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How UK Franchisors Protect Their Trade Secrets
As in the United States, franchisors in the United Kingdom usually invest in protecting their brand by way of trademark registrations, usually a Community Trade Mark (CTM). However, although they spend a considerable amount of time, money, and resources developing their customer databases and refining their business methodologies and know-how (and detailing this in the franchise Operations Manual, to which their franchisees and employees are given access), U.S. franchisors rarely seem to devote the same resources to protecting these trade secrets in the United Kingdom.
Trade secrets are extremely vulnerable. Franchisees, master franchisors, developers, subfranchisors, and their employees in the United Kingdom all enjoy a full working knowledge of the franchisor's trade secrets. They are all, therefore, in an excellent position to compete for the franchisor's market share. Sometimes even prospective franchisees acquire a good deal of valuable information. If any such persons leave the franchisor's network, unless the franchisor's trade secrets are adequately protected, they can become its strongest competitor. Indeed, there are many examples of franchises that have been established by former franchisees of a rival brand.
In the United Kingdom, technology and designs can be protected by obtaining statutory monopolies by way of patent and design registrations. However, a great deal of information cannot be protected by registration. This includes copyrights, technical data, marketing plans, business strategies, customer information, sensitive employee details, special sources of supply, customer lists, manufacturing processes, customer service goals, business methods and technology, financial results, and forecasts and operating manuals. Instead in the United Kingdom, franchisors must look to and rely on the common law to protect their interests. Although the law on trade secrets in the United Kingdom has developed on a case-by-case, piecemeal basis, six general factors have emerged that the courts and franchisors can use to determine whether information constitutes a trade secret:
- To what extent is the information in question known outside the franchisor's business? What, if any part of the information, is in the public domain?
- To what extent is the information known by the franchisor's employees and/or members of the franchisor's network? Franchisees, master franchisors, subfranchisors, developers, and employees at all levels of the franchise network should be made aware of the issue of confidentiality. Any information that the franchisor considers secret should be clearly pointed out to such persons.
- What measures has the franchisor taken to guard the secrecy of the information?
- How much time and investment of resources has the franchisor expended in developing and compiling the information?
- What is the value of the information to the franchisor and to the franchisor's competitors?
- How easily can the information be obtained by people outside or leaving the franchise network?
In addition to the six factors above, UK courts have drawn a distinction between trade secrets and information learned by franchisees or employees that forms part of their general skills and knowledge.
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