Trade Secrets in Franchising: Protecting Know-How in Croatia

When turning an existing business into a franchise network, you need to pass on the know-how that makes your concept successful. Simply marking a document ‘confidential’ is not enough. You need to define what you are protecting, who you disclose it to and how you can demonstrate that you have genuinely kept the information secure. Proper trade secret protection enables collaboration without unnecessarily restricting access to the knowledge franchisees need to operate.

1. Distinguish trade secrets from general experience

Start by listing the information that gives your business an advantage and is not publicly available. This might include specific production processes, recipes, internal costing models, non-public commercial analyses or detailed methods for delivering services.

Not all knowledge automatically qualifies as a trade secret. A standard serving procedure, a public price list or information published on your website does not become secret simply because you describe it that way in a contract.

For each item of information, record:

• exactly what it covers and where it is held;
• why it has commercial value because it is secret;
• who currently has access to it;
• what measures prevent unauthorised disclosure;
• whether the franchisee needs all of the information or only part of it.

For example, a branch manager may need instructions for preparing a product, but not the full profitability model for all your locations. The aim is not to make work harder, but to align access with actual responsibilities.

2. Understand the Croatian legal framework

Croatia has no specific law comprehensively governing franchise networks, no compulsory franchise register and no statutory requirement for a standardised pre-contractual franchise disclosure document. A franchise agreement is an innominate contract — one not specifically defined in legislation — to which the general rules of the Croatian Civil Obligations Act apply, including the principle of good faith and fair dealing.

The key legislation here is the Act on the Protection of Undisclosed Information with Market Value. Trade secret protection essentially requires three elements: the information is not generally known or readily accessible within the relevant circles; it has commercial value because it is secret; and the person lawfully controlling it has taken reasonable steps to keep it secret.

A contract alone is therefore no substitute for practical protection. If you keep sensitive files in an unrestricted shared folder or share one password across the entire network, you make it harder to prove that you have taken reasonable steps.

Depending on the content of the information and how it is used, the Croatian Competition Act and EU competition rules also apply. If documents contain customers’ or employees’ personal data, you must comply with the General Data Protection Regulation and Croatia’s Act on the Implementation of the General Data Protection Regulation. Labelling information a trade secret does not, in itself, provide a lawful basis for sharing personal data.

3. Tailor confidentiality obligations to the actual risk

Before disclosing sensitive know-how to a prospective franchisee, enter into a confidentiality agreement. Clearly define the permitted purpose of use, such as assessing a potential business relationship, and the people to whom the candidate may grant access, such as legal or financial advisers subject to an appropriate duty of confidentiality.

The franchise agreement should then govern the use of know-how throughout the relationship. Work with a lawyer to address:

• a sufficiently precise description of the categories of confidential information;
• permitted use and a prohibition on unauthorised copying or disclosure;
• the franchisee’s obligations in relation to employees and external contractors;
• notification of suspected breaches;
• the return, deletion or limited retention of documents;
• how long obligations continue after the relationship ends.

Include exceptions for information that is lawfully publicly available, independently developed know-how and disclosures required by law. Confidentiality must not be used to prevent legally protected whistleblowing.

Do not automatically equate confidentiality with a non-compete obligation. These are different obligations, and non-compete restrictions require a separate legal assessment. Nor is a contractual penalty a universal solution: its permissibility and appropriateness must be checked against the specific obligations involved.

4. Introduce verifiable safeguards and an incident response procedure

Before bringing your first franchisee on board, introduce individual user accounts, role-based access, multi-factor authentication where available and logs of significant downloads. Label sensitive documents, identify a document owner and maintain version control so that you know what has been supplied to whom.

Appoint someone to take responsibility for granting and revoking access. Staff changes at a franchisee’s business should trigger a review of access rights rather than wait for an annual review. Explain specific rules to employees: whether they may send documents to personal email addresses, use personal devices or enter content into external digital tools.

If you suspect unauthorised disclosure, first restrict the affected access and preserve available evidence lawfully. Record the timing, the documents involved and the possible recipients of the information. Involve a lawyer to assess the next steps and, where personal data is involved, separately assess the obligations arising from a personal data breach.

Practical takeaway: before sharing key know-how, prepare an inventory of trade secrets, appropriate contractual obligations and an auditable access management system. A franchise network builds trust when every member knows which information they may use, why it needs protecting and whom to contact if a problem arises.