Under what conditions will a Gold Star franchisee be liable for damages related to disclosure of confidential information by related parties?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
o take any action but may take any action it deems appropriate. FRANCHISEE also agrees not to contest or aid in contesting, directly or indirectly, the COMPANY's right, title, ownership or interest in or to, or the validity or enforceability of, any copyrights, Confidential Material or the System, or contest the COMPANY's sole right to register, use or franchise or license others to use any such copyrights, the System or the Confidential Material, during or after the term of this Agreement or any extension or renewal thereof.
- 12.2 Damages for Violations. If FRANCHISEE discloses any Confidential Material to any person, firm or entity or otherwise breaches its obligations under this Section 12, or if one of the Related Parties or any other person subject to FRANCHISEE's control makes such a disclosure or otherwise breaches its obligations under this Section 12 as a result of the failure of FRANCHISEE
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, a franchisee can be held liable for damages if confidential information is disclosed by the franchisee, their related parties, or anyone under the franchisee's control. This liability arises if the franchisee fails to take adequate precautions to prevent such disclosures. Confidential Material includes information in the Manual, and other information about the Proprietary Products, the System and the Business, including customer and supplier lists.
Specifically, if such a disclosure occurs, the franchisee is obligated to pay Gold Star $100,000 for each breach of the confidentiality covenant. This amount is considered liquidated damages, representing a reasonable pre-estimate of the actual damages Gold Star would incur due to the disclosure, as the precise amount of actual damages would be extremely difficult to ascertain.
However, this does not prevent Gold Star from seeking injunctive or other legal relief to protect its confidential information. This means that in addition to the monetary damages, Gold Star can pursue court orders to stop further disclosures or other actions to protect its interests.
This clause emphasizes the importance of maintaining confidentiality within the Gold Star franchise system. Franchisees must implement robust measures to safeguard confidential information and ensure that their employees and related parties are also bound by confidentiality obligations. Failure to do so can result in significant financial penalties and legal action.