Sriracha Licensing Information

Part
01
of three
Part
01

Trademarking VS Not Trademarking

Huy Fong Foods was never was trademarked, and its core competitors were using its famous Sriracha sauce. This further resulted in free advertising for Huy Fong and increase in the popularity of the sauce.

Not Trademarking & Free Advertising

The Scenario

  • The first approach of not trademarking a business and relying on free advertising was brought in by the founder of Huy Fong Foods, David Tram. The brand was never trademarked, and its core competitors were using its famous Sriracha sauce.
  • However, there was a silver lining to this; the competitors relied on heavy marketing and advertising of the Sriracha sauce, which further resulted in free advertising for Huy Fong and increase in the popularity of the sauce.
  • Given that the company had on record registered a trademark for the "signature rooster design, logo, and green-capped bottle," they were able to maintain their existing audiences. Additionally, USPTO has already issued several decisions stating that the single word "sriracha" on its own is now too generic for any of HF foods' competitors to trademark for themselves.

Advantages & Disadvantages

  • Not having a trademark registered for business has one basic advantage, and that is that though the intellectual property rights law does not protect the business, there is still some sort of protection available to the business owner under the common law regime. These are basically state-based laws that deal with unfair competition.
  • These state-based laws provide limited protection and rights to the owner of the business.
  • The approach also has another decided disadvantage, which is related to the fact that advertising and marketing are not controlled by the owner of the business and is entirely dependent upon the competitors, which means that the competitors can design their advertising initiatives in a way to provide exclusive benefits to the competitors themselves. In the case of Huy Fong Foods, the settings proved fruitful for the company, and the competitors provided free advertising for the company for years, but this may not be the scene for all non-trademarked businesses.
  • Another disadvantage is concerned with the fact that this approach will only be fruitful if the business has a significant amount of consumer goodwill, and if the products of the non-trademarked business are easily distinguishable and have some sort of uniqueness. This is the reason why Huy Fong Foods was successful without having a trademark; they had trademarked their unique rooster look.
  • Additionally, though it may see a valid option not to have a trademark registered and to enjoy free advertising for life, it may not be practical. The case of Huy Fong Foods involved a generic name "Sriracha," which can not be trademarked by its competitors, but in other cases, if a generic name is not involved, there are chances that other competitors could register a trademark for the same product of a non-trademarked business.
  • Earning revenue from the licensing of the unique rooster look is a huge advantage in the given situation, and the fact that no other competitors' brands can incorporate the same look also proved advantageous for Huy Fong Foods.

Trademarking

  • Trademarking has several benefits for the owner of the business, including infringement protection, licensing options, and several others.
  • Advertising becomes easy in cases where a product or brand is trademarked since there are no chances of infringing the rights of any other brand or product, and the brand is free to promote its products in a fair manner.
  • The brand is entitled to receive damages in cases of infringement, and advertising or marketing campaigns from infringes can be provided with an order of "cease and desist if their campaign is infringing the trademark rights of a brand in question." However, this can only be possible if the brand is trademarked.

The Trademarking & Paying for Marketing and Advertising Approach

  • This approach was used by the competitors of Huy Fong Foods, including McIlhenny Company of Avery Island. The competitors introduced their own versions of Sriracha sauce, which was selling first at their own website and then at the Target store across the nation.
  • "Trader Joe’s also sells a Sriracha sauce, and several other food brands have introduced Sriracha-flavored products, including Subway."
  • Since the actual Sriracha sauce from Huy Fung Foods was not trademarked and was declared too generic from the USPTO, none of the other competitors could get it trademarked as well.
  • One of the decided disadvantages of the situation was that just like Huy Fong Foods, the competitors too had limited protection over these Sriracha sauce products.
  • Competitors of these sauces were generally the biggest market shareholders of the hot sauce market; these players had a huge audience for marketing similar Sriracha sauce products in their own creative ways.
  • Logically, paying for a marketing campaign that is for a product that will not provide exclusive profit for the company does not sound feasible and is more of a disadvantage.
  • Loosing on licensing revenue is also a major disadvantage.

The Final Word

  • While both of these approaches may seem feasible and profitable, they have their own pros and cons. Additionally, the approaches may only be practical in a given situation where the trademark falls in the category of generic trademarks and so cannot be trademarked.
  • The Huy Fong approach of utilizing free advertising was a valuable one, but it was only possible because the USPTO had declared Sriracha as too generic.

Research Strategy

In order to provide a thorough analysis of both approaches, we combed through industry publications, competitor channels, new releases, interviews from the company executives, and other resources. We have included some archived sources as well to provide a clear and accurate view of the situation and the approaches used by Huy Fong and its competitors. For trademark related information, legal portals have been used.
Part
02
of three
Part
02

Sriracha Products

Sriracha Seasoning Stix, Sriracha Hot Stout Beer, Sriracha Hot Chili Sauce Ketchup are 3 licensed sriracha products in the US. Their details are provided below.

Sugarmade Sriracha Seasoning Stix

  • Sugarmade, a California-based product and brand marketing company, inked a deal with Huy Fong in 2016 to license Sriracha in its Seasoning Stix product.
  • The company's SEC filing states "During September of 2016, the Company completed negotiations for and signed a license agreement with HUY FONG FOODS, INC. (“HFFI”), the maker of Sriracha Hot Chili Sauce. Under the terms of the agreement, the Company is granted license to use the licensed marks of HFFI on and for products the Company is currently in process of designing and testing."
  • The products were launched in the market in 2017.
  • The licensed products use certified Huy Fong sriracha as well as trademark within the limitations of the agreement.
  • While no financial details of the deal were disclosed, Huy Fong most likely did not impose royalty fees based on its other licensing deals.

Rogue Sriracha Hot Stout Beer


Red Gold and Pop! Gourmet Sriracha Hot Chili Sauce Ketchup

Part
03
of three
Part
03

Huy Fong's Sriracha Trademarking Failure

Huy Fong Foods' decision not to trademark its Sriracha traces back to the owner's desire to keep the sauce available to everyone. The owner also believes the decision has not hurt the company and in fact, has given it free advertising. Huy Fong's Sriracha is sold in 25 countries through 10 company distributors.

Rationale

  • David Fan, owner of Huy Fong Foods, decided not to trademark the name "sriracha" because he said he "wants to share [it] with as many people as possible."
  • This is also the rationale behind keeping the wholesale price point of Huy Fong's Sriracha sauce the same as it was 35 years ago and why he does not collect royalty fees from companies that use Sriracha in their products.
  • Tran stated, "My dream is everyone can have my product — rich man, poor man."
  • There is also the possibility that Tran could make even more money by taking his company public, but Tran is not interested in money. He said, "My dream is to relax."
  • He has also rejected all buyout offers and does not want any expansion that he cannot control.
  • Additionally, Tran has said that he doesn't see his failure to obtain a trademark on Huy Fong's Sriracha sauce a failure because when other companies use sriracha, his company is getting free advertising, and for a business that has no marketing budget, free advertising is a big deal.
  • Tran believes that the "public still identifies the term with his company's product" and this is mostly correct, as sriracha definition pages typically state that "within the United States, sriracha sauce is most commonly associated with the version produced by Huy Fong Foods."
  • According to Donna Lam, executive operations officer for Huy Fong Foods, "In some indirect way, we will still reap the benefit of the word 'Sriracha' being used... We seem to be the best-known Sriracha out there, and everyone seems to use our brand as the gold standard. If anything, we are proud we started the Sriracha craze."
  • In fact, Tran has a daily ritual that consists of searching the Internet for the most recent sriracha products. He is proud of his sauce's popularity and wants its use to continue to grow.
  • It is important to note that Tran has trademarked the rooster logo and bottle with the green cap, which is commonly associated with sriracha sauce.

Can Sriracha be Trademarked?

  • There is some indication that Sriracha cannot be trademarked because it is named after a town in Thailand, but since Tabasco is also the name of a town in Mexico, this argument may not be valid.
  • It appears, though, that Sriracha may not be able to be trademarked because it has become a generic word to refer to a type of hot sauce.
  • The U.S. Patent and Trademark Office has repeatedly refused to trademark "sriracha" when companies other than Huy Fong Foods have tried because it is considered "too generic." There have been two dozen attempts to file a trademark for "sriracha" and none have been granted.
  • Some experts believe the "genericide" of the word "sriracha" may in fact be a victory for Tran because his product is seen as the "gold standard" of sriracha sauces, so his company is already synonymous with the product. Allowing the widespread use of the name has "effectively protected against someone trying to come along and lock it up."

Expert Views

  • Many experts believe it was a mistake for Tran to fail to trademark the word "sriracha" because now anyone and everyone can make a product with the name sriracha in it.
  • Tony Simmons, chief executive of the McIlhenny Co., makers of Tabasco stated, "We spend enormous time protecting the word 'Tabasco' so that we don't have exactly this problem. Why Mr. Tran did not do that, I don't know."
  • Bonnie Riggs, a restaurant industry analyst for NPD, believes Tran is missing out on licensing opportunities. She stated, "Huy Fong couldn’t take ownership of the name... And because of that they’ve not been able to make people realize their product is actually unique. They let it get away from them."
  • Steve Stallman, president of Stallman Marketing, a food business consultancy stated that Tran's failure to trademark sriracha was a "major misstep." He said, "Getting a trademark is a fundamental thing."

Impact on Huy Fong Foods and Competitors

  • There does not appear to have been any effect of the lack of trademark on Huy Fong Foods' revenue, as "sales of the original Sriracha have grown from $60 million to $80 million between 2013 and 2015.
  • Revenue for the company has grown from $38.5 million in 2000 to $109.3 million in 2017.
  • However, because Huy Fong Foods is commonly associated with sriracha, when a bad product comes out, the company is typically blamed for it.
  • Competitors have jumped to take advantage of the lack of trademark surrounding sriracha. Taco Bell, Pizza Hut, Frank's Red Hot, Kikkoman, Lee Kum Kee, Heinz, Frito-Lay, Subway, Jack in the Box, Texas Pete, and Tabasco, among many others, have all introduced sriracha products without gaining permission from Huy Fong Foods.
  • Competitors can also use Huy Fong Foods' Sriracha without permission in their products due to the lack of trademark; however, if they want to use the company's logo to promote their products, they must seek a licensing deal with Huy Fong Foods.
  • The introduction of these products "helped ignite U.S. hot sauce sales, which... jumped from $229 million in 2000 to $608 million" in 2017. In 2018, the market increased again to $800 million.

Countries Where Huy Fong Foods' Sriracha is Sold

  • In 2016, Sriracha was sold in "25 countries, including Dubai, Israel, Libya, and Kuwait."
  • Vietnam was added in 2016, but there is no indication that the number of countries in which Huy Fong Foods' Sriracha are sold have increased since that year.

Distribution Insights

  • JDR Sales & Marketing Group is the exclusive exporter of Huy Fong Foods' Sriracha to the Philippines and "emphasizes the sauce's American identity in a country that is already the U.S.'s largest market in Southeast Asia."
  • JDR Sales & Marketing Group is investing in Halal certifications for the Sriracha bottles so he can "expand into the predominantly Muslim southern region of the Philippines and potentially other Southeast Asian nations."
  • Huy Fong Foods has direct distributors in Europe, the Middle East, and Asia, which is unique because the company is essentially bringing an Asian sauce made in America to Asia.
  • Sriracha bottles must sit for 35 days according to California law before they can be distributed domestically and internationally.
  • The company has 10 distributors and does not "tightly control where the product [is] sold to consumers."
  • C. Pacific Foods of Norwalk, California, a Huy Fong Foods distributor, began selling Sriracha in Vietnam in 2016.

Research Note

In some cases, sources older than 24 months have been used due to the historical nature of this request. Additionally, the number of countries in which Huy Fong Foods' Sriracha is sold has not been updated since 2016. It is our assumption that this number has stayed the same since then.
Sources
Sources

From Part 02
Quotes
  • "During September of 2016, the Company completed negotiations for and signed a license agreement with HUY FONG FOODS, INC. (“HFFI”), the maker of Sriracha Hot Chili Sauce. "
  • "Under the terms of the agreement, the Company is granted license to use the licensed marks of HFFI on and for products the Company is currently in process of designing and testing. "
  • "Based on this agreement and a separate license agreement signed during 2015 with Seasoning Stixs International, LLC, the Company plans to introduce a new culinary seasoning product named Sriracha Seasoning Stixs. Sriracha Seasoning Stixs are encapsulated Huy Fong Sriracha Sauce and other seasonings in the form of a stick, which are inserted into meat, fish and poultry prior to cooking."
  • "Sugarmade, Inc. (hereinafter referred to as “we”, “us” or “the/our Company”) is a publicly traded product and brand marketing company investing in products and brands with disruptive potential. "
Quotes
  • "Sugarmade, Inc. (OTCQB: SGMD), today announces the availability of Sriracha Seasoning Stix with REAL Huy Fong Foods, Inc. Sriracha Hot Chili Sauce, a true revolution on the seasoning of meat, fish, and poultry."
  • "Sugarmade, Inc. is a product and brand marketing company investing in products and brands with disruptive potential. Sugarmade is a party to a license with Huy Fong Foods, Inc. and has permission from Huy Fong Foods, Inc. to use the licensed marks for the limited products and purposes permitted by the license. "
  • "Sriracha Seasoning Stix are made with the REAL Huy Fong Food, Inc., the maker of the real and original Sriracha Hot Chili Sauce."
  • "Seasoning Stix are protected by three issued U.S. patents, which are utilized by Sugarmade under agreement from Wyoming-based, Seasoning Stixs International, LLC. "
Quotes
  • "The only beer officially sanctioned by Huy Fong Foods, creators of the original Sriracha Hot Sauce, Rogue Sriracha Hot Stout is crafted by infusing Sriracha Hot Sauce in a classic stout during the brewing process. "
  • "Just in time for Sriracha Week March 7–13, Rogue Sriracha Hot Stout returns to celebrate the world’s most influential spicy red sauce. "
  • "Starting in March, Sriracha Hot Stout will available in 750ml bottles nationwide. Find a bottle near you on Rogue’s Beer Finder."
Quotes
  • "At the same time, Tran has signed licensing agreements with a handful of specialty producers such as Rogue, which brews a Sriracha hot stout beer packaged in a red bottle and green cap to look like Huy Fong’s signature sauce, and Kent-based Pop Gourmet, which makes a Sriracha popcorn and will soon release a Sriracha seasoning spice."
  • "Even with these partnerships, Tran doesn’t charge any royalty fees. All he asks is that they use his sauce and stay true to its flavor."
Quotes
  • "Red Gold has teamed-up with original Huy Fong Sriracha Hot Chili Sauce and Pop! Gourmet Foods, to introduce Sriracha Hot Chili Sauce Ketchup."
  • "The bottle graphics feature a deep red Huy Fong label with the iconic white rooster and green flip top cap that will be instantly identifiable by customers. "
  • " “I feel so happy that Pop Gourmet is working together with Red Gold on products that bears my rooster logo and uses my original Huy Fong Sriracha Hot Chili Sauce,” says David Tran, Huy Fong founder and CEO. Both companies are American-owned and produce all of their products in the USA. "
  • "This led to our licensing agreement with Huy Fong,” says David Israel, CEO of Pop! Gourmet Foods. "