The Utah Cookie Wars Show How Failing to Protect Businesses Can Leave Them in Crumbles

This article was originally published by The Mississippi Bar in the Fall 2023 issue of The Mississippi Lawyer.

Not protecting a business’s intellectual property is a recipe for disaster. Over the last few years, there has been a sharp rise in competition lawsuits. Avoiding these lawsuits by protecting your clients’ business makes growth easier and drives value in future sales.

The most interesting of these ongoing lawsuits is the #utahcookiewars. Crumbl Cookies was founded in 2017 and currently operates more than 600 locations across the United States, including eight in Mississippi. Each location offers a changing weekly menu and same day delivery of fresh cookies. The delivered cookies are an internet phenomenon. In its six weeks on Tik Tok, Crumbl Cookies gained 1.6 million followers.[i]

When a new business has skyrocketing growth, imitators will quickly follow. Two of Crumbl’s competitors, Dirty Dough and Crave, were founded by a former Crumbl employee and a prospective franchisee, respectively.

Crumbl quickly filed competition lawsuits against both. Dirty Dough responded to that lawsuit, not only in court, but also in the media. Most prominently, Dirty Dough put up billboards with slogans like, “Cookies So Good We’re Being Sued” and “Our Cookies Don’t Crumble with Competition.”[ii] Dirty Dough also popularized the hashtag #utahcookiewars to mobilize its customers.

Building a moat around a business can avoid these lawsuits or make them faster and cheaper if the business must bring one.

What Are Competition Lawsuits?

Typically, competition lawsuits are a combination of employment and intellectual property claims against a direct competitor. These claims distract from a business and can irreparably damage brands. However, these lawsuits can also protect brands from unfair competition and ensure a fair playing field for years to come. Claims often included are:

• • Breach of Contract – Confidentiality & Non-Compete;
  • Breach of Fiduciary Duty;
  • Misappropriation of Trade Secrets;
  • Copyright Infringement;
  • Trademark Infringement;
  • Trade Dress Infringement;
  • False Advertising; and
  • Violations of the Franchise Rule.

How to Avoid Protracted Competition Lawsuits

Most new businesses do not have sufficient capital to undertake expensive legal work. There are some simple practices that can build a moat to protect businesses from unfair competition without significant legal expense.

The primary defense that all businesses should have is effective employment agreements. Almost every business has a secret sauce. The easiest way to protect that special sauce is through confidentiality agreements. Any person who has access to a business’s trade secret information must have a confidentiality agreement. Likewise, many competitors are started by employees who learn a business and then leave to form a competitor. Having enforceable non-competition and non-solicitation agreements can stop employees from leaving to immediately start a competitor or from taking other employees with them if they leave.

Another low-cost form of protection is to develop strong branding. Trademarks and trade dress offer substantial protection against copycats. However, trademarks and trade dress are not all created equally.

A trademark can be any word, phrase, symbol, design, or a combination of these things that identifies a company’s goods or services. It’s how customers recognize the source of goods or services in the marketplace and distinguish businesses from competitors. Claimed trademarks fall into one of five categories: (1) generic; (2) descriptive; (3) suggestive; (4) arbitrary; and (5) fanciful.

Purported trademarks that are generic, like Chicken Restaurant, are not entitled to any protection. Descriptive trademarks, like Kentucky Fried Chicken, are protectable only if a company can prove secondary meaning. Secondary meaning is an additional meaning acquired by a trademark through its commercial use. To acquire trademark protection, a company with a descriptive mark must prove that consumers associate the trademark with a single source of goods or services. Even the strongest descriptive trademark will take five years of use before it can be federally registered.

On the other hand, suggestive, arbitrary, and fanciful trademarks are registerable as soon as they are used in commerce. However, fanciful trademarks are stronger than suggestive trademarks. A suggestive trademark, like Circuit City, suggests some quality of the goods or services, but does not state that quality outright. Suggestive trademarks are good because they create an impression with consumers. However, this type of trademark does not create a moat around a brand. Trademark law does not allow companies like Circuit City to prevent others from using the word “circuit” in referring to electronics.

The strongest trademarks are arbitrary trademarks, like Apple and Amazon, and fanciful trademarks, like Avaya. Avaya is a made-up word. That means all the goodwill and recognition associated with Avaya is associated with the company and the communication services that it offers.

Making a reasoned decision when naming a new business or product can create a moat around a new business. Following that decision with the federal registration of a trademark provides even more protection. Businesses own common law rights in trademarks as soon as they are used in commerce. However, federal registration provides significantly more protection. Federal registration means:

• • The trademark is listed in United States Patent and Trademark Office database of registered and pending trademarks. This provides presumptive notice to competitors.
  • There is a legal presumption that you own the trademark and have the right to use it. In federal court, a registration certificate is prima facia evidence of ownership, sometimes eliminating the need for copious amounts of evidence.
  • Businesses have the right to file infringement lawsuits in federal court.
  • The federal registration serves as a basis for filing for trademark protection in foreign countries.
  • A business may use the federal trademark registration symbol, ®, with its trademark to show that the trademark is registered. This may help deter others from using a similar trademark. It can also help prove willfulness in infringement litigations.
  • Businesses may record registrations with U.S. Customs and Border Protection, who can stop the importation of goods with an infringing trademark.

Trade dress is the non-functional look and feel of a product or business. Trade dress is protected in the same way as trademarks. However, all trade dress requires proof of secondary meaning. Adopting a unique trade dress and then consistently using that trade dress can create that secondary meaning.

There are lots of examples of trade dress that we all recognize — the Tiffany blue box, the McDonald’s arches, and the shape of Coca-Cola’s bottle. These brands consistently use that trade dress. Tiffany’s ads routinely feature the blue shade we associate with them. Jay-Z and Beyonce appeared in a Tiffany ad that featured a Jean-Michel Basquiat painting which is Tiffany Blue. Nobody does marketing as well as Coca-Cola. A can of Coke features the outline of the bottle. There is no extra expense in adopting and consistently using trade dress. Making sure new businesses understand trade dress can help build a moat without creating the need for additional legal work.

Finally, identifying trade secrets is a step every business can take without the need for expensive legal work. Many trade secret claims are vague. However, effectively protecting trade secrets requires both identifying the trade secrets and showing reasonable steps to keep those trade secrets confidential. All businesses should keep a list of their trade secrets, the individuals who have access to the trade secrets, and the documents that require those individuals to keep the trade secrets confidential. Additionally, businesses should include a legend on documents that contain trade secrets, that labels those trade secrets as confidential. Again, this work can be done by the business without significant expense if the business gets proper legal counseling.

As businesses grow, they can take additional steps to fortify the moat they have created including advertising reviews, franchise rule compliance audits, and copyright registration filings. Every business will have different employee and intellectual property protection needs based on their method of operation, but these general principles provide a starting point for every business to protect itself.

Why Protections Matter for Every Business

Competition lawsuits and intellectual property protection are not just for behemoths like Tiffany, Coca-Cola, and McDonald’s. In today’s marketplace, these issues are important to small businesses, too. Baby Boomers make up about 40% of all small business and franchise owners.[iii] Ten thousand of those Baby Boomers are retiring every day.[iv] As many of those businesses pass out of family control, private equity has begun seriously investing in small businesses.[v] These private equity investments include both investments in single businesses and investments where private equity attempts to “roll up” many closely related businesses across the country or across a region.

Private equity groups are much more likely to pursue competition lawsuits than family-owned businesses. These investors also have a stake in protecting their investment if employees leave one of their investments to start a competitor.

That means the value of small businesses increases when they take the necessary steps to protect themselves from employees leaving to start competitors and protect their intellectual property. Actions that prevent competition lawsuits not only build a moat around businesses, but also increase the value of the business itself. 

Who Is Winning the #UtahCookieWars?

The litigations between Crumbl Cookies and its competitors are ongoing. To this point, there is no clear winner. Dirty Dough has used the publicity from the lawsuit to its advantage and is quickly growing.[vi] In August 2023, a Utah federal judge found that Dirty Dough had taken Crumbl’s proprietary information.[vii] However, the court found that Dirty Dough was not currently using that proprietary information, or at least not clearly using that information, in its business and declined to enjoin Dirty Dough from opening new locations.[viii]

The fight between these competitors has doubtlessly costs hundreds of thousands of dollars in legal fees. For Dirty Dough, this dispute has existential consequences. A complete Crumbl victory would end Dirty Dough’s existence. On the other hand, Crumbl has faced negative publicity and may still have to compete with Dirty Dough in the marketplace.

Counseling clients early about protecting their business can avoid these massive expenses and help protect against unfair competition. Getting employee and brand protection right from day one is a recipe for success that we should all share with our clients.

 

[i] Shannon McLellan & Zoe Moore, Cookie company goes viral with 1.7 million followers on TikTok (ABC News Aug. 4, 2021) available at: https://abcnews.go.com/GMA/Food/cookie-company-viral-17m-followers-tiktok/story?id=79118508

[ii] Hanna Seariac, And the Utah cookie war continues: Dirty Dough responds to Crumbl with billboards (Desert News Jul. 18, 2022) available at: https://www.deseret.com/2022/7/18/23268539/crumbl-cookies-lawsuit-utah-dirty-dough-responds-with-billboards

[iii] Mark Hall, Unsexy But Thriving Businesses: The Hidden Opportunity Gift To Us By Baby Boomers (Forbes Jan. 25, 2022), available at: https://www.forbes.com/sites/markhall/2022/01/25/unsexy-but-thriving-businesses-the-hidden-opportunity-gifted-to-us-by-baby-boomers/?sh=4acd15484620

[iv] Id.

[v] Merritt Melancon, Private equity firms turn profits by boosting small businesses (University of Georgia Oct. 27, 2022), available at: https://www.terry.uga.edu/private-equity-firms-turn-profits-boosting-small-businesses/

[vi]  Divine Triplett, Dirty Dough cookies expanding nationwide . . . that’s the way the cookie crumbles (WISHTV Jun. 28, 2023) available at: https://www.wishtv.com/lifestylelive/dirty-dough-cookies-expanding-nationwide-thats-the-way-the-cookie-crumbles/

[vii] Crumbl LLC v. Dirty Dough LLC, Case No. 2:22-cv-318 (D. Utah), DE 170.

[viii] Id.