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Trade secrets are a form of intellectual property. They consist of confidential information with commercial value. As franchising involves a franchisor giving franchisees a business model, they will often also need to share with franchisees the trade secrets that give the brand its competitive edge. This article will explain how business owners can protect their trade secrets when franchising.
What Are Trade Secrets?
UK law defines trade secrets as secret information that carries commercial value, and the person controlling the information has taken steps to ensure that it remains a secret. A trade secret is not accessible to or readily known by others.
Trade secrets might include specific methods that a business uses in its operations. Many franchisors have developed business processes that give them a competitive advantage. For example, a fast-food franchisor might have a secret recipe for its signature burger sauce or a unique way of training employees to provide exceptional customer service. If these methods are not publicly known and the business takes reasonable steps to protect this information, they can be considered trade secrets.
Unlike patents or trade marks, business owners do not need to register their trade secrets. Instead, businesses will take specific steps to protect them. For example, a company might ask its employees to sign a non-disclosure agreement (NDA) that stipulates they are to keep certain information confidential.
The key to protecting a trade secret is keeping it confidential. Doing so can be challenging in the context of franchising, where the franchisor must share some information with franchisees for them to operate the business effectively. However, franchisors can take steps to protect their trade secrets.
How Can Franchisors Protect Their Trade Secrets?
1. Require Franchisees to Sign Confidentiality Agreements
Franchisors can require franchisees (and prospective franchisees) to sign NDAs that obligate them to keep certain information confidential. These agreements will specify what information is confidential and outline the consequences of breaching the contract. Ensuring that the franchisees understand the potential risks and consequences of breaching the NDA is crucial to ensure compliance.
2. Through the Franchise Agreement
The franchise agreement is the contract that determines the relationship between the franchisee and the franchisor. It sets out expectations and responsibilities. Franchisors can use this document to protect their intellectual property.
You might include confidentiality clauses within the agreement. Similarly to an NDA, these clauses will stipulate that the franchisee is to keep particular information confidential and the consequences that will arise if they fail to do so.
3. Restrict Access to Trade Secrets
Franchisors can implement measures to prevent unauthorised access to the information. They should only disclose trade secrets on a need-to-know basis and only provide franchisees with the information they need to operate their businesses.
4. Provide Training on Confidentiality
As the franchisor, you are responsible for training and supporting your franchisees. Franchisors might train franchisees in protecting trade secrets and handling such information. The training can include educating franchisees on the risks of disclosing information to unauthorised parties and the potential legal consequences of breaching confidentiality agreements.
Discover the key legal and commercial issues to consider when buying a franchise.
Make franchisees aware that breaching such confidentiality can also negatively impact their businesses and the overall franchised brand.
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Key Takeaways
A franchisor shares certain information with their franchisees so they can operate effectively, including trade secrets. This article discusses ways a franchisor can protect their trade secrets when franchising. These include the following:
- asking franchisees to sign NDAs;
- including confidentiality clauses within the franchise agreement;
- restricting access to trade secrets by sharing only on a need-to-know basis, storing the information securely; and
- providing franchisees with training on the importance of keeping trade secrets confidential.
Trade secrets are confidential information with commercial value that somebody has taken reasonable steps to keep secret. Unlike other forms of intellectual property, you do not need to register a trade secret. Franchisors can protect their trade secrets through many methods, mainly through robust and well-drafted legal documents and secure storage.
Legal documents serve as a strong layer of defence, deterring franchisees and other parties privy to a trade secret from sharing it. A lawyer can help you draft robust and legally sound NDAs and franchise agreements. These documents will allow you to resolve leaks and seek damages should somebody share confidential information.
If you need advice about protecting your trade secrets when franchising your business, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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