Franchise Confidentiality Clauses in China: What to Agree Before You Sign

When assessing a franchise brand in China, the franchisor may ask you to sign a confidentiality agreement before granting access to operating manuals, cost information or technical documents. Protecting trade secrets helps build trust within a franchise network, but confidentiality requirements should not prevent investors from asking a lawyer to review the contract, having an accountant check the figures or lawfully retaining evidence to protect their rights. Before signing, turn a general duty “not to disclose” into clear, workable boundaries.

1. Distinguish statutory confidentiality duties from additional contractual restrictions

Franchising in mainland China is specifically governed by the Regulations on the Administration of Commercial Franchising. Article 18 provides that, without the franchisor’s consent, a franchisee must not disclose the franchisor’s trade secrets to others or allow others to use them. This protects trade secrets; it does not mean that every document supplied by the franchisor automatically has the same legal status.

The Anti-Unfair Competition Law of the People’s Republic of China also provides rules protecting trade secrets. Whether information qualifies depends on whether it is unknown to the public, has commercial value and is subject to appropriate confidentiality measures taken by the rights holder. Public menus and publicly available franchise recruitment materials should not be treated indiscriminately in the same way as unpublished recipes, technical specifications or business data.

A contract may also impose confidentiality obligations on other non-public information, so you cannot disregard a signed agreement simply because the information is “not a trade secret”. Ask for a schedule setting out the categories of information, permitted uses, recipients and confidentiality periods, rather than relying on a blanket reference to “all information exchanged between the parties”.

One important point: a separate confidentiality agreement signed before the franchise contract may remain binding even if you ultimately decide not to proceed. It is not merely an administrative formality for receiving documents.

2. Write access for professional due diligence into the agreement

Article 21 of the Regulations on the Administration of Commercial Franchising requires the franchisor to provide the prescribed information and the proposed contract in writing at least 30 days before the franchise agreement is concluded. The franchisor may put reasonable safeguards in place for sensitive information, but cannot replace statutory disclosure with a simple claim that the material is confidential.

Investors should not, however, forward documents to every business partner as soon as they receive them. Before signing a confidentiality agreement, propose the following review arrangements:

• Who may review the information: Specify your appointed lawyers and accountants, along with any co-investors whose involvement in the decision is genuinely necessary. If a finance provider needs access, agree the scope separately.
• What it may be used for: Limit use to assessing the franchise opportunity, reviewing financing or performing the contract. Advisers should not be allowed to use the information for other projects.
• How access will be controlled: Options include designated accounts, restricted viewing permissions or requiring recipients to accept appropriate confidentiality obligations.
• How findings may be recorded: Agree which documents may be downloaded, extracted or used to prepare due diligence findings. Avoid arrangements that allow only a brief viewing and leave you unable to verify afterwards what was actually disclosed.

Do not assume that “showing it to my lawyer obviously does not count as disclosure”. Express permission in the contract or written consent is safer than trying to justify disclosure later. Equally, checking a single cost figure should not involve sending a complete set of recipes or customer records to an unrelated third party.

3. Exclude unreasonable restrictions and clarify duration and liability

When reviewing the scope of confidentiality, ask for express exclusions covering information that is already lawfully public, information you lawfully held before receiving it and information lawfully obtained from a third party entitled to provide it. Independently developed work should also have appropriate boundaries, but you will need records to establish its origin.

The duration should reflect the nature of the information. Genuine trade secrets may need long-term protection, while ordinary business information relevant only for a particular period may justify a fixed term or periodic review. Do not assume that all confidentiality duties automatically end when the franchise agreement expires, but nor should you accept perpetual confidentiality for every document without considering whether it is warranted.

Liability clauses should distinguish between different types of conduct. Accidentally sending information to the wrong recipient and promptly recovering it, providing a core recipe to a competitor and publishing business data without authorisation do not present the same risks. Agree procedures for notification, stopping further circulation, recovering information and taking remedial action after a leak is discovered. Then examine how contractual penalties and compensation for losses interact, to avoid counting the same loss twice.

You should also distinguish confidentiality from non-compete restrictions. A ban on using an unpublished recipe does not automatically amount to a ban on running any similar business after leaving the franchise. If the franchisor includes the latter restriction within a confidentiality clause, its scope and enforceability need separate review.

4. Plan ahead for exit, evidence retention and lawful disclosure

If you decide not to join or the relationship ends, both parties should be able to follow a checklist for returning information, closing accounts and deleting copies. For material that cannot readily be erased in full straight away, such as device backups or email archives, agree access restrictions and a process for subsequent deletion. Do not casually promise to “remove every trace immediately” when that cannot be verified.

At the same time, negotiate the right to retain material needed to meet legal record-keeping duties or handle disputes, with limits on its use, storage location and authorised users. Keeping contracts, payment receipts and delivery records does not entitle you to continue using the franchisor’s trade secrets.

The agreement should also allow documents to be provided lawfully to courts, arbitration bodies or competent authorities. It may require you to notify the franchisor where the law permits and doing so will not interfere with the proceedings, and to seek confidentiality safeguards for sensitive material. It should not require the franchisor’s prior approval for every submission. Making a lawful complaint is also quite different from publishing a complete set of internal documents on social media.

Practical takeaway: Before signing a confidentiality agreement, check four points: what is protected, who may see it, how long the obligations last and what happens to the information when you leave. If the franchisor neither defines the scope clearly nor permits reasonable professional due diligence, pause any payment. Decide whether to proceed only once the review arrangements and confidentiality responsibilities have been clearly documented.