Menu
Blog Banner Image

The Franchise Memorandum

Delaware Court Held Information Provided to Prospective Franchisee During the Franchise Sales Process Was Not Covered by Franchisor’s NDA

A state court in Delaware denied a franchisor’s motion for a preliminary injunction based upon claims that a prospective franchisee misappropriated confidential information and started a competing business despite having signed a non-disclosure agreement. Smash Franchise Partners, LLC v. Kanda Holdings, Inc., 2020 WL 4692287 (Del. Ch. Aug. 13, 2020). Todd Perri was initially interested in potentially becoming a Smash Franchisee. Perri researched information that Smash published online about the company, spoke with franchise brokers about Smash, and participated in a pitch deck call and a call where he learned about the unit economics of being a Smash franchise. Smash then required all prospective franchisees to sign an NDA. Although Perri had decided that he wanted to establish a competing business, he signed the NDA in order to continue learning about the Smash franchise system. He also continued to learn about the system from franchisees and corporate executives. Perri never entered into a franchise agreement and proceeded to establish a competing business. Smash sought a preliminary injunction to shut down Perri’s business, claiming that Perri had misappropriated confidential information.

The court held that Smash was not entitled to the requested “business-stopping injunction.” The NDA excluded any information that was publicly available at the time of disclosure or was disclosed by a thirdparty that was not prohibited from doing so. The court reasoned that the information received by Perri was publicly available, freely shared by Smash’s franchisees who were not parties to the NDA, or provided by Smash without having taken adequate precautions to protect its confidentiality. The court described the information as being designed to attract prospective franchisees and akin to a detailed sales pitch, but not specific enough to reveal critical information about Smash.

Email LinkedIn Twitter Facebook

The information contained in this post is provided to alert you to legal developments and should not be considered legal advice. It is not intended to and does not create an attorney-client relationship. Specific questions about how this information affects your particular situation should be addressed to one of the individuals listed. No representations or warranties are made with respect to this information, including, without limitation, as to its completeness, timeliness, or accuracy, and Lathrop GPM shall not be liable for any decision made in connection with the information. The choice of a lawyer is an important decision and should not be based solely on advertisements.

About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

To subscribe to monthly emails for The Franchise Memorandum, please click here

Topics

Archives

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

Blog Authors