Franchisors: Protecting Trade Secrets Under Texas Law

25 April 2017 Publication

International Law Office Franchise Newsletter

Franchisors frequently face this common scenario: upon termination or expiration of a franchise agreement, the franchisee leaves the system with the franchisor’s confidential information and trade secrets and – worse – attempts to use that information in a competing business. Confidential information – including secret recipes, proprietary processes and customer lists – is the lifeline of every franchise system. Franchisors build their confidential materials over years or decades by expending valuable resources on conducting research and initiating development.

For example, a franchisor’s manual may set out the formula for its secret recipes or the procedures for successfully running the day-to-day operations of the business. Gaining access to a franchisor’s confidential information is what motivates franchisees to buy into the franchisor’s system. Without becoming a franchisee, interested persons cannot tap into the franchisor’s valuable sources of information. Therefore, when a franchisor’s confidential information is stolen, the value of the brand is put at risk. To protect their trade secrets and confidential information, franchisors in Texas should be familiar with the Texas Uniform Trade Secrets Act.

Pre-emption under the Texas Uniform Trade Secrets Act
In September 2013, Texas became the 48th state to adopt the Uniform Trade Secrets Act, a uniform law prohibiting the theft of trade secrets. Before the enactment of the Texas Uniform Trade Secrets Act,(1) franchisors – and any owners of confidential information – could pursue various common law tort, restitutionary, or contract theories under Texas law to recover for a misappropriation of trade secrets or confidential information.

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