Franchise Confidentiality Clauses in Taiwan: Check Adviser Access, Data Use and Evidence Retention Before Signing

If you are considering a franchise in Taiwan, the franchisor may ask you to sign a confidentiality agreement before providing operating information or a draft contract. Genuine trade secrets deserve protection, but confidentiality arrangements should not prevent you from asking a solicitor to review the contract, having an accountant verify costs, or retaining evidence you may need to protect your rights later. A healthy franchise community needs to respect both confidentiality and informed decision-making. This guide explains what to check before signing confidentiality clauses.

1. Distinguish confidentiality requirements from disclosure obligations

Taiwan does not have a single, comprehensive law specifically governing franchising, but that does not mean franchise recruitment is unregulated. The Fair Trade Act and the Taiwan Fair Trade Commission’s Guidelines on the Business Conduct of Franchisors are important points of reference. The validity of confidentiality agreements and liability for breach also involve the Civil Code. Whether information is protected under the Trade Secrets Act depends on whether it meets the statutory requirements: a franchisor stamping it ‘confidential’ does not automatically make it a trade secret.

The Guidelines require franchisors to provide important franchise information ten days before entering into a franchise relationship or a preliminary franchise relationship, or within a period considered reasonable in the circumstances or agreed by both parties. This includes start-up and operating costs, intellectual property rights, operational assistance, trading-area plans, operating restrictions, and arrangements for amending or terminating the contract. Failure to provide this information without proper justification constitutes a breach of Article 25 of the Fair Trade Act only where it is also sufficient to affect trading order.

Confidentiality agreements and information disclosure are separate matters. Do not accept an argument that signing a confidentiality agreement removes the need to explain costs. Equally, do not assume that a disclosure obligation allows you to publish or circulate all the information freely. A reasonable approach is to ask the franchisor to specify which documents it will provide, when it will provide them and how you may use them.

Before signing franchise-related contracts, you should also have at least five days to review them, or a period considered reasonable in the circumstances. This is separate from the information disclosure arrangements above: the two should not be treated as the same countdown.

2. Replace ‘all information is confidential’ with a clearly defined scope

If a confidentiality clause covers ‘all communications between the parties and any information derived from them’, disputes could arise over your use of cost comparisons you have prepared, lists of questions, or even publicly available franchise brochures. Check each of the following before signing:

• What is confidential? Does the clause cover recipes, operating procedures and supply prices, or does it also include the franchisor’s name and the fact that discussions are taking place?
• How is it identified? Must written material be marked confidential? Must information given in oral presentations be confirmed in writing afterwards?
• Permitted purposes: May you use the information to assess the franchise, seek finance and obtain professional advice, rather than merely ‘read it personally’?
• Reasonable exclusions: Can you exclude information that is already lawfully public, was already lawfully in your possession, or was lawfully obtained from a third party entitled to provide it?

These exclusions are contractual provisions worth negotiating. Do not assume they are automatically included in every confidentiality agreement. Even information that does not meet the statutory threshold for a trade secret may still be covered by a valid confidentiality agreement.

Check the duration of confidentiality separately, too. Do obligations continue after discussions end? Are ordinary business information and genuine trade secrets treated differently? Do not focus only on the agreement’s term on the first page while overlooking another clause stating that all obligations continue indefinitely.

3. Allow for professional review and lawful disclosure

A clause allowing only you to read documents while prohibiting disclosure to any third party will directly obstruct due diligence. A more practical approach is to expressly permit disclosure to necessary legal advisers, accountants and finance providers, with limits on the purpose and extent of access.

You could propose that advisers receive only the information needed for their work and remain bound by professional duties of confidentiality or suitable confidentiality undertakings. If a bank needs to assess a loan application, confirm which contracts and cost information you may submit. If the franchisor’s prior consent is required, agree on an application process and a response deadline so that the review cannot be held up indefinitely.

Also check that the clauses allow exceptions for disclosure lawfully required by courts or competent authorities, and for the lawful exercise of your rights. Do not accept wording that treats any report of concerns to a regulator as a ‘confidentiality breach’. A lawyer qualified in Taiwan should confirm the precise wording of these exceptions in light of the documents involved.

Franchise recruitment generally involves a business transaction rather than a consumer relationship, so Consumer Protection Act safeguards cannot simply be applied. Even if this is your first business venture, do not assume that signing gives you a consumer cooling-off period or an unconditional right to withdraw.

4. Check deletion, retention and liability before ending discussions

Many confidentiality agreements require all documents and copies to be deleted immediately when discussions end. But if disclosure records, receipt dates and the franchisor’s replies must also disappear, you may later struggle to establish what information you received at the time.

Negotiate limited retention rights in advance. For example, you or your legal adviser could be allowed to retain necessary records to meet statutory record-keeping requirements or deal with disputes, subject to continuing confidentiality and restrictions on use. This arrangement needs to be written into the agreement; it does not mean you can simply disregard deletion obligations you have already signed.

The Fair Trade Commission’s Guidelines allow franchisors to provide information on paper, by email, through messaging apps and by other means, and require the franchisor to produce evidence of whether it provided that information. Within the permitted scope, you should also retain complete versions and correspondence rather than just a screenshot of a single promise.

Finally, check whether liability for breach extends to all your advisers’ actions, whether contractual penalties are calculated separately for each document, and whether additional compensation can be claimed on top of those penalties. Do not sign on the assumption that ‘the amount is so high that a court will definitely reduce it’. Ask a lawyer to assess what triggers liability and what you could be responsible for before signing.

Practical takeaway: Before signing, establish three things: who may review the information, what it may be used for, and which records you may retain after discussions end. If the confidentiality clauses make professional review or the exercise of your rights difficult, have the wording amended before deciding whether to continue franchise discussions.