On November 12, 2020, Kyle-Beth Hilfer presented a talk for the New York State Bar Association on “Legal Challenges Facing Restaurants During and After a Pandemic.” Ms. Hilfer spoke about the pandemic’s effects on restaurants’ intellectual property protection and the emerging regulatory priorities surround branding initiatives. One of the topics on which she presented was the emerging trend of ghost kitchens. Below is an overview of topics Ms. Hilfer discussed.
Ghost kitchens are retail food service establishments without customer-facing bricks and mortar space. Several brands may share the same ghost kitchen. Usually, the chefs prepare the food for delivery. Sometimes, the ghost kitchens also enable retail pickup in specified locations. There is, however, no dine-in service. Consequently, ghost kitchens have no front of house staff; the entire staff is back of house.Ghost kitchens grew popular for ethnic food and street food, but during the pandemic, many other types of restaurants or vendors to restaurants have pivoted to these kinds of spaces.
Trademarks for Ghost Kitchens
Traditionally, restaurants have filed for trademark protection with the United States Patent and Trademark Office (USPTO) in Class 43 for restaurant or kitchen services. When operating in the ghost kitchen ecosystem, other types of goods and services may exist. On what kinds of services does the applicant have a bona fide intent to use its trademark? Consider, for example, some of the following possibilities:
Copyright for Ghost Kitchens
Ghost kitchens often promote themselves on Instagram. Food images are often proprietary. The kitchen will have to make sure it has acquired the rights to the photograph from the photographer. If any people are shown enjoying the food, the ghost kitchen team will want to obtain a model release.
In addition, the ghost kitchen should consider filing for copyright protection on its portfolio of food images. The field is competitive, and interlopers have been known to take others’ images. Since registration is a precursor to filing a lawsuit for copyright infringement, it is worth doing quarterly filings on images with the US Copyright Office. These filings are inexpensive, and as they mature into a registration, they will enable the ghost kitchen operator to move fast against infringement.
Ghost Kitchen Trade Secrets
Given that the ghost kitchens typically operate in shared space with other brands, trade secret protection for recipes is crucial. Employers should have contractual protections with non-disclosure agreements and non-competes. Former and current employees need to know they must not share recipes, and they should face penalties for so doing. In addition, the ghost kitchen operator should purchase all domain variations and ad keywords to help prevent a former employee from moving into its market.
Contractual IP Concerns
A ghost kitchen usually collaborates with delivery apps. The kitchen should be looking closely at intellectual property protection in its contracts with the delivery providers. Will the delivery app help to police the ghost kitchen’s intellectual property? Will the app block reported intellectual property infringement? What termination rights does the ghost kitchen have if the app fails to live up to its contractual obligations around intellectual property? And what does the app have to do after termination to prevent ongoing infringement on its platform?
Ghost Kitchen Marketing
These establishments rely heavily on word of mouth and social media marketing. While there are many ways for ghost kitchens to engage with consumers, this blog describes two trends: loop sweepstakes and influencer marketing.
We have seen an increase in “loop sweepstakes” on Instagram. These promotions require an entrant to follow a variety of accounts in order to have a chance to win a prize. A loop sweepstakes has been called a poor man’s way of generating followers.
Ghost kitchens may find them a tempting way to generate buzz and push eyeballs to their Instagram feeds. They should be careful.
While there are ways to implement a loop sweepstakes lawfully, it requires care. Many of these loop sweepstakes are really illegal lotteries. Participation may create risk for the operator.
Another quick way to visibility is through influencers. Ghost kitchen operators should be mindful of the FTC’s Endorsement & Testimonial Guidelines. These enforced guidelines require that the influencer disclose all material connections between the influencer and the brand. If the ghost kitchen has offered the influencer free food, a coupon, a discount, or even a sweepstakes entry, the kitchen must mandate that the influencer make the appropriate disclosure in its review.
Failure to monitor influencer’s activity can be costly. In March 2020, the FTC settled with a tea and skincare products company Teami with a 15.2 million dollar judgement. Teami’s case included a backdrop of unsubstantiated health claims. At the same time, the FTC asserted its influencer marketing on Instagram was problematic. Consumers had to click on the “more” option of Instagram posts to find out that Teami paid these influencers to advertise its products. (This practice persisted even after the FTC had warned the company in 2018 that its influencers were not using clear and conspicuous disclosures.) Ultimately, the settlement required Teami to communicate disclosure obligations directly to influencers and obtain signed acknowledgments from them. The company must also monitor its influencers’ posts and take steps to address improper disclosures.
The Teami settlement underscores brand responsibility. Ghost kitchens marketing through influencer should have a solid contract that deals with these issues. That contract should protect the kitchen should the influencer fail to take the appropriate steps. Even with such a contract, however, the operator must monitor the activities of its influencers and require updates or take-downs if the influencer fails to comply with the law.
Ghost markets will remain a hot restaurant trend even after the pandemic. Smart players in the ghost market industry will consider the long-term implications of their intellectual property portfolios and take steps for protection. In addition, they will institute legal vetting around their marketing initiatives.