Worm Poop-maker TerraCycle is changing colors after losing a legal battleTRENTON

Tom Szaky, CEO of TerraCycle Inc. in Trenton, has learned a valuable lesson about choosing the look and information on his products’ labels. Two weeks ago, after spending $250,000 in legal fees to defend his plant-food company against a lawsuit brought by The Scotts Miracle-Gro Co., Szaky agreed to change his labeling and tone down his product claims.

TerraCycle now has six months to sell off the inventory of its Worm Poop-brand and other plant foods and replace them with bottles bearing new labels. “Since the very beginning of this lawsuit we’ve been trying to settle the case,” says Szaky. “Finally Scotts agreed to settle.”

TerraCycle makes plant food and fertilizers created from liquefied earthworm droppings and uses recycled soda bottles as containers. Szaky, 25, expects TerraCycle to generate $4 million in revenue this year up from $1.5 million in 2006. He says the six-year-old company, which he dropped out of Princeton University to create, is not yet profitable.

Terracycle also makes bird feeders, drain cleaners and deer repellent. The products are available through Home Depot, Wal-Mart, and independent garden centers.

At the heart of the recent legal flap were TerraCycle’s green and yellow plant-food labels that Scotts Miracle-Gro, a $2.7 billion company in Marysville, Ohio, says consumers confused with its own labels. Scotts filed a lawsuit in March claiming trademark infringement of its packaging color scheme and also alleged false advertising. TerraCycle filed a counterclaim in April.

In settling the case, Szaky said new packaging was already in the offing for all TerraCycle products. The new look for the plant food will replace the current yellow-and-green label with a new orange-and-green one. In addition, TerraCycle will no longer market its Worm Poop as having been tested by Rutgers University or any other university, nor compare it with leading synthetic plant-food products including Miracle-Gro. Nor will the company make any references to the disparity between its size and Scotts.

“We agreed to stop advertising any comparison between us and Miracle-Gro,” says Szaky. “The big irony there is we don’t actually advertise at all anyway, so that is not really a big deal for us either.”

Scotts Miracle-Gro spokesperson Su Lok says the settlement resolves the confusion created by TerraCycle’s packaged products mimicking the familiar Miracle-Gro label scheme. “I think the main point is the court recognized Miracle-Gro’s trade dress is a famous trademark,” says Lok. “TerraCycle has agreed to not use any confusingly similar trade dress, in particular the yellow and green color combination, on their packaging.”

Jenna Smith, account manager with Smith Design package designing company in Glen Ridge, says TerraCycle’s label change should cause few ripples with consumers since the company is still relatively new. “If it was Scotts who had to change their packaging, there would be a much more significant concern regarding the impact of departing from the known and trusted visual equity,” says Smith. “For TerraCycle, which has been in business only since 2001, there is much less of a risk. In fact, they can ride the publicity wave created from the settlement with Scotts and use that to their benefit.”

Szaky says the litigation did bring attention to TerraCycle. In the heat of the proceedings he launched a Web site, www.suedbyscotts.com, to alert the public to his David-and-Goliath confrontation with Scotts. “The publicity we gained was a significant surprise and turned out to be a very big positive, so we were very happy about that,” he says. “That was a very interesting thing to learn when something like this happens.”

Szaky changed the Web site following the settlement. “All the information is taken down accept for the order to dismiss, the press release and the settlement agreement,” he says. “We’ll take the Web site down in three months because this case is over.”

Szaky launched TerraCycle in 2001 with Jon Beyer, the company’s chief information officer, while both were Princeton underclassmen. What started as a business plan for a contest run by the Princeton Entrepreneurship Club has grown into a company with a staff of about 60. Szaky dropped out of school in 2002, but Beyer earned his bachelor’s degree in computer science from the university in 2005.

Szaky says TerraCycle will roll out the new packaging for its plant food next spring. “The irony here is that three months before this lawsuit even came up we had engaged a graphics team to change our packaging for us,” he says. “As a company we initially started with plant food and we’re still doing it, but we’ve diversified into drain cleaner, bird feeders, so many different products. We needed to find a packaging theme that unified all those products under one brand.”

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