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trade secrets

Trade Dress: Is Your Franchise System In Vogue?

By Newsletter

As a growing Franchisor, you constantly endeavor to make your company distinguishable from its competition. From the very beginning when you had the idea to launch your business, you no doubt struggled to find just the right name. Then after the name, you went through the legal process to register and protect that name and associated logo. In conjunction with finding the right name, you worked hard and spent many long hours to develop those secret recipes or methodology of operations and processes which formed the core of your trade secrets that set you apart from your competition. Unfortunately, many Franchisors fail to spend the same amount of time and effort in developing or protecting their company’s trade dress

Your trade dress is the overall appearance of the business. The items that make the business or product distinguishable and recognizable to the customer. When you drive down the street and see the golden arches at a fast food restaurant, is there any doubt about the name of the Franchisor? The golden arches symbolize the entire franchise system. Ask any kid.  They know what the arches mean when they are hungry. The golden arches constitute a major part of the Franchisor’s trade dress and are a very valuable asset. A company’s trade dress builds reputation and goodwill which in turn, becomes synonymous with the Franchisor’s name. But as you become successful in building greater market share through your trade dress, your competitors will seek to copy you and capitalize on that good will and reputation.

Fortunately, there is good news for Franchisors seeking to protect their trade dress. By employing Section 43(a) of the Lanham Act, a Franchisor carries a “big stick” to beat back its competitors. Under the Lanham Act, not only can a Franchisor obtain damages against the infringer, but the Franchisor can also obtain an injunction and destruction of the “copy-cat” materials. Additionally, the Act also enables a Franchisor to obtain attorney fees against the offender. And a Franchisor has the option of initiating the case in either federal or state court.

The most notable trade dress case decided under the Lanham Act was Taco Cabana v. Two Pesos. In this case, the U.S. Supreme Court upheld the Circuit Court’s finding that the defendant had appropriated the Plaintiff’s general appearance by copying the exterior of the restaurant, the identifying signage, interior kitchen floor plan, décor, servers’ uniforms and several other features of the restaurant. The court found that the above items created a “total image”. The total image constituted the Plaintiff’s trade dress and distinguished its products and services from competitors. 


Once your trade dress is developed, make sure it is used consistently by all franchisees. When used on a consistent basis, trade dress becomes a major asset of your franchise company and merits no less protection than that of your trademark and trade secrets.

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Your Trade Secrets: What Are The Questions?

By Newsletter

How many franchisors have ever taken the time to actually define the trade secrets of their company? In many franchising companies, the general consensus is that trade secrets are those mystical items comprising their “system.” They then throw it in the attorney’s lap and say “I am not sure what they are, but I want them protected.”

It is not uncommon to find franchise marketing materials and franchise agreements which recite the uniqueness of the “system” and then claim the overall make-up of the franchise system constitutes a trade secret. Such broad recitals certainly attest to the misperception of what is legally protectable. Much of what a franchisor provides its franchisees are operating methods commonly known in the trade or industry and are not protectable. In fact, an agreement which seeks to restrict the use of an alleged trade secret and which fails to qualify as such is unenforceable against public policy. Some courts have even held allegations that clearly mistake trade secret status may constitute predatory practices under antitrust laws.

While various courts in the past have used numerous definitions of what was protectable as a trade secret, most states have now passed trade secret legislation. Generally state trade secret legislation is based upon either the Restatement of Torts format or the Uniform Trade Secrets Act. The majority of states have adopted, with some state variations, the Uniform Trade Secrets Act format. This act defines “trade secrets” as:

“[I]nformation, including a formula, pattern, compilation, program, device, method, technique or process that:

  1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through appropriate means by other persons who can obtain economic value from its disclosure or use; and
  2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

Obviously not all information provided to franchisees can be protected. But where a franchising company has customized information and taken measures to ensure it is inaccessible to others, such information is protectable. An example of customized information might include, specially arranged recipes and formulas, special software programs, pricing lists, cost data, list of sources of raw materials and technology sensitive research.

Franchisors should work with legal counsel to ascertain what part of their system is a trade secret and therefore, protectable. Secondly, franchisees should acknowledge either in the franchisor’s confidential manuals or elsewhere, those items in the system which are classified as a trade secret. Finally, Franchisors must take active steps to protect their trade secrets. Our next post discusses many of the steps a franchisor should use to protect its trade secrets.

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