Know-how in franchising: how to protect business secrets

When turning an established business into a franchise, the owner shares more than a brand with partners. They also pass on accumulated knowledge: recipes, equipment settings, calculation methods and purchasing practices. Yet a folder marked ‘secret’ does not, on its own, protect that information. In a franchise network, trust needs to be backed by clear access rules. Here is how to prepare to protect your know-how before handing materials to your first partner.

1. Identify which information genuinely qualifies as know-how

Under Article 1465 of the Russian Civil Code, a production secret, or know-how, is information that has actual or potential commercial value because it is unknown to third parties. Third parties must not have unrestricted lawful access to it, and its holder must take reasonable steps to maintain its confidentiality.

You cannot, therefore, simply label all your accumulated experience as know-how. A publicly available recipe, a published supplier price list or a standard cleaning procedure does not become a production secret just because it is included in a contract. Not all confidential information automatically meets the criteria for know-how.

Take stock of your materials and divide them into three groups:

• Public: a brand presentation, a public menu or a description of your customer service.
• Internal: work schedules, organisational procedures and internal forms.
• Potential know-how: an unpublished production sequence, a proprietary system for configuring equipment or an algorithm for reducing losses.

For each potential secret, record what makes it valuable, where it is stored, who already knows it and what safeguards are in place. If the information has been published on a website or circulated to contractors without controls, first consult a lawyer to assess whether it can still qualify for legal protection.

For a bakery chain, for example, the secret may lie not in the list of ingredients but in the combination of temperature settings, the order in which ingredients are added and storage parameters. Describe what you are protecting precisely enough to establish later exactly which information was shared.

2. Put safeguards in place within your own company

Review your own processes before bringing franchisees on board. It is difficult to demand confidentiality from a partner if head-office staff email production specifications from personal accounts and former contractors still have access to a shared drive.

One way to protect information is to introduce a trade secret regime under Russian Federal Law No. 98-FZ ‘On Trade Secrets’. Article 10 sets out a package of measures: defining the information to be protected, restricting and controlling access, keeping records of authorised individuals, regulating relationships with employees and contractors, and marking documents and storage media. The ‘Trade Secret’ marking must be accompanied by the legally required details of the information holder.

A non-disclosure agreement alone is not enough to establish a full trade secret regime. Article 1465 of the Russian Civil Code does, however, allow other reasonable measures to preserve confidentiality. Whichever system you choose must work in practice, not merely exist on paper.

Appoint someone to maintain the register of secrets and authorise access. Put the necessary confidentiality obligations in place for employees, and ensure they are familiar with the list of protected information and the rules for handling it. For contractors, include contractual terms covering confidentiality and permitted use of the materials.

Do not add information to the restricted list if the law prohibits restricting access to it. For example, a trade secret regime cannot be used to conceal information about working conditions that must be disclosed by law. Customer databases also require a separate review for compliance with personal data legislation: protecting know-how is no substitute for meeting those requirements.

3. Set out the rules for sharing information with a partner

In Russia, franchise relationships are governed primarily by Chapter 54 of the Civil Code, which covers commercial concessions. Know-how protection is governed by Chapter 75. Under a commercial concession agreement, the franchisee receives a package of exclusive rights that includes the right to use a trade mark or service mark; it may also include rights to a production secret.

Article 1032 of the Russian Civil Code requires the franchisee not to disclose the rights holder’s production secrets or other confidential commercial information received from them. Nevertheless, the agreement still needs specific, workable terms.

Agree the following with your lawyer:

• a list of the secrets to be shared, or a procedure for identifying them precisely in schedules to the agreement;
• permitted purposes of use and the employees who may have access;
• conditions for engaging contractors and documenting their obligations;
• methods for transferring materials, confirming receipt and providing updates;
• a procedure for reporting leaks and preserving evidence;
• liability for breaches and the steps to be taken after the relationship ends.

Do not confuse the obligation to keep secrets with a general ban on running a similar business. These are different restrictions, and the lawfulness of each requires a separate assessment.

The grant of a package of exclusive rights under a commercial concession agreement must be registered with Rospatent, Russia’s intellectual property office. Without registration, the grant of rights is deemed not to have taken place. This does not mean that the details of a secret technology must be published: plan in advance how to describe the rights and prepare confidential schedules.

4. Share knowledge in stages and keep access records

Provide materials according to each person’s role and the stage of the relationship. A prospective franchisee needs only a general description of the technology, without disclosure of the secret. Once the necessary obligations have been formalised, the manager receives management materials, while the production specialist receives the information needed for production. Giving everyone access to everything increases the risk of a leak and makes its source harder to identify.

For every transfer, retain the document title, version, date, recipient and confirmation of receipt. Use individual user accounts, log activity and revoke access when staff leave. Technical restrictions on downloading are useful, but they do not replace contractual obligations.

Prepare a response procedure for leaks in advance: restrict compromised access, preserve logs and correspondence, establish the extent of the disclosure and involve a lawyer. Under Article 1467 of the Russian Civil Code, the exclusive right to know-how lasts for as long as the underlying information remains confidential.

When a partner leaves the network, provide for the return or deletion of materials, taking account of mandatory document retention requirements. Separately stipulate that confidentiality obligations continue: closing an account does not erase knowledge already acquired.

Practical takeaway: before sharing anything for the first time, compile a register of secrets, introduce effective access controls and agree contractual rules for use. Protection comes not from the label ‘know-how’, but from a demonstrable system for handling valuable information.