Below are a few important steps you can take to protect the trade secrets in your franchise system.

Step 1 – Sign Confidentiality Agreements. The franchisor should enter into confidentiality agreements with franchisees, vendors, employees (the franchisor should require the franchisee’s employees to sign confidentiality agreements with the franchisee), and any other consultants or agents of the franchisor. Having a confidentiality agreement tied to a non-competition agreement could help to later enforce the non-compete agreement. The law sometimes disfavors enforcement of a restrictive covenant (e.g. a non-compete) as conflicting with public policy, but the existence of a trade secret claim will boost the franchisor’s position in the enforcement of that restrictive covenant.

Step 2 – Mark it “Confidential.” Confidential information should be marked “Confidential.” But franchisors should not mark everything confidential because this dilutes the credibility of what is really confidential.

Step 3 – Limit Disclosure. Limit disclosure to only those that need to know the information. This includes only giving portions of the operations manual to certain employees and creating password-protected access to online portions of the manuals. If the operations manual is in printed form, the franchisee should be required to take protective measures, such as locking the operations manual in a safe each night. Additionally, the franchisor should not let a prospective franchisee see the operations manual without signing a non-disclosure agreement. By not doing so, the franchisor could waive the confidentiality of the operations manual.

Step 3 – Assert what is Confidential. The franchisor should consistently emphasize during the outset of the relationship, during the franchise agreement and after the termination of the franchise agreement, which items it considers a trade secret. This will later help with enforcement, if necessary.

Step 5- Perform Internal Trade Secret Audits. Franchisors should perform trade secret audits to inventory what trade secrets they own, and what steps they are taking to protect those trade secrets, and the effectiveness of those steps.

Following these steps will help to identify and protect your franchise system’s trade secrets.