How to protect the secrets of production (Know-How)

Greetings, dear reader, in this article I will introduce you to such a concept as a production secret, the so-called “Know-How”, and I will try to reveal ways to protect it.

I assume that this article will be especially useful to owners of their own business, and to those who are interested in scaling it up in franchises, because the value of a franchise is often the Know-How.

First of all, let’s understand what is a production secret or Know-How?

The legislation of the Republic of Kazakhstan does not contain the concept of production secrets (Know-How), but refers it to one of the varieties of undisclosed information that constitutes a “trade secret”. Consequently, let’s consider the definition of a “trade secret.

Article 126 of the Civil Law provides that information constituting an official or commercial secret shall be protected if the information has an actual or potential commercial value due to its unknown to third parties, it is not freely accessible on a lawful basis and the owner of the information takes measures to protect its confidentiality.

In other words, we see that in order for certain information to acquire the status of a “commercial secret” and for its owner to have the right to its protection, it must meet the above criteria:

– Have commercial value

– Be unknown to third parties

– It is not freely accessible to third parties (i.e., this access must be protected)

– Its owner takes measures to protect it

At the same time, the legislation establishes the obligation of the owner of such information to comply with measures to protect such information, namely:

– Determine a list of information that constitutes a trade secret;

– Restrict access to it by establishing a procedure for handling this information and control over compliance with such procedure;

– To keep records of the persons who received access to commercial secrets and (or) the persons to whom this information was provided or transferred;

– To regulate relations with employees and counterparties regarding the use of such information;

Let’s look at the example of a franchise.

A franchise usually contains a financial plan for opening a business. It shows how much money is needed to open, what, where, how and for how much to buy, and other information that the franchisor (Franchisor/complex licensor) has gathered from his own years of experience, through trial and error. The franchisee (Franchisee/complex licensee) will use this information to save time and money to start up.

The financial plan describes how to spend an n-th amount of money to start a business with ready-made solutions in a certain field, whether it’s services or goods production from scratch. From exterior and interior design, hiring staff, equipment, to marketing, all the way down to setting up advertising offices.

So, coming back to trade secrets and production secrets, information which may bring or save money (remember one of the criteria – information must have commercial value) and which franchisee did not know (remember the other criterion – information must be unknown to third parties) is a production secret (Know-How).

How does it happen in practice, if everything is not properly executed in time?

If a dishonest counterparty/partner has “cheated” you by introducing and applying your business model at his company, and you have not properly established a trade secret, you have signed a franchise agreement with the Franchisee that is “formulaic”, and you have not properly formalized everything legally, then I am sorry to disappoint you that it is difficult or even impossible to protect the Know-How from theft when it is already quite late.

Why is it important to protect proprietary information that includes trade secrets (know-how)?

Summarizing all of the above, dear reader, the following conclusion can be made. It is not enough to say orally that the information is a trade secret. In order for the owner to have the right to its protection, it is important to comply with all measures to protect such information in your enterprise and as a consequence, to establish the so-called “commercial secret mode”.

If you as the owner of commercially valuable information will not comply with the measures given in the article to protect it, it may lead to risks associated with turning to court to protect your rights in case of their violation by third parties. The court may refuse the claim, referring to the fact that the owner has not taken appropriate measures to protect their own trade secrets.

Therefore, the treatment of a specialist in time, will help save you money, nerves and time.

The lawyers of our Agency will be happy to help you and provide a full range of services on “the establishment of commercial secret” in your enterprise on a “turnkey” basis.

Regards, your lawyer – Dinara Ospanova

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