Confidentiality and Access to Professional Advice Before Joining a Franchise in Japan

When considering a franchise in Japan, you may be asked to sign a non-disclosure agreement (NDA) before receiving detailed information from the franchisor. Protecting know-how helps maintain trust within the franchise community, but some terms can make it difficult to seek professional advice. Check not only the franchise agreement itself, but also any confidentiality obligations you take on before reaching that stage.

1. Check when confidentiality obligations begin and which materials they cover

Start by asking: ‘What am I signing, when do my obligations begin, and what information do they cover?’ Confidentiality clauses may appear not only in a standalone NDA, but also in an information request form, the conditions for attending an information session or a franchise application form. Do not assume that obligations arise only if you actually join the franchise.

Before signing, find the definition of confidential information. The scope of what you must protect will differ depending on whether it covers ‘materials marked confidential by the franchisor’ or ‘all information obtained during the assessment process’. Check whether it includes oral explanations, things you see or hear during store visits, electronic data and your own notes, as well as written documents.

If the definition is particularly broad, ask the franchisor whether the agreement excludes the following:

• Information that was already publicly available when you received it
• Information that subsequently becomes public through no breach of contract on your part
• Information you lawfully held before receiving it from the franchisor
• Information obtained without a confidentiality obligation from a third party entitled to disclose it

Do not assume that all these categories are automatically excluded: check the wording of the agreement. Keeping a record of each document’s title, date of receipt and version will also make it easier to establish later what was covered.

2. Secure permission to share information with legal advisers, tax advisers and lenders

If the agreement simply says that disclosure to third parties is prohibited, check whether this could prevent you from obtaining the advice you need to decide whether to join. Even where a lawyer or licensed tax accountant has professional confidentiality obligations, that does not, by itself, give you contractual permission to share the franchisor’s information with them.

Before joining, you may need to share information for several purposes, including a legal review of the contract, an assessment of financial projections and a loan application. Identify the advisers involved and the documents they will need, then establish what the agreement permits.

Recipient	Main purpose	Points to check with the franchisor
Legal adviser	Reviewing the franchise agreement and its risks	Can you share the draft agreement without prior consent?
Licensed tax accountant or other financial adviser	Checking costs and financial projections	Can you share the terms and documents needed for their calculations?
Financial institution	Assessing a loan application	Can information be disclosed to the credit assessment team as well as your account contact?
Co-investors or family members	Deciding whether to invest or take part in running the business	Must recipients be named, or sign a separate NDA?

Permission to share information with professionals could be limited to what is necessary to assess the franchise opportunity. However, you should also check how far you would be responsible for the conduct of anyone receiving that information.

If prior consent is required each time, clarify how to apply, the expected response time and which documents the consent will cover. Do not rely solely on a representative’s verbal assurance that ‘you are welcome to seek advice’. Make sure permission is clearly recorded in the agreement or in writing from an authorised representative.

3. Keep statutory disclosure and confidentiality obligations separate

Japan does not impose a uniform pre-contract disclosure obligation on every franchise. Article 11 of the Act on the Promotion of Small and Medium-sized Retail Business requires franchisors operating a ‘specified chain business’ under the Act to provide prospective small and medium-sized retail franchisees with written information, including an outline of the business and the main contract terms, and to explain it before the contract is concluded.

Whether a business falls within this category depends on criteria such as the types of franchisees it primarily serves, the ongoing sale or arrangement of goods, management guidance, the use of trade marks and the collection of payments when a franchisee joins. The label ‘franchise’ alone does not determine whether the Act applies. Guidance from Japan’s Small and Medium Enterprise Agency also identifies the existence of confidentiality obligations as an important contractual matter for franchisees.

Signing an NDA and the franchisor making the required disclosures and explanations are separate matters. If you are told that something cannot be explained because it is confidential, ask exactly what is being withheld and how you can obtain the information needed to make your decision.

The Japan Fair Trade Commission’s guidelines on franchise systems under the Antimonopoly Act apply to franchises across all sectors, not just retail and food service. Franchisees are businesses independent of the franchisor, and transactions between them are subject to the Antimonopoly Act. However, a strict confidentiality clause does not, in itself, necessarily breach that Act.

Also check the exceptions and notification procedures for consulting public authorities or making disclosures required by law. If you need legal advice, first ensure that you are permitted to consult a professional about the NDA itself.

4. Check retention, return and liability requirements if you do not proceed

Some agreements keep confidentiality obligations in force even after you decide not to join. Check the duration and conditions for ending those obligations, rather than accepting wording that merely says they ‘survive termination’. Whether a long period is justified also depends on the nature of the information, so a shorter period is not automatically better in every case.

Clauses requiring documents to be returned or deleted can affect more than paper copies. Email attachments, cloud copies, materials supplied to advisers and automatic backups may also be covered. Clarify exactly what must be returned or deleted, and how, so that you do not accept obligations you cannot fulfil.

You may, however, want to retain signed agreements and correspondence as a record of your assessment process and the explanations you received. Ask whether exceptions can be made for records needed to deal with disputes or meet legal retention requirements, together with conditions for continuing to protect those records as confidential.

Do not overlook liability for a breach. Read the agreement to see what remedies it provides for, such as damages, contractual penalties or an injunction preventing the use of materials. For contractual penalties, check what triggers payment, how separate breaches are counted and whether additional damages can also be claimed. The stated amount is not necessarily a cap on your liability.

5. Make sure you can seek advice before signing

Finally, read the NDA alongside the confidentiality clauses in the draft franchise agreement. If their definitions of confidential information, permitted recipients or survival periods differ, establish which takes precedence. Check any memoranda or conditions governing the use of materials for related provisions too.

In practice, the following sequence can help reduce omissions:

1. Gather every document you have been asked to sign and identify its confidentiality clauses.
2. List the recipients and documents needed for contract review and loan assessment.
3. Request written answers about permission to share information, exceptions for retaining records and liability for breaches.
4. Check that any agreed amendments appear in the version you will actually sign.

Your responsibility to protect confidential information must be balanced with your need for enough information to make an informed decision about joining. The practical priorities are to establish ‘who may I consult?’ before receiving materials, and ‘what obligations and records will remain if I do not join?’ before signing.