Tuesday, May 15, 2007

Franchising and trade secrets

Franchising pretty much requires a trade secret even if not one that is technically a trade secret. Coca-Cola bottlers hang the value of their franchise on the secret of what goes into Coca-Cola while McDonalds' franchisees have its secret sauce. However, until I was reading the Don't Sign An Agreement To Receive Information article at Blue MauMau I was not aware of franchisors having potential franchisees signing off on non-disclosure agreements.

There are franchise investment offerings that are so transparently not innovative, and that can so easily be done without whatever it is that the franchisors pretend they have that is “unique” (yeah, right). They request that a prospect sign a non-disclosure agreement / confidentiality agreement as a condition to being sent the offering circular or to being allowed to attend “discovery day”.
I agree that any franchisor playing this game is one of the following: 1) an idiot who knows not what they are doing; or 2) a con artist. Mr. Solomon suggests: "[y]ou are dealing with a bozo franchise and they are just looking to get a handle on you so that they can threaten you if you don’t buy the franchise and decide to do anything else on your own that may be in a similar business." If these franchisor do think that way, then they are dangerously stupid. But then I also thinking that their "trade secrets" are not so secret as to be protected by the law.

Remember this: get an attorney as soon as you get serious about buying a franchise.