A Different Kind of IP Issue

I heard something interesting over the bar a while back. That’s a great start to a bloooog post isn’t it? So it wasn’t anything bad, just something interesting. And it went a bit like this:

“Have you heard about this West Coast brewing competition they just had at Malthouse?”
“Nah, what’s that all about?”
“You brew an IPA and the guy who won, he gets made for him by some brewery up in Newlands.”
“Is that right?”
“Yeah, but here’s the thing: you don’t get a share of the profit. So some other bastard gets rich off your beer.”

Now, that is something interesting. “Some other bastard gets rich off your beer.” In this case, the brewery is the newly opened Baylands Brewery and the bastard is the rather pleasant Mr. Aidan Styles. Now anyone who’s spent any real time in a small scale commercial brewery knows that no brewer in this country is getting rich in a hurry. Indeed, it takes roughly 20 years before you can expect a good solid return on your work.1

So to me this idea that someone should receive the profit made from a batch of beer where they provided the recipe is a bit naive. Certainly if they bought the ingredients, rented the tank space, actually brewed the beer (or paid the labour), paid the excise and then distributed it, that would make sense. But then there’s a name for that: contract brewing.

But then I got thinking. You know what? Maybe there is something to this. Recipes are a form in intellectual property, right? Use of someone else’s IP in other fields usually requires payment. That’s why we have copyrights, licensing and all that business. After all the author of a book receives a percentage share. Why not the author of a beer?

This got me thinking even more: How much? How much would recipe royalties for the batch of beer from the Amateur West Coast IPA Challenge amount to? Lets find out. The book analogy seems apt. lets go with that.

I got in touch with a friend of mine in the publishing industry. In New Zealand, an author can expect to take about 12.5% of the retail price of the book (although it can be as high as 25%).

Ok, so that’s not going to work.

Dominic from Hashigo did a pretty neat breakdown of how much beer costs and why here (Table 3. in particular). Doing some hasty back-of-the-envelope arithmetic, giving a recipe maker 12.5% would increase the cost of beer by at least $2 per pint. I don’t think the brewer, the consumer or anyone in between would swallow that one. So lets find another model.

What about films then? That’s my area of expertise after all. If we consider beers like films, what then? Producers, directors, screenwriters and so forth can work for a flat fee, but they can work for a percentage of the film’s profits, banking on it being a hit. Using this model, a recipe maker would be roughly analogous to a screenwriter (if the brewer is the director, etc.). And what sort of percentage do screenwriters take? Well, that varies greatly, but using a lot of back-of-the-envelope work, from each movie ticket sold, probably less than a cent will go to the screenwriter.

Hmm. This doesn’t look promising, but lets stick with it. Now films can be watched again and again, but beer is finite. You make so much, it’s drunk, then it’s gone. So it makes sense in this regard, for a flat fee per batch, on a per volume basis. The total of this fee would therefore increase if the batch was scaled up (although the actual per volume rate would stay the same or eventually decrease from a certain batch size, due to economies of scale). You with me? Cool.

So what’s an appropriate per-volume fee for a recipe maker? All things considered, it’s going to be fairly low. It should probably be applied on a per-litre basis, but lets be generous. Beer is sold in ‘pints’, so let’s apply it on a per-pint basis.

Now Baylands has a brew length of 300 litres. We’re going to assume Aidan gets exactly that from his brewery, which means he gets six 50 litre kegs from a single batch. Now a ‘pint’ has different meanings to different people, but most ‘pints’ served in New Zealand are 425ml and for the sake of ‘best case scenario,’ we’ll go with that.

Now what’s a fair per-pint fee to the recipe maker? I reckon that’s about 1 cent per pint. Seems low I know, but the profit margins in beer really are narrow, and the amount per-pint that actually makes it back to the person who actually had to lift sacks of grain isn’t much more (and since breweries would pay the fee, it’s their profits we’re eating into). You still with me?

Now there’s 705.88 ‘pints’ to 300 litres, so that would mean that Aidan Styles owes to the winner of the Amatuer West Cast IPA challenge (who happens to be Ryan Crawford):

$7.06 (I rounded up).

That’s a cent for every pint you can theoretically squeeze out of Aidan’s brewery. That’s not enough for Ryan to buy back a pint of his own beer; particularly after tax.

So much for some bastard getting rich off someone else’s beer. Personally, if I was in Ryan’s situation, I be happy if someone just shouted me one.


1. Although no one told Geoff Ross that.
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3 thoughts on “A Different Kind of IP Issue

  1. Great writeup (found via Phil Cook’s retweet).

    I’m not even convinced that a beer recipe counts as IP in the era of the internet. A good professional brewer could taste a beer and work out its constituents close enough that any remaining differences would come down to tweaking the recipe to fit the brewing equipment. I think the real value is in the brewery’s ability to reproduce the beer all year round regardless of the hop season etc, and reliably supply their product to their outlets. Same deal as a restaurant

  2. Just a quick note to thank you for your blog.

    We are just starting up as a commercial brewery. We have had so much help and support from other breweries that we felt getting involved in this challenge was our opportunity to give something back.

    If you ask my wife, you will know there is no getting rich quick at our place or in our brewery. I owe her massages every night as a way to make up for all the money its costing us to get the brewery up and running. It is going to take a long time to make any money out of it. Getting involved in this challenge was never ever about trying to make any money.

    Ryan’s winning recipe is his recipe and we would never even think of using it as our own. He made it and it’s his delicious invention.

    We are of course super keen for Ryan’s beer to win the West Coast IPA challenge.

    Hopefully the people who were at the bar suggesting I was a bastard come along to the challenge, meet me, try our jointly brewed beer and then think I’m a “good bastard” not just a “bastard”.

    Cheers
    Aidan

  3. Well I am pleased I didn’t have a beer first before reading that, took some effort following all that back of an envelope arithmetic!

    Anyone who has ever done the arithmetic’s on setting up a business (let alone take the jump) knows that your money is going to pour out of your account faster than it takes to full a “pint”.

    Aidan, you are far from any kind of ” bastard” and nice reply!

    Cheers
    Kim (a craft beer lover in the making)

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