Protecting Confidential Information in Tough Economic Times

05/11/2009 / Cyndi M. Klaus

Now more than ever, franchisors need to be more cognizant about protecting their confidential information. Customer lists, among other confidential information, are an extremely valuable asset of a franchise system and should be carefully protected. Therefore, threats by a franchisee or former franchisee to disclose customer lists to competitors must be taken seriously. Such threats many times accompany termination of a franchisee, who is looking to shift its business elsewhere. Fortunately, with quick action, franchisors may be able to stop unwanted dissemination and protect sensitive information.

First, it is important to alert legal counsel immediately of any threatened disclosure. The attorneys can then analyze your franchise agreements and the pending threat, and determine the likelihood of obtaining a favorable court order. If a decision is made to proceed, a lawsuit will need to quickly be initiated, and, at the same time, a temporary restraining order (“TRO”) should be requested, prohibiting the disclosure of confidential information including customer lists. The need to act quickly is imperative, as the effort will be pointless if you do not get in to court and obtain the TRO prior to the dissemination of the confidential information.

Since TRO requests are generally made on an emergency basis with little or no notice to the franchisee, you must subsequently obtain an injunction from the court after a full evidentiary hearing. Unless you are able to resolve matters quickly with the franchisee, this hearing generally occurs within two weeks of the TRO.

For more information on protecting your customer lists and other confidential information, please contact Larkin Hoffman’s Franchise and Distribution Practice Group.