How to Protect Your Know-How

Know-how may be the most nebulous of Intellectual Property. Although recordable in any form, it might only exist in someone’s memory. In that surprisingly common scenario, should they suddenly disappear, the know-how also disappears!

Businesses’ know-how (or trade secrets) encompasses any information, skill or expertise they use that is considered confidential. As such, it is protected under the law of confidence. Because less easily defined than other Intellectual Property, like trademarks and patents, businesses often overlook know-how's significance – failing to protect it adequately.

Know-how can be valuable, underpinning the goodwill that determines the business value. Accountants define goodwill as the portion of a business purchase price that exceeds the sum of the net value of assets purchased. In practice, goodwill reflects all intangibles that make the business more valuable than on paper. They include the brand’s “aura”, customer perceptions and loyalty, but also know-how - accumulated business knowledge. Amazon bought Whole Foods Market Inc. in 2017 for $13.7 billion; intriguingly exceeding Whole Foods' asset value by $9 billion. Now, with Amazon rolling out Amazon Fresh stores, the rationale is clearer. Amazon were not just buying a grocery store business; they were also buying how to run one.

Know-how ranges from generic how-to, to the specific – when competitive advantage derives from secret formulae – particular ingredients and processes. Such secrets underpin businesses ranging from niche liqueurs Benedictine or Chartreuse, to household names WD-40 or Coca-Cola. Know-how leaks or misuse could jeopardise such businesses. Because of this, some have formal processes to restrict it to just two or three people.

So, how do you define and protect know-how in your company? How should you secure that when selling or acquiring a business?

Where to start?

Measures to protect Intellectual Property, while always important, will be especially scrutinised during a business acquisition. Identifying and protecting those assets will not only add value to your business but will demonstrate to investors the business is well-managed and governed.

Know-how can accumulate indefinitely, potentially making it harder to deal with, but there are steps you can take:

Identify know-how

You can’t protect your know-how before identifying it. Audit your Intellectual Property, specifically evaluating commercially sensitive information. Ascertain which of it comprises know-how. Generally, this reflects your type of business. It may include tangible material, such as formulas, databases, recipes, patterns or blueprints. It may include less tangible assets such as skills - manufacturing practices or sales techniques. Review all business activities from a know-how perspective so nothing slips through.

Review processes

Information on your know-how should be carefully handled and securely stored. Consider where physical assets are stored and whether they can be accessed and reproduced. Make sure all digital assets are password-protected and accessible only via 2FA. Audit your file-sharing systems. Who can access what information? Who is responsible for security updates? Consider third-party systems also and ensure the business establishes robust processes to respond to data breaches and cyber-crime.

Review contracts

Your know-how has value. Review employee, third-party supplier and customer contracts to ensure know-how is sufficiently protected. Ownership of your business’s know-how should be stated explicitly. Protect trade secret confidentiality with non-disclosure agreements before sharing to third parties. If applicable to your business, diligently register any designs. Because know-how can be indefinite, consider the duration of clauses relating to it so that they outlast its sensitivity.

Employee awareness

Without panicking people through scare tactics, which may be counter-productive, communicate Intellectual Property’s importance with staff: what can or cannot be shared beyond the business. Infringement may have serious consequences. Courts have the power to act decisively and quickly, but as a costly and stressful form of redress, reactive scenarios are better avoided by pre-empting them. Blame cultures exacerbate the risks they purport to prevent because manageable errors are concealed out of fear; open cultures are likelier to catch minor mistakes before they become catastrophic.

Schedule regular IP audits

Protecting your business’s know-how is not a one-off exercise; committing to regular IP audits ensures you remain vigilant. Watch for trademark and registration renewal dates and make sure that you monitor infringements. Plan emergency processes beforehand so that if there is a breach you are prepared to act quickly and decisively.

Because know-how can be complex, and valuable but also business critical, consider investing in a comprehensive legal review to help you protect and maximise value. One day, it could make all the difference.