Know-how and the post-contractual competition prohibition

Has transferable know-how worthy of protection been transferred so that a post-contractual non-competition clause in the franchise agreement is valid? This was ruled on in a judgment of the District Court of Amsterdam, 27 July 2022, ECLI:NL:RBAMS:2022:4314.

The Franchisee argued that the agreed post-contractual non-competition prohibition was invalid, partly because there would be no transferred know-how worthy of protection.

In this context, the dispute focuses on whether the franchisor has transferred know-how worthy of protection to the franchisee and provided assistance. For the question of what constitutes know-how worthy of protection, the court – like the parties – seeks to link up with the definition thereof in the Franchise Act, which came into force on 1 January 2021. Although this law does not apply to the franchise agreement between the parties, it does offer an important point of view when explaining the concept of know-how. Section 7:911(2)(a)(2) of the Dutch Civil Code stipulates in the Franchise Act that know-how is a set of practical information not protected by an intellectual property right, arising from the experience of the franchisor and from the investigations carried out by him, which information secret, material and identified.

The franchisor states that the transferable know-how worthy of protection would be evidenced by the Franchise Support Guide, quarterly reports, internal magazines of the franchisor and manuals, for example for drawing up a business plan or using social media. The manual describes, among other things, how the franchise formula works. There are also various tailor-made courses and training courses. According to the franchisor, the documentation contains information about the provision of services and the delivery of goods under the franchise, purchasing techniques, the method of contact with customers, commercial methods, the layout of the establishment and the (method of) administration. It states that it has provided the franchisee with marketing provisions, house style rules, purchasing arrangements, sales strategies and basic agreements and it states that its formula consists of a strategic vision, a marketing campaign plan, ICT tools, order and customer management systems and franchise fees.

According to the court, it has been sufficiently established that the franchisor has provided the franchisee with secret, material and identified information that meets the requirements of Article 7:911 paragraph 2 under a sub 2 of the Dutch Civil Code. It is true that some of the documents in the folders cover more general subjects, such as the manual for drawing up a business plan, but that does not alter the fact that when the documentation is viewed in context, the information is so focused on a graphic services company and the strategy of the franchisor that there is know-how worthy of protection. The set of information includes a detailed and specialized store concept for a graphic services company. The quarterly reports deal with topics that play a role within the franchise organization and are, in principle, not published. The fact that an independent entrepreneur in the sector can also obtain separate parts of the information provided by other means does not mean that the whole of the information provided by the franchisor cannot be regarded as secret and essential.

The post-contractual non-competition prohibition in franchise relationships remains an important subject, requiring careful assessment.