Nestlé and Coca-Cola, a high-octane divorce

If you drink Nestea and live in Spain you can breathe easy: the famous brew will not disappear from the Spanish market. The rumor spread a few months ago when it became known that the Swiss multinational Nestlé, owner of the famous iced tea brand, would break ties with Coca-Cola, its distributor in Spain since 1993. Now Coca-Cola wants to promote its own brand which it will call Fuze Tea. In fact, Fuze Tea can already be found in bars and restaurants and on supermarket shelves. But the divorce poses a curious legal battle, because while Nestea is owned by Nestlé, the drink’s formula belongs to Coca-Cola. Conflict seems inevitable.

In 2025, the two companies will become rivals. On October 8, Nestlé calmed things down by stating that it would continue to sell iced tea under the Nestea name and that consumers “will be able to continue to choose their favorite brand — the market leader — in their favorite flavors.” A week later, Coca-Cola responded by making it clear its new iced tea drink, Fuze Tea, uses “the time-honored tea drink formula.” The recipe “is and will remain the exclusive property of the Coca-Cola Company,” it stated.

Market analysts believe that, although the situation may be difficult for consumers to understand, the coexistence of the two brands need not lead to the court room, although the scenario is delicate. “Even if the breakup were not amicable, we are left with two brands that can coexist in the market, given their differences,” says Carmen González Candela, director of strategy and legal advisory services at PONS IP.

One of the potential conflict areas is taste. The problem is that there is no way to register the taste of a beverage, just as it’s impossible to register odors. That’s why companies do not protect the flavors, but rather the formulas that produce them.

Can Nestlé sell Nestea if its formula is owned by Coca-Cola? The answer is yes. “In theory, if Nestlé could develop a formula identical to that of Nestea completely independently, it could market it,” explains Eric Maciá Lang, head of the trade secrets area at PONS IP. Trade secrets do not recognize an exclusive right of use. In other words, a company — in this case Coca-Cola — cannot claim a monopoly on a flavor. Laura Montoya, partner in charge of the legal and litigation department of ABG Intellectual Property, points out that in this regard “if a third party replicates the formula”, i.e., obtains a similar or even identical flavor to Nestea, “the owner of the secret could not prevent it.”

The advertising front

A second front in the battle between Nestlé and Coca-Cola could be advertising. “It is probable that there will also be a certain amount of advertising warfare,” Montoya says. In Spain, the law does not stop companies from explicitly mentioning competitors in their advertising. This is known as “comparative advertising,” which is permitted in Spain, Montoya points out. But there are certain lines that must not be crossed. For example, Nestlé and Coca-Cola must be clear that “comparisons between their products must be objective, not misleading, and must not disparage competitors” or “distort reality.” For the moment, Coca-Cola merely insists that Fuze Tea, its iced tea drink, is the “original flavor.”

A third potential area of friction between the two companies may be in terms of unfair competition. For Inmaculada de la Haza, partner at Balder, Nestea and Fuze Tea “are compatible trademarks,” because although they are both tea-based beverages, in her opinion there are “obvious denominative and phonetic differences… It should also be taken into account that Fuze is not a new trademark, it was created in 2000 in the United States and acquired by Coca-Cola in 2007 and is present in 90 countries around the world.” However, she recognizes that the bottling of the product is very similar. This is not trivial, as it can confuse the consumer, which is exactly what the law seeks to avoid.

Candela Sotés, competition director at Bird & Bird, recognizes that the future rivalry between Nestea and Fuze Tea may lead to “aggressive measures” to attract customers. And in the heat of the commercial battle, these can “generate confusion for the consumer by associating one brand with the other.” Sotés says that, in such a scenario, the possible use of “exclusivity or non-competition clauses” should be closely scrutinized, since there is a danger that the company with greater market power may block the other company’s access to the distribution network, especially in hotels, restaurants, and cafeterias.

The key idea is that Nestlé and Coca-Cola should not be tripping each other up: “They will have to prevent such confusion from being deliberately induced by their advertising campaigns or commercial strategies.” The battle over tea is being served in a very cold glass.

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