Know how: an under-considered intellectual property

When we speak of know how we mean that set of practical knowledge and operational skills necessary to perform certain activities within industrial and commercial sectors.

This knowledge is not necessarily protected by an exclusive right, both because it may not be patentable or otherwise protectable, and because the holder may have chosen not to put it under protection.

But there can be no intellectual property without Know-how.

“Knowing how” to research, organise and exploit information and knowledge is a necessary prerequisite of innovation. If a company does not protect its know how, it is doomed to the last rows of the market.

Below we propose an analysis of the genesis of the phenomenon and the possibilities of protecting it as the true and fundamental engine of innovation.

Definition and identification of the boundaries of the phenomenon

To circumscribe the boundaries of Know how with the aim of giving a definition, it is necessary to refer to EC regulation 772/2004 art. 1 letter i).

It provides that know how should be understood as a body of practical, non-patented knowledge deriving from experience and tests.

Moving to our country in search of a first definition, one must turn to Italian Civil Cassation ruling of 15 January 1981 no. 3931 which defines it as “the undisclosed set of patentable or non-patentable technical information, which is necessary for the industrial reproduction as such, and under the same conditions, of a product or a process”.

In this first definition, lacking in detail, reference is made only to know how understood in the technical sense of the term.

Only with a subsequent ruling of the Supreme Court of 25 February 1985, no. 1699, is the concept extended to include also commercial notions concerning the management-organisational aspects of the company.

Two different figures of know how appear: one understood in a restricted sense or having objective character, the other broader.

Briefly, the first consists of that complex of knowledge required in order to produce a certain good, for the implementation of a productive process within the industrial and commercial technique.

These are derived from studies and experiences pertaining to the organisational sector — pertaining to the subject’s personal abilities and capacities. The element of secrecy is introduced, which will characterise the case in question in subsequent evolution.

According to the broader meaning, however, know how would include experiences connected to personal skills or abilities, which however, not being material, cannot constitute a good capable of being transferred. In this first period, know how comes into relevance as a good having autonomous patrimonial relevance only if considered in a strict sense and characterised by secrecy, novelty and transferability to third parties.

In a subsequent ruling of the Cassation (ruling no. 659/1992) the requirements of novelty and secrecy of know how are specified for the first time.

By novelty are meant “the knowledge that brings advantages of technological or competitive order, on the level of production and marketing”; while by secrecy, the knowledge that “is not in the common domain, in the sense that it is not disclosed and its disclosure presupposes an act of grant by the holder, and third parties cannot acquire it except through the said grant, or by creating it autonomously”.

Finally, attention must be drawn to the Supreme Court ruling no. 25008 of 2001, related to the case of disclosure of scientific and industrial secrets (art. 623 c.p.); from its analysis, we can note how the requirement, previously deemed fundamental, of novelty no longer appears to be an essential characteristic to determine the case of know how, unlike secrecy in relation to a “non-interest” in the disclosure of knowledge.

Know how therefore appears as that set of information and knowledge suitable to identify a “know-how to do”, knowledge directed to that specific sector of activity within which the entrepreneur operates and organises their own activity. For this reason it falls within the concept of “industrial applications”, for whose purposes the requirements of innovation and originality are no longer required.

Over the years, therefore, “we have witnessed a gradual broadening of the concept of know how in the economic sense, since case law has come to include in it not only knowledge of a technical nature, but also of a commercial nature, both having objective and subjective nature regardless of secrecy or novelty” (B. Franchini Stufler, Il know-how e la tutela dei segreti d’impresa, Giappichelli Editore, Turin).

EU discipline has gone beyond case law elaboration: in addition to addressing the general defining character, it has provided for the precise definition of the essential requirements as follows:

• Secrecy, understood as non-notoriety of the knowledge and not easy access to the same. When we speak of secrecy it must be understood in the sense “that they are not as a whole… generally known or easily accessible to experts and operators in the sector”, “that they have economic value precisely because secret”, and that “they are subject to adequate measures to keep them such”. Consequently, it is not necessary that every single piece of information be unknown, but it is rather relevant that their set derives from an elaboration by the company: this is how know how acquires additional economic value compared to the individual components that are part of it.
• Substantiality, understood as the usefulness of knowledge for industrial production.
• Identifiability of the information, that is, an exhaustive description of such knowledge so as to allow its connection with the two principles above.

It is therefore possible to conclude that today the phenomenon has well-defined boundaries, although the protection of the Know how good still presents interpretative needs especially in the light of the discipline of the Industrial Property Code.

Legal protection of know how in light of the new provisions of the Industrial Property Code

The term know how usually identifies knowledge of a technical-industrial nature, but it also includes the rules concerning entrepreneurial organisation, product commercialisation, sales techniques, and more generally everything related to company management. This type of know how, the so-called commercial one, allows entrepreneurs to know and use new teachings of technology, with notable savings both in terms of time and investment.

Regarding its protection at a legal and regulatory level, it is necessary to first premise that know how does not fully fall into the category of immaterial legal goods, since it is neither an industrial invention, nor a trademark, nor is it covered by the protection set by copyright law.

In Italy it is not protected absolutely, but its protection comes into play only in the occurrence of certain circumstances, provided for by law or agreed between the parties of the contract that governs it.

Indeed, an important difference must be borne in mind: patented knowledge is protected per se and not in consideration of any merely possible harmful conduct that may occur in the future, while secret knowledge — the kind that pertains precisely to the nature of know how — is protected only in the presence of incorrect behaviour. From what has been said, it emerges that in the absence of unfair behaviour, there is no breach of trade secret.

In order for it to be protected, therefore, the entrepreneur who owns it must put in place safeguarding measures aimed not only externally towards third parties, but above all internally within their working sector — towards their employees and collaborators — by arranging ad hoc structures through the inclusion of specific clauses in the employment contract with their employees in order to maintain the secret, clauses which have the characteristic of post-employment effectiveness, therefore with binding effect and value also for ex-employees, as established by the Cassation with ruling no. 25008/2001.

Among the rules placed to protect know how, we must include articles 98 and 99 of the Italian Industrial Property Code (D.Lgs. 30/2005), which protects it on the same level as a trademark or patent; thanks to this form of protection, in the case of know how breach, there is a true breach of a specifically identified right and it is no longer necessary, as previously happened, to turn to the generic case of breach of competition that concerns the obligations to which the worker is held within the contractual employment relationship (art. 2105 c.c.); and articles 623 and 622 of the Italian Penal Code¹, which instead pertain to the obligation of secrecy — a fundamental characteristic from which know how cannot be set aside.

Article 2105 c.c., which characterises the so-called civil protection, is aimed at safeguarding the employer’s interest in the loyalty and trust of the relationship that is established with their employees.

The loyalty obligation in question is articulated in both the prohibition for the employee to engage in business, both on their own account and for third parties, in competition with the entrepreneur employer, and in the prohibition to disclose news and information concerning the methods of organisation and the methods used for company production.

Article 2105 c.c. concerns the legal protection of the case in question for relationships internal to the employment contract in progress and undoubtedly has a much broader scope compared to what is provided by the discipline of articles 98 and 99 of the IPC, but is nevertheless limited when it provides that its prohibitions can be enforced only against the entrepreneur’s workers.

Article 2105 c.c. governs three hypotheses for which there is violation by the employee/collaborator when this person engages in:

1. competing activity
2. disclosure of secret news
3. use of the same

Such hypotheses are sources of liability that may give rise to dismissal for just cause, which may be followed by the obligation to compensate damages.

The confidentiality obligation concerns all news linked to the organisation and production of the company, which if disclosed could be prejudicial, on the competitive level, to the company itself.

As for the disclosure of information about the company’s know how — still in the context of employment relationships — by ex-collaborators or employees of the same, it has been repeatedly questioned whether such parties — formerly bearers of an employment relationship with the company that owns that know how — should still keep “secret” the information acquired during the employment relationship, or, based on the provision of art. 2105 c.c., should no longer have the title, since the rule refers to employees currently in employment, not to those who had it in the past.

This debate was resolved with ruling 25008/2001 of the Italian Court of Cassation which, as already anticipated above, affirmed the binding post-employment scope of the clauses sanctioning prohibitions and obligations for employees and collaborators.

Consequently, if we are in the case of so-called secret knowledge (articles 98 and 99 of the IPC and articles 622 and 623 c.p.), their disclosure to third parties or simply their use by the ex-employee becomes prosecutable precisely on the basis of what is provided by the industrial property code and by the criminal code.

Analysing in more detail the innovative scope of the provisions of the industrial property code, one can note that the protection recognised to know how is of an absolute kind, since it inserts the figure of know how among industrial property rights and therefore recognises it as having the nature of a legal good.

Indeed, before the entry into force of the IPC, the protection placed to protect the case in question was relative, indirect and fragmentary; therefore the possibility of non-use and employment of know how was recognised only for some specific parties, that is, only for those who had come into possession of the knowledge, given the particular tie that linked them to the know how holder.

In essence, company information was arranged to protect other interests, such as that of loyalty towards the holder of know how, and that pertaining to the free and fair conduct of competition — interests that came into consideration (art. 2105 c.c.) precisely because know how was not considered a right to be protected absolutely, since its protection kicked in only when there was unfair behaviour towards the entrepreneur in a competitive context.

So knowledge was protected in order to prevent disclosure to third parties from constituting an act of unfair competition, conduct considered unlawful and prohibited in itself.

As we said above, the new code of 2005 (IPC) recognises the right of the holder of know how, and “attaches” protection to them precisely as such; consequently anyone, regardless of the behaviour they hold, has the general obligation to refrain from any act that may obstruct the exercise of the right by the holder.

Articles 622 and 623 of the Italian Penal Code then punish respectively the disclosure of professional secret (and therefore protect the generality of secret information — general rule), and the disclosure of industrial or scientific secrets, thus providing a more specific protection compared to the previous article: protection that is based on and has as its object secrets that do not have general scope but specific nature, given by certain knowledge precisely in that sector of activity (special rule).

The articles of the penal code in question concern not the single industrial application but what interests is the procedure that has produced that specific result.

The protection offered by the rules in question concerns, on the side of active subjects, only specific subjects — in particular those who have information or knowledge in function of their profession or activity that they carry out within the contractual relationship.

The protected information is such because it forms the patrimony of utility, knowledge and experience of the company, but above all because it is secret: that is, “as a whole… not generally known or easily accessible to experts or operators in the sector, having economic value precisely because secret” and that “are subject… to adequate measures to keep them such”.

Therefore it is necessary that their set is the result of an elaboration by the company, and it is thus that it acquires that additional economic value compared to the individual elements that go to compose it.

Know how protection does not exhaust itself in the provisions that refer only to internal relations — which see, on one side, the knowledge and information of know how in the entrepreneur’s ownership, and on the other, employees and collaborators who have come to know it by virtue of the contractual bond necessary for the carrying out of that specific sector of production/activity.

The legal protection of the case, indeed, becomes necessary also when this information leaves the internal sphere — anchored in an internal employment relationship — to project itself externally to the company, towards third parties therefore.

When we are facing external relationships, it is important to best regulate the type of relationship that will be established with the third party, given the importance of the knowledge and information being treated or that one intends to treat anyway.

Usually, for the highlighted purposes, reference is made to the licence contract.

Granting of know how to third parties and licence contract

Until now we have seen know how with regard to internal employment relationships in commercial or industrial activity sectors, but the protection of know how is also relevant in relationships with third parties.

With regard to external relationships, such knowledge and information are provided by companies through the stipulation of licence contracts, through which the grantor grants the licensee the right to exploit the technical knowledge of which they have a monopoly, in exchange for the payment of a fee or royalty for a fixed period of time.

For a definition of licence we can resort to the one provided at EU level, according to which patent or know-how licence agreements are agreements based on which a company holding a patent or know how (licensor) authorises another company (licensee) to exploit the licensed patent or communicates its know how to it for purposes related to manufacturing, use and placing on the market.

In essence, the licensor transfers their industrial know how to the licensee.

EU legislation makes a distinction between:

1. pure know how agreements in which the licensor transfers the know-how to the licensee for the purpose of its exploitation in the territory
2. mixed know how and patent agreements in which the licensor licenses a technology including patents in one or more EU Member States

The licensor undertakes to provide the licensee with:

• the technical notions and technology that allow the licensee to produce the goods provided for in the contractual relationship, and all the assistance necessary for the start of production and to make their own production means suitable
• the use licence (exclusive or non-exclusive) for a fixed period of time of the know how and any exclusive rights instrumental to the achievement of the contract’s purpose (e.g. patent on a particular industrial procedure)

The licensee in turn undertakes:

• to pay the consideration for what is received from the licensor, which may consist of the payment of a fixed sum of money or otherwise
• to produce the goods covered by the contract, ensuring certain quality standards and all accessory and instrumental services
• to commercialise the products
• to keep confidential the information received — which, even if not provided for within the licence contract by an appropriate clause, must be considered present as it is connatural to the contract itself and is an inalienable characteristic of know how which cannot be set aside
• the prohibition for the licensee to grant sub-licences or to transfer the licence to third parties; the prohibition of economic exploitation of the same under licence after the expiry of the relationship, or the obligation for the licensee not to use it for purposes other than those provided for in the licence