While the advice that I am offering here may sound obvious and, possibly, even a little self-serving, it is nevertheless an honest and critical point that far too many franchisors and business owners overlook. That is, in most (but not all) litigation once your are involved (either as a plaintiff or defendant) the advantages and benefits that may or may not stem from the outcome of the litigation will, many times, be outweighed by:

(a) the legal fees that you will incur,

(b) lost productivity associated with your focus on the lawsuit (as opposed to building your franchise systems), and

(c) the uncertainty that is inherent in all litigation – no matter how strong your case is.

Faced with the inherent costs in all litigation, the best course of action for both start-up and established franchisors is to establish with your legal counsel open channels of communication focused on cutting-down and mitigating your “litigation exposure”. That is, in addition to the critically important task of managing your regulatory requirements and disclosures as a franchisor, you must discuss and establish with your legal counsel a fair and flexible relationship and system focused on the management and monitoring of your day-to-day legal activities. Some of these activities should include:

(a) The review of vendor agreements,

(b) The establishment of standardized franchisee communications and compliance notices;

(c) The quarterly evaluation and review of your trademarks and the filing of supplemental trademark applications and affidavits;

(d) The establishment and maintenance of a specified and well documented “encroachment policy” respecting the grant of additional franchises;

(e) The establishment of a clear and concise policy respecting the negotiated modification of your franchise agreements;

(f) The maintenance of strategic employment agreements with your key employees that are focused on the implementation “enforceable” restrictive covenants;

While establishing an on-going day-to-day working relationship with your legal counsel may be more expensive than “doing nothing”, the value of this planning process will far outweigh the cost associated with unnecessary and avoidable litigation. Once tasks become standardized and well establish, my experience has been than many activities may be incorporated into the tasks of your “in-house” staff and, over time, serve to reduce your long-term legal fees.

In the case of Wachovia Ins. Servs. v. Fallon, 299 Ga. App. 440 (2009) the Georgia Court of Appeals took up the issue of whether a customer/client list was protected under the Georgia Trade Secrets Act, OCGA § 10-1-760. The facts presented at trial showed that Fallon left his job with Wachovia and went into business for himself in the same line of work. Wachovia alleged that Fallon misappropriated Wachovia’s client list and thereafter profited from the list to the Fallon’s benefit and Wachovia’s detriment.

The Court pointed out that in order for a client/customer list to be given protection as a trade secret under OCGA § 10-1-761 the information must

(A) Derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Wachovia sought to obtain relief inter alia under Georgia’s trade Secret Act.

The interesting part of the opinion was the Court’s ultimate determination that because the client list was obtainable from sources other than Wachovia, Fallon could not be said to have missappropriated the information under Georgia law. Specifically, the Court held:

“In order to prevail on its claim regarding misappropriation of this client contact information under the Georgia Trade Secrets Act, Wachovia Insurance must show that the client contact information in its former employees’ Blackberries was a “list of actual or potential customers or suppliers which is not commonly known by or available to the public.” OCGA § 10-1-761 (4). The record shows without dispute that a public website titled “freeERISA.com” contains all of the information about the customers of an employee benefit broker such as Wachovia Insurance, including the name and contact information of the customer’s decision-maker. Indeed, a Wachovia Insurance representative (Benjamin) testified that “all of the employee benefits work that Wachovia Insurance Services does in Atlanta” could be obtained from this website. He described it as “a great prospecting tool to go out and find out who might be writing an account.”

Going forward franchisors and franchisees need to be aware that clients lists that they assume to be protectable under Georgia law might well not be. For if the party who “misappopriates” the client list can demonstrate that the list was readily obtainable from some other source, then the company may not have a colorable claim in Georgia under Georgia Trade Secret Act.