How does the Carls's Development Fee in Item 5 relate to the franchisee's obligation to maintain the confidentiality of the franchisor's trade secrets, as generally outlined in Item 9?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
| Obligation | Section in Franchise Agreement (FA) and Development Agreement (DA) | Disclosure Document Item | |
|---|---|---|---|
| a. | Site selection and acquisition/lease | FA: Section 3 DA: Sections 3-5 | Items 7 & 11 |
| b. | Pre-opening purchases/leases | FA: Sections 3-5 DA: Section 3-6 | Items 7 & 8 |
| c. | Site development and other pre- opening requirements | FA: Sections 3 - 7 DA: Sections 3 & 5-6 | Items 6, 7 & 11 |
| d. | Initial and ongoing training | FA: Section 11 DA: Section 5 | Items 5, 6, 7 & 11 |
| e. | Opening | FA: Section 5 DA: Not Applicable | Item 11 |
| f. | Fees | FA: Sections 3, 5, 8 & Appendix A-C DA: Section 4 | Items 5 & 6 |
| g. | Compliance with standards and policies/Operating Manual | FA: Sections 6, 7 & 10 DA: Section 6 | Items 8 & 11 |
| h. | Trademarks and proprietary information | FA: Section 11 DA: Not Applicable | Items 13 & 14 |
| i. | Restrictions on products/services offered | FA: Section 10 DA: Not Applicable | Item 16 |
| j. | Warranty and customer service requirements | FA: Section DA: Not Applicable | Item 11 |
| k. | Territorial development and sales quotas | FA: Not Applicable DA: Sections 1-3 & Appendix A-B | Item 12 |
| l. | Ongoing product/service purchases | FA: Section 10.B. DA: Not Applicable | Item 8 |
| m. | Maintenance, appearance and remodeling requirements | FA: Sections 2, 7 & 10 DA: Not Applicable | Item 11 |
| n. | Insurance | FA: Section 12 DA: Section 7 | Items 6 & 7 |
| o. | Advertising | FA: Section 5 & Appendix C DA: Not Applicable | Items 6 & 11 |
| p. | Indemnification | FA: Section 22 DA: Section 16 | Item 6 |
| q. | Owner’s participation/ management/staffing | FA: Sections 10 & 13 DA: Section 8 | Items 11 & 15 |
| r. | Records and reports | FA: Section 4 DA: Not Applicable | Item 6 |
What This Means (2024 FDD)
Based on the 2024 Franchise Disclosure Document, there is no direct relationship discussed between the Development Fee outlined in Item 5 and the franchisee's obligation to maintain the confidentiality of Carls's trade secrets, as generally outlined in Item 9. Item 9 generally refers to the franchisee's obligations as specified in both the Franchise Agreement and the Development Agreement, and it lists several obligations including fees, compliance, and trademarks.
Item 23 and Item 22 of the Carls FDD outline the franchisee's confidentiality obligations, stating that the franchisee acknowledges that Carls owns all rights to the System, which includes trade secrets and confidential information that gives Carls a competitive advantage. The franchisee must protect this information and only disclose it to employees who need to know it. Franchisees must also have a system in place to ensure employees keep this information confidential and may be required to have employees sign a Confidential Disclosure Agreement.
The franchisee's confidentiality obligations extend both during the term of the agreement and afterward. Any unauthorized disclosure or use of Carls's trade secrets can result in legal and equitable remedies, including injunctive relief. If a franchisee develops any new concepts related to the Carls System, they must notify Carls, and the information becomes the property of Carls. Item 4.1 further states that the franchisee shall protect the Confidential Information as trade secrets of CKR, PAR Brink and CrunchTime. Franchisee agrees that it shall not, without the written permission of CKR, PAR Brink and CrunchTime: (a) modify any Confidential Information; (b) reverse engineer, decompile, decrypt or disassemble the Confidential Information or attempt to do so; (c) transfer, rent, lease, lend or sublicense any Confidential Information to anyone for any purpose; or (d) reveal or disclose any Confidential Information for any purpose to any other person, firm, corporation or other entity, other than Franchisee's employees with a need to know that Confidential Information, to perform employment responsibilities consistent with Franchisee's rights under this Agreement.