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Have there been any recent state or federal legislative developments in the area of franchising?

Yes, after several years of consideration, Congress has enacted the Defend Trade Secrets Act (“DTSA”).  This is the first federal law designed to protect a company’s trade secrets. A trade secret is another type of intellectual property, such as patents, trademarks, and copyrights.  A trade secret consists of information and can include a formula, pattern, compilation, program, device, method, technique, or process.  A trade secret must be used in business and give an opportunity to obtain an economic advantage over competitors who do not know or use it.  A classic example of a trade secret is Coco-Cola’s® formula. 

Prior to the enactment of the DTSA, a business seeking to hold someone accountable for the misappropriation of their trade secrets had to rely on the Uniform Trade Secrets Act (“UTSA”), or at least the version of the UTSA that was enacted in the business’ state.  The enactment of the new federal DTSA is predicted to create two significant benefits: (1) more consistent and more uniform outcomes across the country, particularly for companies with national operations and employees in multiple states (as opposed to having the various state court decisions interpreting its own version of the UTSA; and (2) a federal court jurisdiction, sometimes a preferred venue to state court. 

Significantly, the DTSA authorizes, under certain situations, a suing party to obtain a seizure orders to order the defendant to disgorge the wrongfully possessed trade secrets.  This provision is intended to apply in very rare circumstances where the more conventional approach of seeking an injunction from a court may create significant risk for dissemination of the trade secrets at issue. Injunctions are also available under the DTSA, but Congress clearly expressed that the remedies available under the DTSA are not intended to create “backdoor” non-compete provisions.  The DTSA also provides remedies for monetary damages, and attorney fees. 

If you are interested in fully protecting your trade secrets, you need to understand all of the requirements of the DTSA.   In particular, in order to recover attorneys' fees, DTSA requires that all employee agreements setting out any obligations or restrictions regarding trade secrets or confidential information must provide notice of the statute's whistleblower provisions. Further, and perhaps more importantly, you need to specifically and meaningfully identify your trade secrets and protect that information from disclosure, including but not limited to labeling of trade secrets and limitation of access to that information.

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At Fahey Schultz Burzych Rhodes PLC, we’ve been helping municipalities, franchised businesses, employers, and more with their legal needs since 2008. We’d love to learn how we can help you, too.