppes realized they might have a case. They sued FBI Foods Ltd. for using their secret Clamato recipe without permission. Cadbury-Schweppes said the recipe was given to Caesar Canning only to make Clamato, not to create a competing product.

Court Decisions

This case went through several courts before reaching the highest court in Canada.

British Columbia Supreme Court

The first court to hear the case was the Supreme Court of British Columbia. Justice Carol Huddart decided that Cadbury-Schweppes was right. She used a special test to see if secret information had been misused. This test has three parts:

• The information must truly be a secret.
• The information must have been shared in a way that meant it should be kept secret.
• The information must have been used wrongly, causing harm to the owner.

Justice Huddart said the Clamato recipe was a secret because Duffy-Mott spent time and money creating it. She also said Caesar Canning and FBI Foods Ltd. had a duty to keep it secret. This was because of their agreement and because the recipe was given only to make Clamato. Finally, she ruled that they misused the recipe by using it to make Caesar Cocktail, which was not allowed.

Justice Huddart decided that FBI Foods Ltd. and Caesar Canning were responsible for misusing the Clamato recipe. She said Cadbury-Schweppes couldn't prove they lost money directly. So, FBI Foods Ltd. only had to pay Cadbury-Schweppes for the money Caesar Canning saved by not having to invent its own recipe. This amount was about $29,761.20. Justice Huddart did not make FBI Foods Ltd. give up all their profits. She also didn't stop them from selling Caesar Cocktail. She felt it was unfair to stop them after Cadbury-Schweppes waited four years to sue.

British Columbia Court of Appeal

Both companies were unhappy with Justice Huddart's decision, so they appealed to the British Columbia Court of Appeal. Cadbury-Schweppes wanted more money and an injunction (a court order to stop FBI Foods Ltd. from using the recipe). FBI Foods Ltd. argued that their contract didn't stop them from using the recipe, only from making a drink with both clam and tomato juice. They also said the recipe wasn't meant to be secret forever.

Justice Mary Newbury, speaking for the Court of Appeal, disagreed with FBI Foods Ltd. She said the duty to keep the recipe secret came from the relationship between the companies, not just the written contract. She also said neither Caesar Canning nor FBI Foods Ltd. should have used the recipe to copy Clamato. If they wanted to make their own tomato juice drink, they should have created their own recipe.

Justice Newbury agreed with Cadbury-Schweppes. She ordered FBI Foods Ltd. to pay more money and stopped them from using the recipe to make Caesar Cocktail.

She said Cadbury-Schweppes didn't ask for profits earlier because both sides agreed to figure out the money part later. She also felt that $29,761.20 was not enough. She said it would be wrong to let FBI Foods Ltd. "buy" the recipe so cheaply. This could harm future business deals where secrets are shared. She ruled that the money paid should be based on the profits Cadbury-Schweppes would have made if they had sold all the Caesar Cocktail for the first 12 months it was on the market.

Justice Newbury felt Caesar Canning was more at fault for purposely copying the recipe. She decided an injunction was fair because a court shouldn't allow someone to be forced to sell their secret information.

Supreme Court of Canada

FBI Foods Ltd. then appealed to the highest court, the Supreme Court of Canada. They argued that the order to pay profits and stop using the recipe was too much. They said Cadbury-Schweppes's losses were due to them ending the agreement, not from Caesar Cocktail. Cadbury-Schweppes also appealed, saying FBI Foods Ltd. had "stolen" their secret recipe. They wanted to be paid the full value of the recipe, as if it had been protected by a patent.

Justice Ian Binnie wrote the decision for the Supreme Court of Canada. He agreed that FBI Foods Ltd. had misused Cadbury-Schweppes's secret information. The main question for the Supreme Court was what kind of remedy (solution) to give Cadbury-Schweppes.

Justice Binnie explained that misusing secret information is a special kind of legal problem. He said courts should decide what is fair based on the specific facts of each case.

In this case, Justice Binnie felt it was not fair to stop FBI Foods Ltd. from making Caesar Cocktail using the recipe. First, he agreed that Cadbury-Schweppes waited too long to ask for an injunction. FBI Foods Ltd. had already spent a lot of money making Caesar Cocktail. Second, he said the Clamato recipe was "nothing very special." He believed any skilled juice maker could have made a similar juice within 12 months. He said it was unfair to stop FBI Foods Ltd. from using a recipe they could easily have made themselves. Finally, he ruled that Cadbury-Schweppes could be paid enough money, so an injunction was not needed.

When deciding how much money Cadbury-Schweppes should get, Justice Binnie disagreed with paying them the full market value of the secret recipe. He said treating the recipe like a patent was wrong. If Cadbury-Schweppes wanted patent protection, they should have made their recipe public. A patent gives a company a special right to be the only one to make something for a limited time.

Justice Binnie decided the fairest solution was to pay Cadbury-Schweppes for the lost opportunity. This means the chance they missed out on. If the recipe hadn't been misused, Cadbury-Schweppes would have been able to sell Clamato in Canada without competition for a while. This would have lasted until Caesar Canning or FBI Foods Ltd. could figure out how to make a similar juice on their own. Justice Binnie agreed that this period should be limited to 12 months. He ruled that FBI Foods Ltd. should pay Cadbury-Schweppes for any profits they lost during this time. He noted that not everyone who bought Caesar Cocktail would have bought Clamato instead. So, the amount paid shouldn't be based only on all Caesar Cocktail sales. He asked another person to figure out the exact amount of money, saying that "perfect math is not needed or possible."

What Happened Next?

FBI Foods Ltd. settled the court order from the Supreme Court of Canada with Cadbury for $300,000.