Protecting Business Secrets Before Offering a Franchise

When you franchise an existing business, prospective franchisees need to understand how it works. But that does not mean handing over the full recipe, production method or list of key contacts straight away. Trust matters in franchising—and it is stronger when everyone understands how information may be used, who it may be shared with and for how long.

1. Identify what is genuinely secret

Before accepting applications, draw up an inventory of information that gives your business a distinctive advantage. This might include an exact recipe, a sequence of production steps, an internal costing method or supplier terms that are not publicly available.

Not every document is secret. Displayed prices, public announcements and general knowledge about running a shop should not simply be treated as proprietary information. Nor does labelling something “confidential” automatically make it a protected secret.

Divide information into three levels:

• Suitable for general sharing: descriptions of the concept, products and general application process.
• For serious applicants: selected data and explanations needed to assess the offer, subject to appropriate safeguards.
• For authorised operators only: detailed recipes, sensitive methods and information needed only for day-to-day operations.

For each sensitive record, specify who is responsible for it, who may access it and why they need it. These rules should govern disclosure, rather than the owner’s personal feelings about an applicant.

2. Share information gradually, but do not conceal risks

Match access to the stage of discussions. At the first meeting, you can explain the overall operational workflow without revealing exact methods. Once an applicant is seriously interested, provide more detailed explanations under a written confidentiality agreement.

For example, an applicant for a food franchise might observe how orders are taken and prepared without needing to receive the complete recipe immediately. If their solicitor or financial adviser needs to review sensitive records, establish a clear procedure for sharing them.

Do not use confidentiality to hide material risks. Applicants must understand the obligations and limitations of the offer. Protecting a recipe is not the same as concealing costs or making misleading promises.

Keep a record of which documents were sent, their version numbers, when they were supplied and who received them. This helps prevent disputes over what was actually shown or promised.

3. Put the scope of protection in writing

The Philippines has no single comprehensive franchise law. There are, however, specific rules: Executive Order No. 169, series of 2022, sets minimum contractual terms for franchisees that are micro, small and medium-sized enterprises. The Civil Code and the Intellectual Property Code, or Republic Act No. 8293, are also relevant.

Republic Act No. 9178 is not a franchise law; it concerns Barangay Micro Business Enterprises, a category of small community-based businesses. Nor should the absence of a general obligation to provide a separate disclosure document be taken as permission to mislead. Under the Civil Code, fraud affecting a party’s consent may provide grounds for annulling a contract.

Have a lawyer review the confidentiality agreement. It should clearly set out:

• the information covered and any exclusions, such as information already in the public domain;
• the permitted purpose for using the information;
• the people with whom it may be shared;
• the duration of the obligations and the procedure when discussions end;
• how legally required disclosure will be handled; and
• the steps to be taken in the event of unauthorised use.

Keep confidentiality obligations separate from non-compete restrictions. They are distinct obligations and should not be combined in broad, vague wording.

4. Control access until discussions are complete

A signature is not enough if sensitive documents circulate freely. Use separate access permissions for digital files, individual user accounts and access logs where your system supports them. Avoid sharing one password among everyone.

If an applicant withdraws, revoke their access and follow the agreed procedure for returning or deleting copies, except for records that must be retained by law. If the franchise goes ahead, make sure the earlier agreement and the final contract are consistent on the use and sharing of sensitive information.

Practical takeaway: Before offering a franchise, prepare an inventory of business secrets, a staged disclosure plan and an agreement reviewed by a lawyer. Protect genuinely sensitive know-how without obstructing a prospective franchisee’s reasonable assessment of the opportunity.