by Chebet Koros

A tech invention may be protected through a patent, trade secret or know-how. In most cases, this innovation is first kept a secret to gain an advantage over others prior to registration and communication to the public. Amazon’s one-click sale and Google’s algorithm have been built on the companies’ confidential information. These companies’ commercial confidential information has subsequently birthed patent, industrial and trademark rights. The essential component in a successful business is that which acts as a magnetic force pulling in clients from competitors. The company’s unique process, design, business model, database, strategy among others are key components on which a business maintains its competitive advantage. Several companies, outside the tech space, like Coca-Cola and KFC are known to take extreme measures towards protecting their secret recipes resulting in their economic success.

Confidential information, trade secrets and know-how are often used interchangeably, though they have different meanings. ‘Confidential information’ is an umbrella term that refers to an organisation’s information which is kept secret and protected by a breach of confidence action. While there is no uniform definition of a ‘trade secret’, it is commonly understood to be commercial confidential information that a business uses to obtain an advantage over its competitors. Confidential information in its documented self is ordinarily ineffective without some form of technical assistance as to how it works; the know-how.

Know-how is therefore also described as ‘a licence of confidential information.’ The EU competition law defines know-how as a “package of practical information obtained from experience and testing which is secret, substantial and identified”. This article focuses on the protection and commercialization of know-how which includes technical processes of manufacture or operation. It also includes the skills, expertise and experience obtained by an employee. The essential component of know-how is its confidential nature. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement) defines undisclosed information as that which is not easily known to others within the field of the said information; holds commercial value for its secrecy; and has been kept secret by the holder through all necessary measures.  The burden of proof therefore falls on the holder of the know-how to prove that reasonable steps have been taken to maintain the secrecy of the information.

Nature of Know-how Protection

According to common law, the main legal basis for protection of secrets is an equitable obligation of good faith or fairness. This is however limited by three principles. Firstly, protection will only apply to the extent that the information is confidential; secondly the information must be useful; and lastly public interest may outweigh the protection of confidential information. The duty of confidence usually arises from a contractual relationship. Know-how may be protected by express contractual terms such as in a non-disclosure agreement, or by implied contractual terms as in an employment contract. The obligation to uphold confidence is however not limited to cases where parties are in a contractual relationship. For example, where a third party receives information from a person under the duty of confidence, knowing that the person disclosing has breached their duty of confidence. As know-how is not a property right like copyright, patents or trademarks, it does not fall under the rules of the classic intellectual property rights. A know-how license is therefore used to effectively commercialize or monetize the know-how. However, no proprietary interest is transferred but a right to do with the information what would otherwise be unlawful is granted after the payment of license fees.

The Benefits of Know-how Protection

Know-how protection offers the incentive to create and develop new methods and processes. It also ensures that an innovator recoups their investment on the creation of full-proof systems. A know-how license offers protection in the case where an innovation does not qualify for registration as a patent or design right. This licence similarly complements a registerable patent in offering know-how regarding the most efficient way of exploiting the patent, information that would be excluded from the patent application. Small and medium-sized enterprises also value the protection afforded to their know-how as an avenue to preserve patentable innovations whilst securing investors to foot the cost of patent registration.

Scholar J. Pooley argues that protection creates a sense of security for an employer to share know-how with their employees with an obligation of confidence. This dissuades any fears of misappropriation of information which would otherwise lead to the hoarding of information and limit innovation. Another benefit of know-how underlying a successful technical or commercial process is the assurance that it will yield quick results in less research and development enabling faster entry into the market and subsequent greater economic benefits.

The strength of the know-how licence will depend on the certainty of the information to be licensed. The value of the know-how licence will be pegged on the degree of exclusivity granted with an exclusive licence being negotiated for higher fees. The fact that know-how is unregistered coupled by its confidential nature requires the use of a non-disclosure agreement (NDA), which acts as the licencor’s first line of defense. An NDA’s role is two-fold as it will provide protection of the know-how to be licensed as well as formally communicate the obligation of confidence imposed to the recipient by the discloser. In the case of breach of a know-how licence agreement, enforcement can only be as against parties in a confidential relationship. The courts have determined a four-step test to analyse the breach of confidence. First, the information must have the necessary quality of confidence about it, as described before. Secondly, that information must have been disclosed in circumstances importing an obligation of confidence. Thirdly there must be an unauthorized use of that information to the detriment of the party disclosing. Lastly, the know-how must be identified with precision in any action to enforce. While an aggrieved party may opt to institute a civil suit in court, most dispute resolution matters involving know-how are settled at mediation or arbitration to protect the confidentiality of the information.

Sources:

Hull: “The Licensing of Trade Secrets and Know How” in “Research handbook on Intellectual Property Licensing” (Ed Jacques de Werra 2013)

James Pooley, ‘TRADE SECRETS the other IP right’ (WIPO Magazine, No. 3 June 2013) http://www.wipo.int/wipo_magazine/en/2013/03/article_0001.html

The TRIPS Agreement is Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization [1994], Article 39

John Hull, ‘Trade Secret Licensing: The Art of the Possible’ (2009) 4 Journal of Intellectual Property Law & Practice 203.

Michael Risch, ‘Why Do We Have Trade Secrets’ (2007) 11 Marq. Intell. Prop. L. Rev. 1www.wipo.int/edocs/mdocs/sme/en/wipo…2…/wipo_smes_lhe_2_07_topic04.ppt