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A restaurant's name is often its most valuable asset

We all know the name Tavern on the Green. Some of us have eaten there, others only have a vague idea that it's an expensive New York restaurant with fancy chandeliers. Once the highest-grossing restaurant in the country, this landmark closed last year, a victim of the economy, changing tastes and some say mismanagement. To pay off hundreds of creditors, restaurant assets were auctioned off in January. But it wasn't until Wednesday that the fate of the most important asset was decided. Who owned the name? A U.S. District Court ruled that the city of New York did, not the restaurant's longtime owners. As Shakespeare's Juliet famously asked: "What's in a name?"

Fred Fleming, 72, still has a commanding presence, even over the phone. For years, he was a bigwig on the national barbecue circuit, opening his first eponymous restaurant in St. Petersburg in 1999. Management of the Hops chain became interested in Fred Fleming's, buying 70 percent of the concept from Fleming and partner Brian Storman later that year.

"It was like a drunken sailor," Fleming says. "They didn't watch what they spent," expanding the barbecue chain rapidly to six locations. "I got kicked out of the kitchen and became a Walmart greeter in the dining room."

About a year and a half in, the company parted ways with Fleming and Storman after disputes about prices and portion sizes. The pair was bought out and dismissed as employees. Here's the kicker: Fleming no longer had the use of his name, likeness or voice in promoting his brand of barbecue. He got to keep his recipes, the barbecue trophies and his memories. These days, he's working the smoker up in Homosassa under the name Champions BBQ. Fred Fleming's brand went belly-up in 2009.

"Assuming they don't re-register with the state by next April, I can use the name," Fleming says. "It would be nice to have my name back."

There's real money in a name: Valuation firm Marshall & Stevens says the name Tavern on the Green is worth $19 million. Sure, it's not LeRoy, the surname of the longtime family owner, and it is further complicated by the fact that the name predates the family's ownership. Tavern on the Green was a much humbler dining establishment in Central Park as far back as 1934. But like Fleming, the LeRoys spent a long time building a brand. "Tavern on the Green" was the name, reputation, historical cash flow, and the intangibles responsible for that historical cash flow — all of that is what made it a tourist destination nearly as recognizable as the Statue of Liberty.

"In legal terms, the things you're talking about are called 'goodwill.' It's an accounting term and a business concept," says Harold Seltzer, co-founder and former president of the Tampa Bay-based Sam Seltzer's Steakhouse chain. He has sold his stock in a chain. (When he sold Seltzer's in 2004, there were six open and a seventh under way; by 2008 there were 11, before the company filed Chapter 11 bankruptcy action and closed five stores.) And more recently, he licensed the goodwill and intellectual property of another concept, The Floridian, the original a Treasure Island old-timer with a long record of winning "best Cuban sandwich" in the area, founded and owned by the Dilar family.

"When you value a company, everything that is not hard assets is goodwill," Seltzer said. "In layman's terms, it's the restaurant's reputation. Let's say it costs $1 million to open a Sam Seltzer's and that restaurant ends up being a huge success, doing $4 million to $5 million a year. Am I going to sell it to you for the brick-and-mortar million it cost me to open it? In my opinion, the entity that created that 'goodwill' at Tavern on the Green is not the city of New York. The LeRoy family has a nontangible asset created over decades."

Maybe it's more concrete to think about "goodwill" and intellectual property in the context of the food itself, the bread and butter, so to speak, of every restaurant.

Recipes and menus

Some recipes are so legendary that the details are kept under lock and key. In February 2008, handcuffed to the wrist of a security consultant, Colonel Sanders' handwritten original recipe was escorted from an undisclosed location to a high-security electronic safe at the home base. In Tampa, the original Goody Goody hamburger, with its special sauce, was similarly shepherded along to its new home, the Pine Grove Family Restaurant.

The beloved hamburger drive-in closed in 2005, but Greg Alexopoulos and family bought the recipe in 2008 from Goody Goody's third owner, Michael Wheeler, who had hidden it away after the restaurant's closure. The contract stipulated that the hamburger's particulars stay rigorously true to the original and that its sauce ingredients remain a secret known only to Alexopoulos and his mother, Theoni.

These are the exceptions, not the rule. According to Seltzer, the intellectual property of chefs goes largely unprotected.

"Most chefs, even head chefs or executive chefs, are employees, and many sign written employment contracts which include 'confidentiality/nondisclosure' type clauses as well as 'noncompete' clauses that prevent them from disclosing any confidential information, worded broadly enough to include recipes. So, you might ask, what happens when a chef creates his own recipes for a restaurant and then quits or gets fired?"

As a law student Emily Cunningham, now a lawyer in Boston, wrote a paper titled "Protecting Cuisine Under the Rubric of Intellectual Property Law: Should the Law Play a Bigger Role in the Kitchen?" She asserted that chefs have little redress when it comes to recipe copyright, but that stricter copyright law might infringe on creative self-expression and the exchange of ideas. "Chefs work in an open-source model," with apprenticeships and a tradition of constant job changes muddying who owns what, she wrote.

So Tavern on the Green's food was not copyrightable, but as anybody will tell you, it was never really about the food. Warner LeRoy knew that. After taking over in 1974 and pumping $10 million into it for renovations, he trademarked the name. The legitimacy of that trademark is a little wobbly since the name predated the family's ownership. But last week, a district court judge failed to recognize something fundamental in siding with New York City, in essentially saying the famous name has been associated with Central Park all these years. It was the blood, sweat and tears of the LeRoy family that lifted it from a nothing-special local spot to international superstardom.

Laura Reiley can be reached at lreiley@sptimes.com or (727) 892-2293.

A restaurant's name is often its most valuable asset 03/12/10 [Last modified: Wednesday, April 7, 2010 6:31pm]

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