Confidentiality in franchising: protect your know-how before expanding

Turning a business into a franchise means teaching others how to replicate its operations. That does not mean handing over all your know-how to anyone who expresses an interest. In franchising, sharing methods requires trust, but also clear rules on access, use and protection of information. Before expanding, decide what you will disclose, to whom and at what stage.

1. Identify the know-how that needs protection

Start with an inventory of information that gives the business a competitive advantage and is not publicly available. This might include proprietary recipes, production parameters, pricing criteria, negotiated commercial terms and internal methods for delivering services.

Do not classify everything as confidential. Publicly available information, common practices and general work skills do not become exclusive to your business simply because they appear in a company document. Excessive classification makes operations harder and blurs the distinction between what genuinely needs protection and what does not.

For each piece of sensitive information, record:

• Content: the know-how to be protected.
• Person responsible: who can authorise its disclosure.
• Recipients: which roles need access.
• Purpose: what uses will be permitted.
• Storage location: where the approved version will be kept.

A recipe may need to be accessible to the person responsible for production, while a supplier’s commercial terms may be restricted to management. Operational need, rather than seniority alone, should determine access.

2. Separate statutory disclosure from sharing secrets

Brazil’s current Franchise Law, Law No. 13,966/2019, repealed Law No. 8,955/1994. It requires franchisors to provide a franchise disclosure document, known in Brazil as the Circular de Oferta de Franquia (COF), in Portuguese, with objective and accessible information. Protecting know-how cannot justify withholding mandatory information.

Article 2, item XV, requires the COF to explain the franchisee’s position after the agreement ends regarding acquired know-how, confidential information and any trade, production, financial or business secrets they have accessed. It also requires information on setting up a competing business.

This does not mean that every confidential recipe or procedure must appear in the COF. You can describe the business, its obligations and the conditions for accessing know-how without disclosing all operational content in advance. However, template agreements and their annexes must form part of the disclosure as required by law.

The COF must be provided at least ten days before a franchise agreement or preliminary franchise agreement is signed, or before any fee is paid to the franchisor or a person or company connected with it. A confidentiality undertaking neither replaces the COF nor allows this period to be shortened.

If a confidentiality document is to be signed before the COF is provided, have a lawyer review it to ensure that it deals solely with confidentiality, rather than effectively committing the candidate to the franchise early or imposing a payment disguised as a reservation fee.

3. Plan a phased disclosure of know-how

Create access stages that reflect the progress of negotiations. At the initial presentation, use publicly available information and general descriptions. While the candidate assesses the opportunity, provide the information needed to make a decision and all legally required documentation. Confidential technical content can be made available as the agreement is entered into and operational preparations progress.

This approach must not prevent the candidate from understanding the investment or its risks. If a technical dependency affects costs, supplies or operating capacity, it must be explained adequately, even if the detailed formula remains protected.

In practice, adopt straightforward controls:

• Use individual accounts rather than shared passwords.
• Keep sales materials separate from confidential operational files.
• Record which versions have been made available and to whom.
• Restrict copying and exporting where feasible.
• Define how third parties, employees and service providers will gain access.

Do not rely on a signature alone. If any visitor can open a folder containing recipes and profit margins, everyday practice undermines the commitment to protection. Equally, excessive controls must not make authorised operations unworkable.

4. Define obligations and an incident response

With legal support, define which information is protected, permitted uses, exceptions, responsibilities for disclosure and procedures for ending access. Distinguish confidentiality from non-compete obligations: protecting a secret is not the same as prohibiting all future business activity by the franchisee.

Provide for the return or deletion of materials, while respecting legal retention requirements. Where information is legitimately retained, establish restrictions on its use and access. Do not adopt blanket time limits or penalties without assessing their proportionality and suitability for the particular circumstances.

Also prepare a response to information sent to the wrong recipient, a lost device or unauthorised access: suspend access, preserve records, identify the content exposed and seek legal advice. Avoid making accusations before establishing the facts.

Practical takeaway: before offering your first franchise, identify your most sensitive know-how, decide who needs to receive it and check that your documents and controls follow a consistent approach. Protect your methods without compromising the transparency a prospective franchisee needs to make an informed decision.