All businesses derive revenues from know-how. No business could get anything done without know-how. Yet very few apply knowledge and time to treat their know-how in a structured way to protect it effectively and build more value.
Fewer still evaluate or formally value their know-how. They are not helped by accountants, lawyers and advisers who respond with generic textbook approaches.
Uninformed treatment of confidential information
In our knowledge economy a big problem is the gap in knowledge about know-how.
The problem is experienced regularly. It arises for example in licensing transactions. How can you effectively use a contract to license know-how to generate fees or royalties if you haven’t first properly defined your know-how?
Even if there is some documentation, the really valuable know-how may not be recorded. It may also not be communicated in any extranet, operations plan or manual. What is recorded and communicated may be arranged randomly making it time consuming to discover quickly.
Due to such obstacles unfortunately a great deal of know-how remains in peoples’ heads and walks out the door when they leave. There are practical, effective and economical solutions to this problem.
The failure to capture and value know-how comes to a head in a business sale. It’s too late if negotiations have already begun. It’s impossibly difficult to ask a buyer to pay you extra for the know-how to be sold if you haven’t already properly defined it. Without predefinition potential bidders cannot easily conduct a due diligence or an inspection.
Those bidders will not get a real sense of what the valued know-how is; nor how it will sustain the continued viability of the business. There’s also the risk for the seller that an astute buyer will acquire the business for a song.
Even though there is a problem textbook-trained professionals can’t help. Accounting standards have a bias against know-how. In simple terms, they pretend it does not exist.
As for lawyers (including those who profess to be specialists in intellectual property), enquiries about know-how almost invariably result in a pull-down menu with just one option – get a confidential information agreement, AKA non-disclosure agreement.
But that is only a part of the proper bigger picture. The numbered list below illustrates how this puts the (document) cart before the (know-how) horse. In other words, to protect and grow the value of your know-how, do much more than just rely on written confidential information agreements.
Practical advice to protect confidential information
Solutions for protecting confidential information under the law can become practical if you following these guidelines:
- IDENTIFY: Precisely identify, define and structure your confidential information.
- DOCUMENT: Document your confidential information to some degree. Otherwise others may claim it is “common sense”, “obvious”, “common knowledge”, or personal know-how and skills that can leave your business when they leave.
- NOTIFY: Place the “Confidential-in-Confidence” notice where appropriate. Document and implement procedures which keep secret your confidential information.
- BE PREPARED: Prepare with steps 1, 2 and 3 above to tell a convincing story to a court about how leaks or unauthorised use of your confidential information will have serious business or personal consequences.
Call Sydney (02) 9269 0229 if you would like to discuss your precise circumstances and needs. We’ll then provided a costed proposal for a package of advice and documents to protect your know-how, confidential information and trade secrets.
We work with clients and attend to the above bullet points. We work with client know-how in the nature of skills, tools, methodologies, systems, workflow, project management or enterprise resource management.
Success stories based on use of confidential information
There are many inspiring industry-specific examples illustrating the way forward. Know-how translates into value the more it is identified, defined, recorded, documented and further developed. We actively do it for clients. Those with franchises do it. Companies providing training services and workshop modules do it. Even educated coaches, mediators, facilitators and advisers do it. So let’s do it, let’s put a value on know-how. (Apologies to Cole Porter.)
- Wine makers apply know-how which can be recorded in methodologies and manuals.
- Scientists and technologists can record know-how in lab notes and research papers.
- Agriculturalists can develop patent-protected products by recording their know-how.
- Telemarketing businesses with high employee turnover benefit from recording their know-how for employees in training manuals, standard spiels and end user guides.
- Finally, foreign architects and engineers now working in China are applying their know-how in return for fees. As China continues on its industrialization path it is acquiring know-how from the West, just as the West acquired it long ago from China.
- The extraordinary 234 metre China Central TV Tower (photo above) on completion will be the home of China’s state broadcaster. Its design involved architect Ole Scheeren, the German partner in Rem Koolhass’s Office of Metropolitan Architecture.
- French architect Paul Andreu applied his know-how to design the recently completed titanium-tinted domed China National Grand Theatre. The photos above are its exterior and its interior.
Avoid courtroom disasters
With little know-how definition or documentation, new clients knock on our door angry that they’ve been ripped off by former employees or former collaborators or partners. Sometimes they arrive with their lawyer-made and signed confidential information contract in hand. Yet the best advice we often give to them is – “Take no court action, swallow your pride, lose your anger and focus on ways of preventing such loss re-occurring.” Months or years later these same clients thank us for having stood our ground and avoided a courtroom disaster.