No. The company has to keep paying. The original deal was very simple: as long as you sell Listerine, you pay the fee. The contract never said the payments would stop if the recipe became public. The company can stop paying anytime it wants—it just has to stop selling Listerine. This deal isn't like a patent, which is a temporary monopoly from the government. This was a private business deal where the company got a secret recipe and a huge head start to build a famous brand, and that's the valuable thing it agreed to pay for. Besides, the company's own actions proved it understood the deal; it kept paying for 25 years after the secret was out.

Yes, Warner-Lambert still has to keep paying. The agreement with Dr. Lawrence was very clear. It said that Lambert had to pay based on how much Listerine they made or sold. It didn't say anything about stopping payments if the recipe stopped being a secret.

There are a few reasons why I decided this. First, the agreement itself is pretty straightforward about what Lambert has to pay for. Second, when it comes to secret recipes, companies can make whatever agreement they want - the court can't just assume things that aren't written down. Third, Warner-Lambert can't say there was no good reason to pay once the secret got out because that's not for the court to decide. Finally, the fact that Lambert's company kept paying for a long time after the recipe got out shows that they understood the agreement to mean they had to keep paying as long as they were making Listerine.

In contrast, trade secret licenses providing for royalties indefinitely are enforceable even after the secret has become public knowledge.

—upholding contract entered into in 1881 that lacked termination date but which obligated pharmaceutical manufacturer to pay royalties on every gross of "Listerine" mouthwash made and sold by it as long as it continued to manufacture the product

"Where `it appears that no termination date was within the contemplation of the parties, or that their intention with respect thereto cannot be ascertained, the contract will be held to be terminable within a reasonable time or revocable at will, dependent upon the circumstances'. "

—holding that "one who acquires a secret formula or a trade secret through a valid and binding contract...[may not] escape from an obligation to which he bound himself simply because the secret is discovered by a third party or by the general public

"The mere fact that an obligation under a contract may continue for a very long time is no reason in itself for declaring the contract to exist in perpetuity or for giving it a construction which would do violence to the expressed intent of the parties

A contract without fixed duration is terminable at will unless the parties expressly provide that it be perpetual.

However, Warner-Lambert tired of making the royalty payments when the "secret formula" became common knowledge, published in a number of public sources.

In some cases, such as trademarks and trade secrets, the duration of intellectual property right may be indefinite.

In construing agreements where no provision has been made with respect to the termination of payments called for by such agreements, the courts have held that where such an agreement relates to a license under a patent or a copyright, the expiration of the patent or of the copyright constitutes an implied termination date.

—noting that since trade secrets may remain secret indefinitely, there is no reason why courts should not be able to enforce a non-disclosure agreement indefinitely

No. A contractual obligation to pay royalties for a secret formula does not terminate when the formula becomes public knowledge if the contract's plain language conditions payment only on the continued manufacture or sale of the product. The agreements are plain and unambiguous, conditioning the duty to pay on the manufacture or sale of Listerine. The obligation is co-extensive with use; the plaintiff can terminate payments at any time by ceasing to manufacture or sell the product. This contract is distinct from patent or copyright licenses, which are implicitly tied to a statutory monopoly term and public policy favoring public access after expiration. Here, the parties were free to contract as they saw fit, and they did not bargain for continuing secrecy but for the disclosure of a then-secret formula which provided a valuable head start in the market. Furthermore, the plaintiff's predecessor's conduct of continuing payments for over 25 years after public disclosure serves as a practical construction of the contract, affirming their understanding of the continuing obligation.

Yes. The obligation to make periodic payments does not terminate upon the public disclosure of the trade secret because the agreements between Lambert and Dr. Lawrence are clear and unambiguous. They do not condition the obligation to pay on the continued secrecy of the formula. Instead, the obligation to pay is co-extensive with the manufacture or sale of Listerine by Lambert and his successors. 

I reach this conclusion for several reasons. First, the language of the agreements plainly states that the obligation to pay is based on the manufacture or sale of Listerine, not on the secrecy of the formula. Second, the parties are free to contract with respect to a secret formula in any manner they determine for their own best interests, and there is no public policy requiring the court to imply a term limiting the obligation to the period of secrecy, as there is in the case of patents and copyrights. Third, the plaintiff's argument that there was a failure of consideration when the formula became public is without merit, as the adequacy of consideration is not a proper subject for the court to consider. Finally, the conduct of the plaintiff's predecessors in continuing to make payments for many years after the formula became public knowledge is strong evidence of the parties' practical construction of the agreements as requiring payment so long as Listerine is manufactured or sold.

Warner-Lambert Pharmaceutical Co. v. John J. Reynolds, Inc.

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