[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2954 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 2954

 To establish minimum standards of fair conduct in franchise sales and 
       franchise business relationships, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            November 8, 1997

 Mr. LaFalce introduced the following bill; which was referred to the 
                       Committee on the Judiciary

_______________________________________________________________________

                                 A BILL


 
 To establish minimum standards of fair conduct in franchise sales and 
       franchise business relationships, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Federal Fair 
Franchise Practices Act of 1997''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purpose.
Sec. 3. Franchise sales practices.
Sec. 4. Unfair franchise practices.
Sec. 5. Standards of conduct.
Sec. 6. Procedural Fairness.
Sec. 7. Actions by Private Persons.
Sec. 8. Actions by State Attorneys General.
Sec. 9. Effect on Other Law.
Sec. 10. Scope and Applicability.
Sec. 11. Definitions.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress makes the following findings:
            (1) Franchise businesses represent a large and growing 
        segment of the nation's retail and service businesses and are 
        rapidly replacing more traditional forms of small business 
        ownership in the American economy.
            (2) Franchise businesses involve a joint enterprise between 
        the franchisor and franchisees in which each party has a vested 
        interest in the franchised business.
            (3) Most prospective franchisees lack bargaining power and 
        generally invest substantial amounts to obtain a franchise 
        business when they are unfamiliar with operating a business, 
        with the business being franchised and with industry practices 
        in franchising.
            (4) Many franchises reflect a profound imbalance of 
        contractual power in favor of the franchisor, and fail to give 
        due regard to the legitimate business interests of the 
        franchisee, as a result of the franchisor reserving pervasive 
        contractual rights over the franchise relationship.
            (5) Franchisees may suffer substantial financial losses 
        when the franchisor does not provide truthful or complete 
        information regarding the franchise opportunity, or where the 
        franchisor does not act in good faith in the performance of the 
        franchise agreement.
            (6) Traditional common law doctrines have not evolved 
        sufficiently to protect franchisees adequately from fraudulent 
        or unfair practices in the sale and operation of franchise 
        businesses, and significant contractual and procedural 
        restrictions have denied franchisees adequate legal recourse to 
        protect their interests in such businesses.
    (b) Purpose.--It is the purpose of this Act to promote fair and 
equitable franchise agreements, to establish uniform standards of 
conduct in franchise relationships and to create uniform private 
Federal remedies for violations of Federal law.

SEC. 3. FRANCHISE SALES PRACTICES.

    (a) In General.--In connection with the advertising, offering, sale 
or promotion of any franchise, it shall be unlawful for any person--
            (1) to employ a device, scheme, or artifice to defraud;
            (2) to engage in an act, practice, course of business 
or pattern of conduct which operates or is intended to operate as a 
fraud upon any prospective franchisee;
            (3) to obtain property, or assist others to obtain 
        property, by negligently making an untrue statement of a 
        material fact or any failure to state a material fact;
            (4) to discriminate among prospective franchisees on the 
        basis of race, sex, religion, disability or national origin--
                    (A) in the solicitation, offering or sale of any 
                franchise opportunity, unless any distinction between 
                prospective franchisees is related to a program under 
                which franchises are made available to a class of 
                persons who may have been denied franchise 
                opportunities in the past based on suspect 
                classifications including race, sex, religion, 
                disability or national origin; or
                    (B) in the selection of any site or location for a 
                franchise business.
    (b) Misrepresentations in Required Disclosure.--
            (1) In connection with any disclosure document, notice or 
        report required by any law, it shall be unlawful for any 
        franchisor, subfranchisor or franchise broker, either directly 
        or indirectly through another person--
                    (A) to make an untrue statement of material fact or 
                fail to state a material fact; or
                    (B) to fail to furnish any prospective franchisee 
                with all information required to be disclosed by law 
                and at the time and in the manner required.
            (2) For purposes of this subsection, the term disclosure 
        document means either the disclosure statement required by the 
        Federal Trade Commission in Trade Regulation Rule 436 (16 CFR 
        436) as it may be amended, or an offering circular prepared in 
        accordance with Uniform Franchise Offering Circular guidelines 
        as adopted and amended by the North American Securities 
        Administrators Association, Inc., or its successor.

SEC. 4. UNFAIR FRANCHISE PRACTICES.

    (a) Deceptive and Discriminatory Practices.--In connection with the 
performance, enforcement, renewal and termination of any franchise 
agreement, it shall be unlawful for a franchisor or subfranchisor, 
either directly or indirectly through another person--
            (1) to engage in an act, practice, course of business, or 
        pattern of conduct which operates as a fraud upon any person;
            (2) to discriminate among franchisees on the basis of race, 
        sex, religion, disability or national origin;
            (3) to hinder or prohibit, directly or indirectly, the free 
        association of franchisees for any lawful purpose, including 
        the formation of or participation in any trade association made 
        up of franchisees; and
            (4) to discriminate against a franchisee by imposing 
        requirements not imposed on other similarly situated 
        franchisees or otherwise retaliate, directly or indirectly, 
        against any franchisee for membership or participation in a 
        franchisee association.
    (b) Termination Without Good Cause.--
            (1) It shall be unlawful for a franchisor, either directly 
        or indirectly through another person, to terminate a franchise 
        agreement prior to its expiration without good cause for such 
        termination.
            (2) For purposes of this subsection, good cause shall exist 
        only where--
                    (A) the franchisee fails to comply with a material 
                provision of the franchise agreement after notice 
                specifying the default and a 30-day period to cure the 
default, or if the default can not be cured within 30 days, the 
franchisee fails to initiate within 30 days, and diligently pursue 
substantial continuing action to cure the default;
                    (B) the franchisee, without the requirement of 
                notice and opportunity to cure--
                            (i) voluntarily abandons the business 
                        licensed by the franchise agreement, except 
                        that loss or termination of a leasehold for the 
                        business prior to the term of a franchise 
                        agreement by reason of eminent domain, 
                        foreclosure sale, natural disaster or other 
                        termination not the fault of the franchisee 
                        shall not be considered abandonment by the 
                        franchisee;
                            (ii) is convicted of a felony, for which 
                        imprisonment of one year or more can be 
                        imposed, which substantially impairs the good 
                        will associated with the franchisor's trade 
                        mark, service mark, trade name, logotype, 
                        advertising or other commercial symbol;
                            (iii) repeatedly fails to comply with the 
                        same material provision of the franchise 
                        agreement, where the enforcement of such 
                        provision is substantially similar to 
                        enforcement of that provision with other 
                        franchisees; or
                            (iv) operates the business licensed by the 
                        franchise agreement in a manner that creates a 
                        danger to public health or safety; or
                    (C) the franchisor withdraws from the marketing 
                area of the business licensed by the franchise 
                agreement and pays the franchisee reasonable 
                compensation for damages incurred from the shortened 
                term of the agreement and agrees not to enforce any 
                contractual prohibition against the franchisee 
                continuing to engage in the business at the licensed 
                location.
    (c) Mandatory Sourcing of Supplies.--
            (1) It shall be unlawful for a franchisor, either directly 
        or indirectly through another person, to prohibit a franchisee 
        from obtaining equipment, fixtures, supplies or services used 
        in the establishment or operation of the business licensed by 
        the franchise agreement from sources of the franchisee's 
        choosing, except that such goods or services may be required to 
        meet uniform quality standards which are not arbitrarily 
        promulgated or enforced by the franchisor.
            (2) This subsection shall not apply to supplies or services 
        (including display and sample items) that the franchisee is 
        required to obtain from the franchisor or its affiliate, where 
        such goods or services are integrally related to a trademark, 
        trade name, trade secret or patent owned by or licensed to the 
        franchisor or its affiliate, provided that--
                    (A) the supplies or services required are not in 
                excess of the amount the franchisee can reasonably be 
                expected to use or sell in the operation of the 
                business; and
                    (B) the franchisor shall not withhold a 
                franchisee's right to obtain such goods and services 
                without providing a notice of default and a 30-day 
                period to cure the default.
    (d) Post-Term Restrictions on Competition.--
            (1) A franchisor shall not prohibit, or enforce a 
        prohibition against, any franchisee from engaging in any 
        business at any location after expiration of a franchise 
        agreement or after termination of the franchise agreement prior 
to its expiration for good cause.
            (2) This subsection shall not apply to enforcement of any 
        such prohibition where the franchisor, not less than ten days 
        before the effective date of such termination or expiration, 
        offers in writing to purchase the assets of the business 
        licensed by the franchise agreement for its fair market value 
        as a going concern, provided that--
                    (A) the fair market value of such business be 
                determined as if it were to be resold or renewed for a 
                period of years equal to the contract term being 
                offered by the franchisor for new or renewed 
                franchises;
                    (B) the fair market value of such business is 
                ascertained by an impartial appraiser, whose 
                appointment is acceptable to both parties; and
                    (C) any forgiveness of debt shall not be considered 
                a purchase of assets by the franchisor for purposes of 
                this section.
            (3) Nothing in this subsection shall be interpreted to 
        prohibit enforcement of any provisions of a franchise contract 
        obligating a franchisee after expiration or termination of a 
        franchise--
                    (A) to cease or refrain from using a trademark, 
                trade secret or other intellectual property owned by 
                the franchisor or its affiliate, except that the 
                existence of language in the franchise agreement 
                purporting to determine ownership of a trademark, trade 
                secret or other intellectual property shall not be 
                binding upon any court or forum for purposes of this 
                paragraph, but may be considered by such court or forum 
                as evidence of such ownership; or
                    (B) to alter the appearance of the premises and the 
                manner of operation of the franchised business to avoid 
                any likelihood of confusion as to the affiliation of 
                the business with its former franchisor.

SEC. 5. STANDARDS OF CONDUCT.

    (a) Duty of Good Faith.--
            (1) A franchise contract imposes on each party thereto a 
        duty to act in good faith in its performance and enforcement.
            (2) As used in this subsection, a duty of good faith 
        shall--
                    (A) obligate a party to a franchise to do nothing 
                that will have the effect of destroying or injuring the 
                right of the other party to receive the fruits of the 
                contract and to do everything required under the 
                contract to accomplish such purpose; and
                    (B) require honesty of fact and observance of 
                reasonable standards of fair dealing.
    (b) Duty of Due Care.--
            (1) A franchise agreement imposes on the franchisor a duty 
        of due care. Unless a franchisor represents that it has greater 
        skill or knowledge in its undertaking with its franchisees, or 
        conspicuously disclaims that it has skill or knowledge, the 
        franchisor is required to exercise the skill and knowledge 
        normally possessed by franchisors in good standing in the same 
        or similar types of business.
            (2) For purposes of this subsection--
                    (A) the phrase ``skill or knowledge'' means 
                something more than the mere minimum level of skill or 
                knowledge required of any person engaging in a service 
                or business and involves a special level of expertise--
                            (i) which is the result of acquired 
                        learning and aptitude developed by special 
                        training and experience in the business to 
be licensed under the franchise agreement, or the result of extensive 
use and experience with the products or services or the operating 
system of such business;
                            (ii) which is the result of experience in 
                        organizing a franchise system and in providing 
                        training, assistance and services to 
                        franchisees; and
                            (iii) which a prospective franchisee would 
                        expect in reasonable reliance on the written 
                        and oral commitments and representations of the 
                        franchisor; and
                    (B) a franchisor shall be permitted to show that it 
                contracted for, hired or purchased the expertise 
                necessary to comply with the requirements of this 
                subsection and that such expertise was incorporated in 
                the franchise or communicated or provided to the 
                franchisee.
            (3) The requirement of this subsection may not be waived by 
        agreement or by conduct, but the franchisor may limit in 
        writing the nature and scope of its skill and knowledge, and of 
        its undertaking with a prospective franchisee, provided that no 
        inconsistent representation, whether written or oral, is made 
        to the prospective franchisee.
    (c) Limited Fiduciary Duty.--
            (1) Without regard to whether a fiduciary duty is imposed 
        generally on the franchisor by virtue of a franchise agreement, 
        the franchisor owes a fiduciary duty to its franchisees and is 
        obligated to exercise the highest standard of care for 
        franchisee interests where the franchisor--
                    (A) undertakes to perform bookkeeping, collection, 
                payroll or accounting services on behalf of the 
                franchisee; or
                    (B) requires franchisees to make contributions to 
                any pooled advertising or promotional fund to be 
                administered or supervised by the franchisor.
            (2) A franchisor that administers or supervises the 
        administration of any pooled fund described in paragraph (1)(B) 
        shall--
                    (A) keep all such pooled funds in a segregated 
                account that shall not be subject to the claims of 
                creditors of the franchisor; and
                    (B) provide an independent certified audit of such 
                pooled funds within sixty (60) days following the close 
                of the franchisor's fiscal year, which shall include 
                full disclosure of all fees, expenses or other payments 
                from the fund to the franchisor or to any subsidiary, 
                affiliate or other entity controlled in whole or in 
                part by the franchisor.
            (3) While not limiting the ability of any court to identify 
        other circumstances for which a fiduciary duty may also exist, 
        this subsection does not create or extend a fiduciary duty by 
        implication to other aspects of a franchise.

SEC. 6. PROCEDURAL FAIRNESS.

    (a) It shall be unlawful for any franchisor, either directly or 
indirectly through another person, to--
            (1) require any term or condition in a franchise agreement, 
        or in any agreement ancillary or collateral to a franchise, 
        which directly or indirectly violates any provision of this 
        Act; or
            (2) require a franchisee to assent to any disclaimer, 
        waiver, release, stipulation or other provision which would 
        purport--
                    (A) to relieve any person from a duty imposed by 
                this Act, except as part of a settlement of a bona fide 
dispute; or
                    (B) to protect any person against any liability to 
                which he would otherwise be subject under the Act by 
                reason of willful misfeasance, bad faith, or gross 
                negligence in the performance of duties, or by reason 
                of reckless disregard of obligations and duties under 
                the franchise agreement; or
            (3) require a franchisee to assent to any waiver, release, 
        stipulation or other provision, either as part of any agreement 
        or document relating to the operation of a franchise business, 
        in any agreement or document relating to the termination, 
        cancellation, forfeiture, repurchase or resale of a franchise 
        business or as a condition for permitting a franchisee to leave 
        the franchise system, which would purport to prevent the 
        franchisee from making any oral or written statement relating 
        to the franchise business, to the operation of the franchise 
        system or to the franchisee's experience with the franchise 
        business; except that, and only to the extent that, such waiver 
        or release is required as part of the settlement of a bona fide 
        dispute and relates only to the terms of such settlement and to 
        the negotiation of such settlement.
    (b) Any condition, stipulation, provision, or term of any franchise 
agreement, or any agreement ancillary or collateral to a franchise, 
which would purport to waive or restrict any right granted under this 
Act shall be void and unenforceable.
    (c) No stipulation or provisions of a franchise agreement or of an 
agreement ancillary or collateral to a franchise shall--
            (1) deprive a franchisee of the application and benefits of 
        this Act or of any Federal law or the law of the state in which 
        the franchisee's principal place of business is located;
            (2) deprive a franchisee of the right to commence an action 
        (or, if the franchise provides for arbitration, initiate an 
        arbitration) against the franchisor for violation of the Act, 
        or for breach of the franchise agreement or of any agreement or 
        stipulation ancillary or collateral to the franchise, in a 
        court (or arbitration forum) in the state of the franchisee's 
        principal place of business; or
            (3) exclude collective action by franchisees to settle like 
        disputes arising from violation of this Act either by civil 
        action or arbitration.
    (d) Compliance with this Act or with an applicable state franchise 
law is not waived, excused or avoided, and evidence of violation of 
this Act or of such state law shall not be excluded, by virtue of an 
integration clause, any provision of a franchise agreement or an 
agreement ancillary or collateral to a franchise, the parol evidence 
rule, or any other rule of evidence purporting to exclude consideration 
of matters outside the franchise agreement.

SEC. 7. ACTIONS BY PRIVATE PERSONS.

    (a)(1) Any person injured by a violation of any provision or 
standard of this Act shall have a right of action for all damages 
caused by the violation, including costs of litigation and reasonable 
attorney's fees, against any person found to be liable for such 
violation.
    (2) An action may be brought, without regard to the amount in 
controversy, in any United States district court, in any State court, 
or in any other court of competent jurisdiction, before the later of--
            (A) 5 years after the date on which the violation occurred; 
        or
            (B) 3 years after the date on which the violation was 
        discovered or should have been discovered through exercise of 
        reasonable diligence.
    (b) Any person injured by a violation of this Act, or threatened 
with injury by an impending violation of this Act, may bring an action 
in a United States district court, in any State court or in any other 
court of competent jurisdiction to obtain a declaratory judgment that 
an act or conduct constitutes or would constitute a violation of this 
Act and to enjoin a person who has violated, is violating, or who is 
otherwise likely to violate any provision of this Act. In such actions, 
the court may issue a temporary restraining order or preliminary 
injunction to protect the public interest by halting a recurring or 
likely violation of this Act, prior to a final determination on the 
merits, in conformity with the principles governing the granting of 
preliminary relief in other civil actions, except that no showing of 
special or irreparable damage to such person shall have to be made.
    (c)(1) Except as otherwise provided in paragraph (2) of this 
subsection, nothing contained in this Act shall limit the right of a 
franchisor and a franchisee to agree to arbitration, mediation or other 
nonjudicial resolution of a dispute, either in advance or after a 
dispute arises, provided that the standards and protections applied in 
any binding nonjudicial procedure agreed to by the parties are not less 
than the requirements set forth in this Act.
    (2) Any stipulation or provision of a franchise agreement requiring 
use of arbitration or other nonjudicial resolution to resolve disputes 
arising under the agreement shall not apply to bar an action brought in 
a United States district court or in any other court of competent 
jurisdiction pursuant to this section involving a request for damages 
and/or equitable relief for an alleged violation of any provision of 
this Act, except where such request is frivolous or insubstantial. A 
determination of whether a request for damages and/or equitable relief 
is frivolous or insubstantial shall be made by the court in which the 
action is filed at any hearing at which all parties are present or 
represented by counsel.
    (d) The private rights provided in this section are in addition to, 
and not in lieu of other rights or remedies created by Federal or State 
law or regulation.

SEC. 8. ACTIONS BY STATE ATTORNEYS GENERAL.

    (a) Whenever an attorney general of any State has reason to believe 
that the interests of the residents of that State have been or are 
being threatened or adversely affected because any person has engaged 
or is engaging in a pattern or practice which violates any provision of 
this Act, the State, as parens patriae, may bring a civil action on 
behalf of its residents in an appropriate district court of the United 
States to enjoin such violations, to obtain damages, restitution or 
other compensation on behalf of residents of such State or to obtain 
such further and other relief as the court may deem appropriate.
    (b) For purposes of bringing any civil action under subsection (a), 
nothing in this Act shall prevent an attorney general from exercising 
the powers conferred on the attorney general by the laws of such State 
to conduct investigations or to administer oaths or affirmations or to 
compel the attendance of witnesses or the production of documentary and 
other evidence.
    (c) Any civil action brought under subsection (a) in a district 
court of the United States may be brought in the district in which the 
defendant is found, is an inhabitant, or transacts business or wherever 
venue is proper under section 1391 of title 28, United States Code. 
Process in such action may be served in any district in which the 
defendant is an inhabitant or in which the defendant may be found.
    (d) Nothing contained in this section shall prohibit an authorized 
State official from proceeding in State court on the basis of an 
alleged violation of any civil or criminal statute of such State.

SEC. 9. EFFECT ON OTHER LAW.

    (a) This Act preempts State law only to the extent that State law 
is inconsistent with any provision of this Act, in terms of providing 
less protection to the franchisee than provided by this Act, and then 
only to the extent of such inconsistency.
    (b) Nothing in this Act shall be interpreted--
            (1) to alter or relieve any franchisor or subfranchisor 
        from the obligation to comply with the laws or any State, 
        except to the extent that such laws are inconsistent with any 
        provision of this Act; or
            (2) to preclude a State from enacting any law or regulation 
        that affords a greater level or broader range of protections to 
        franchisees.

SEC. 10. SCOPE AND APPLICABILITY.

    (a) Except as provided in subsection (b), the requirements of this 
Act shall apply to franchise agreements entered into, amended, 
exchanged or renewed after the date of enactment of this Act.
    (b) The requirements of section 3 of this Act shall take effect 90 
days after the date of enactment of this Act and shall apply only to 
actions, practices, disclosures and statements occurring on or after 
such date.

SEC. 11. DEFINITIONS.

    For purposes of this Act:
            (1) The term ``advertisement'' means a communication 
        circulated generally by mail, or print media or electronic 
        media, or otherwise disseminated generally to the public, in 
        connection with an offer or sale of a franchise.
            (2) The term ``affiliate'' means a natural or legal person 
        controlling, controlled by, or under common control with a 
franchisor.
            (3) The term ``franchise'' means--
                    (A) any continuing commercial relationship created 
                by a contract or agreement, either expressed or 
                implied, whether oral or written, where--
                            (i) one person (the franchisor) grants to 
                        another person (the franchisee) the right to 
                        engage in the business of offering, selling or 
                        distributing goods or services, in which--
                                    (I) the goods and services offered, 
                                sold or distributed by the franchisee 
                                are substantially associated with the 
                                trademark, service mark, trade name, 
                                logotype, advertising, or other 
                                commercial symbol owned or used by the 
                                franchisor (hereafter ``the 
                                franchisor's mark''); or
                                    (II) the franchisee must conform to 
                                quality standards established by the 
                                franchisor with respect to the goods 
                                and services being distributed, and 
                                operate under a name that includes, in 
                                whole or in part, the franchisor's 
                                mark;
                            (ii) the franchisor--
                                    (I) communicates to the franchisee 
                                knowledge, experience, expertise, know-
                                how, trade secrets or other non-
                                patented information, regardless of 
                                whether it is proprietary or 
                                confidential;
                                    (II) provides significant 
                                assistance to the franchisee in areas 
                                relating to the franchisee's method of 
                                operation; or
                                    (III) exercises significant 
                                controls over the franchisee's method 
                                of operation of the business; and
                            (iii) the franchisee, as a condition for 
                        obtaining or commencing operation of a 
                        franchise, is required to make, or to commit to 
                        make, payment or other consideration to the 
                        franchisor, or an affiliate of the franchisor, 
                        other than payment for commercially reasonable 
                        quantities of goods for resale at a bona fide 
                        wholesale price;
                    (B) a subfranchise; or
                    (C) any commercial relationship entered into in 
                reasonable reliance on representations, either oral or 
                written, that the criteria of paragraph (A) of this 
                subsection will be met.
            (4) The term ``franchise broker'' means a person, other 
        than a franchisor or franchisee, who sells, offers for sale or 
        arranges for the sale of a franchise.
            (5) The term ``franchisee'' means a person to whom a 
        franchise is granted.
            (6) The term ``franchisor'' means a person who grants a 
        franchise or a subfranchise.
            (7) The term ``good faith'' means honesty in fact and the 
        observance of reasonable standards of fair dealing in the 
        trade.
            (8) The terms ``material'' and ``material fact'' includes--
                    (A) any fact, circumstance, or set of conditions 
                which a reasonable franchisee or a reasonable 
                prospective franchisee would consider important in 
                making a significant decision relating to entering 
                into, remaining in, or abandoning a franchise 
                relationship; and
                    (B) any fact, circumstance, or set of conditions 
                which has, or may have, any significant financial 
                impact on a franchisor, franchisee or a prospective 
                franchisee.
            (9) The term ``offer'' or ``offering'' means any effort to 
        offer or to dispose of, or solicitation of an offer to buy, a 
        franchise or interest in a franchise for value.
            (10) The term ``outlet'' means a place of business, 
        temporary or permanent, fixed or mobile, from which products or 
        services are offered for sale.
            (11) The term ``person'' means an individual or any other 
        legal or commercial entity.
            (12) The term ``State'' means a State, the District of 
        Columbia, and any territory or possession of the United States.
            (13) The term ``subfranchise'' means a contract or an 
        agreement by which a person pays a franchisor for the right to 
        sell, negotiate the sale, or provide service franchises.
            (14) The term ``subfranchisor'' means a person who is 
        granted a subfranchise.
            (15) The term ``trade secret'' means information, including 
        a formula, pattern, compilation, program, device, method, 
        technique, or process, that--
                    (A) derives independent 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.
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