Know-how vs. Patent in EU and Scandinavia

This is a collection of my notes from an event held because there is a proposal from the European Commission for a universal act of protecting know-how inside the European Union, which I thought I would share.

This shortly describes some of the points of this proposal but more so, describes how to think of know-how and thoughts on how to protect it so that the information is also covered by this act from the Commission, if it ends up being actual law. If you would like to have the slides from the presentation, just send me an email with “know-how” as subject and I will send it your way.

Just for good measure – The information is provided for informational purposes only, and should not be relied on in lieu of professional advice.

What should be considered valuable know-how?

Information that is:

  • Confidential
  • Provides an competitive advantage

Meaning any information that you wouldn’t want to see in the hands of your competitors. This could be anything from the core principles of your business model, to customer lists or whatever you might think gives you a competitive advantage.

The problem with know-how is that it is only really valuable once it is documented. If you have figured some really smart way to manufacture a component that enables you to fabricate it much cheaper than your competitor, then the only way to make everyone follow these instructions is to have them documented. This is where protection of know-how becomes very important. But it is also where low-level precautions can be very efficient.

How does “know-how” differ from patent? With patent you gain the right to commercially exploit an idea. This right is then protected for a number of years and when it runs out everyone can copy your product. If you have patented a product it is illegal to reverse engineer it and of course a competitor can’t come to market with a product that is covered by your patent – or they can – but then you can sue them. But know-how is different. If a competitor is able to for instance by reverse engineering your product, obtaining your “secret” way of fabricating that product, then this is not illegal.

The best, but also must unique example of “know-how” instead of patent is by far the recipe for Coca Cola. This recipe is not patented – if it was it would have been public several decades ago. But it is a very well  kept business- or trade secret.

In protecting “know-how”; if you want to be able to prove misconduct, you need to take steps to mark information as confidential. If you cannot prove that the people handling the information, is aware of the fact that the information is confidential, then you cannot prove misconduct. And equally; if you cannot prove that the information is confidential and not public information, then there is no misconduct.

In Sweden, where the actual law is pretty close to what is proposed from the commission, it is not enough to mark information as confidential, you need to have procedures that describes how that information is reached and how it is protected. It is for instance, not enough to have a file that is freely available in your office building marked as confidential. The information needs to be better physically protected and have procedures describing how it is handled.

An additional problem arises if you need to prove misconduct in court. Because in order to prove that the information is not freely available you can be forced to reveal the actual information and as most hearings are public – then suddenly your confidential know-how can be out in the public.

In the proposal from the commission they are trying to address this by only having the attorneys know the actual trade secrets, but how are they supposed to ignore this knowledge when advising their clients?

Then how do you go about not only protecting but also determining what to keep secret. If you are a new startup then the simple answer would be to keep as much secret as possible. Keep away from revealing anything unless it after deep consideration keeps you from advancing or increasing profits. Make secret the default. Don’t keep from telling people about your endeavour or idea, but keep the details to yourself.

First of all keep information freely between you and your co-founders; if you can’t trust them then you have got a whole lot of other problems. But when you hire people, seriously consider the information they will be working with. What’s the minimum of information they need in order to do their work efficiently. If they will be working with something that you feel border on valuable “know-how” then make the needed procedures to protect this knowledge. Mark it confidential and describe how this information is handled. Don’t go overboard, but remember that you should be able to prove misconduct and procedures describing the handling of this information. And if you are in a competitive environment always keep the thought in the back of your head: “Could the employee easily go to my competitor with this information and gain an advantage?”

Employees sharing of information on social media is a no-brainer – they shouldn’t share anything that could potentially harm your organisation. But what is actually not covered by any of these know-how or trade secret acts, is what is popularly know as big data. This could for instance mean that knowledge gained from searches on Google is not a breach. Meaning that if companies collecting all your search queries can extract your “know-how” or trade secret from them, then it is not considered illegal. Again keep this in mind and make the people handling confidential information aware of this.

Finally a few examples on which thoughts this has given me on protecting know-how in my own start-up. Not that they will all be implemented, I will need to address that once they arise, but they might inspire you.

We will at some point need to employ developers. Because I certainly do plan to escape from coding. These developers will of course need to have access to our code-base, but perhaps there will be some parts of the code that they only need to know by interface. If changes needs to be performed inside these core assemblies – perhaps I should do it or only appoint a single developer who is responsible for this “confidential” code that actually reveals valuable know-how on how we do what we do.

Always keep in mind not to share the “how” – but not be afraid to share the “what”. I am not advocating keeping everything secret in fear of everyone stealing your idea. The actual amount of ideas that have failed because someone stole it as opposed to bad execution is probably rather slim. But on the other hand don’t be ruthless and stupid. You can in most cases share the “what” without the “how”. I believe there is much synergy gained from talking to people about your idea so find a reasonable compromise.

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