It is a truism but nevertheless bears restating that the general obligations of both the franchisor and the sub-franchisor, developer or franchisee are central to the success of the whole venture.

The franchisor

The franchisor's obligations apart from making the initial grant will be to keep the sub-franchisor, developer or sub-franchisee fully appraised of developments in the franchise system and to provide a 'trouble-shooting' service to assist the sub-franchisor, developer or sub-franchisee in acclimatising the franchise to the territory. The main difference between domestic unit franchises and Pan European development/master franchise agreements is that due to the distances and the linguistic and cultural differences involved, the Pan-EU franchisor is not always able to operate in such a 'hands-on' fashion. For example, it will not always be in a position to assist the sub-franchisor developer, or sub-franchisee with advertising or marketing. It is essential that the franchisor does not take on greater obligations than it can fulfil, and carefully appraises itself of what it can and cannot do in the particular territory in question. A British franchisor will, for example, be able to take on substantially more obligations in Eire than in Greece which is further away and where the social, cultural, legal and linguistic differences are so much greater.

Training

Training will, in any event, be a necessary obligation imposed on the franchisor. Without proper training sub-franchisor, developer and a sub-franchisee cannot possibly function in an acceptable manner. The franchisor must therefore carefully think through how to approach this issue. It will usually involve bringing a number of the franchisee's, subfranchisor's or developer's key employees to the franchisor's home territory (or another well-developed territory) and giving them intensive training for a period of several months. McDonalds' famous Hamburger University is a good example of highly developed training facilities where franchisees, sub-franchisors and developers receive intensive training in the operation of the franchise, usually in the franchisor's home territory. McDonalds are now also establishing its universities in other well-developed territories such as the UK and Japan. This intensive training should then be supplemented by 'on-the-spot' training in the new territory under the auspices of one of the franchisor's senior operational managers. There is, of course, no set rule as to how long the manager should be seconded abroad but it is suggested that it should be for at least 6 months - indeed l8 months is not unknown in key territories. This should also be supplemented by periodic visits from the franchisor to help iron out any problems that may arise.

The operations manual

The operations manual is also, of course, central to the training process and, as in domestic franchising, the franchisor must undertake to develop the system continually and update the manual on a regular basis. Translation of the manual into the territory's native languages is essential, and the franchisor must avoid the tendency to think that the whole world speaks and reads fluent or near fluent English or other language. The manual is the touchstone of the franchise system and must therefore be in an easily understandable form for the franchisee, sub-franchisor and developer and their employees. Great care must be taken to ensure that the translation is of a very high quality, and the best way to avoid subtle but important mistakes is to employ a competent professional translator - and then to cross check the translation. Different linguistic nuances are often difficult to detect on a first reading but can lead to operational differences and confusion.

It is important to ensure that the translation is done properly since cutting corners can lead to grave mistakes. It must also be ensured that the copyright in both the original and translated manual vests in the franchisor.

Confidentiality and non-competition restrictions

When entering an overseas market, no matter which approach is taken, the franchisor is extremely vulnerable. Today's partners can very easily be tomorrow's competitors. In such circumstances protecting intellectual property rights will not be enough - the franchisor should also ensure that secrecy of any know-how is protected and that sub-franchisors, developers, franchisees and their employees are not free to compete with the franchisor either during or after the term of the franchise agreement.

Confidentiality

A franchisor will be forced to disclose a considerable amount of confidential information to each of its sub-franchisors/developers/franchisees and sub-franchisees and they in turn will have to disclose some of that information to employees. The franchisor therefore needs to make quite sure that it has done all that it possibly can to prevent these parties from disclosing the confidential information and/or using it to compete with the franchisor.

The only way to achieve this is for the franchisor to receive a direct confidentiality and non-competition undertaking from each of its sub-franchisors/developers/franchisees and sub-franchisees. These must agree that they in turn will obtain similar undertakings from their employees (and where appropriate, their franchisees) and enforce those undertakings if required to do so.

Once an employee has left, he may not disclose any genuinely confidential information which he might have obtained while working. In practice, this is a very difficult rule to enforce. It may be hard to prove that any employee is using secret information or disclosing it to others.

Similar considerations will apply to the sub-franchisors/developers/franchisees and sub-franchisees.

In any event, the courts have to be convinced that the information which has been disclosed is genuinely secret. Merely labelling something as 'secret' will not do. For example, it is no use labelling a recipe as a secret recipe if the ingredient list and the method is set out in a poster which is on the wall of the franchise restaurant's kitchen, particularly if members of the public can easily read it from the restaurant area. It would be hard to convince a court that it was a genuine secret if thousands of employees knew it. At some stage, a court will decide that the matter is no longer secret and has become public knowledge and not through the fault of the franchisee.

Non-competition

Due to the difficulty of showing that secrets are genuine and that they have been disclosed, franchisors frequently attempt to get round the problem by putting in specific non-competition clauses. That is to say, clauses which oblige the franchisee not to operate a competing system within a certain period after the termination of the franchise agreement or within a certain radius. The enforceability of such clauses varies greatly.

Great care has to be taken drafting a restrictive covenant because, if it is drafted too widely, the court will refuse to enforce the whole covenant.

For example, a restriction on operating a competing restaurant within a one mile radius of an existing restaurant might well be reasonable in a small town but would be wholly unreasonable in central Rome. A restriction might well be reasonable if it could be shown that it was almost certain that trade secrets were being used in order to operate the competing business.

Rather than a non-competition clause, which the courts do not like, a franchisor may be able to achieve similar ends by prohibiting former franchisees and their employees from poaching customers and from enticing staff. The object is to prevent the former franchisees or ex-employees from using their personal influence over customers or employees to the disadvantage of the franchisor. This type of restriction may be particularly useful if the former franchisee is to be allowed to continue to exploit the franchise in a limited territory rather than a full scale termination. There must, however, be a legitimate reason for restricting competition. It would not be reasonable to restrict an employee from contacting old customers when, in his old job, he had no contact with customers anyway.

Courts will not enforce restrictive covenants if they run for too long.

Protection of confidentiality and term and post-term restrictions on competition are issues that the franchisor must consider very carefully before finalising the form of a franchise or development agreement. Local laws may greatly restrict the scope and enforceability of such clauses and it is therefore essential that timely advice is taken from experienced local lawyers.