Franchise Agreement Precludes Defend Trade Secrets Act Claim

At a Glance

• A franchise agreement identifying a franchisor as an owner of trade-secret customer data precluded breach of contract and Defend Trade Secrets Act claims brought by a franchisee who also owned the customer data.
• Franchisors should carefully review their franchise agreements for provisions relating to ownership and use of trade secret and confidential information, including customer data.

On February 27, 2025, the District of Minnesota granted a franchisor’s motion to dismiss a lawsuit initiated by its franchisee, alleging, among other things, breach of contract and misappropriation of trade secrets under the Defend Trade Secrets Act (DTSA). In the case, T&T Mgmt., Inc. v. Choice Hotels Int’l, Inc., et al., No. 24-1504 (JRT/DTS), the franchisee alleged that the franchisor breached the franchise agreement and misappropriated the franchisee’s confidential and trade-secret customer list by using the customer list to divert business to other franchisees operating competing hotel brands owned by the same franchisor.

The district court found that the plain terms of the franchise agreement defeated the franchisee’s breach of contract and DTSA claims. First, the court found that the franchise agreement unambiguously named the franchisor as an owner of the customer data, such that there could be no breach of contract as a matter of law when the franchisor used or disclosed that data.

Next, in dismissing the franchisee’s DTSA claim, the court first held that the “customer lists are trade secrets,” based on the franchisee’s allegations that it kept the information confidential and provided it to employees only on a need-to-know basis. Focusing again on the terms of the franchise agreement naming the franchisor as an owner of the customer data, however, the court found that there was no misappropriation under the DTSA since the franchisor “had express consent under the agreement to use the data.” The court also found that the franchisor did not “disclose the data under a duty to maintain secrecy,” since the agreement required the franchisee to implement specific safeguards to maintain the confidentiality of the customer lists, but did not require the same of the franchisor.

Takeaway

Franchisors should carefully review their franchise agreements for provisions relating to ownership and use of trade secret and confidential information, including customer data.