Know-How

Know-how (from English know how — “to know how”) or a manufacturing secret is the information of any nature(inventions, original technologies, knowledge, skills, etc.) that is protected by a commercial secret regime and can be asubject of purchase and sale or used to achieve a competitive advantage over other business entities.The phrase “know-how” has been first introduced into common practice by the English judicial practice and initially ithas been an expression “to know how to do it.” We fist learned this term, which is familiar to us in the form “know-how,”when it was used in the American judicial system (case “Dizend vs D.Brown,” 1916).On June 14, 1962, pursuant to Resolution of the Council of Ministers of the USSR No. 607 “On Improving Protection ofthe State Interests in the Field of Inventions and on Further Improving the Arrangement of Invention Activities in theUSSR,” the All-Union Association Licensintorg was established, which was focused on the international technologicalexchange with the foreign countries on a commercial basis, which was delegated by the state an exclusive right to selllicenses for technologies abroad.Thus, since 1962, the term know-how has begun to be used in the USSR as well. The conditions of the licenseagreements for the sale of rights to know-how have been formed taking into account international practice and based onthe legislation of the licensee countries. And this was justified, because the know-how concept in domestic legislationhas been absent.In addition, during the Soviet Union this term was used in the license agreements, drawn up by the Council for MutualEconomic Assistance (an intergovernmental economic organization, which operated in 1949-1991. It was established bya decision made by the Economic Meeting of the representatives of Bulgaria, Hungary, Poland, Romania, the SovietUnion and Czechoslovakia. The CMEA headquarters were in Moscow).However, at the domestic level everything was the opposite. During the Soviet period, the legal nature of know-howcontradicted the ideology of the ruling communist system, because, there were no commercial relationships as such, andthere were the rules prescribing to disseminate the achievements in the production field between enterprises, it was atradition to share experience, up to the extent that the achievements of the military industry, which could be used incivilian products, were disseminated widely.So, the following was stated in Resolution of the Central Committee of the CPSU and the Council of Ministers of theUSSR of September 3, 1970 “On a mutual use of scientific and technological achievements by the ministries andinstitutions of the USSR and by the enterprises and organizations subordinated to them”: “To oblige industrial andconstruction ministries and institutions of the USSR to take measures aimed at a radical improvement of the use of scientificand technological achievements of other sectors of the national economy and at a transfer of their own achievements to thesesectors, as well as to increase the responsibility of subordinate enterprises and organizations for the timely and full use of theseachievements.”Subsequently, the term know-how was used in the Soviet legislation and the Russian legislation with the followinginterpretations:a “trade secret” is in the Law of the RSFSR “On Property in the RSFSR” of December 24,1990; a “commercial secret” is inthe Law of the Russian Federation “On Competition and Restriction of Monopolistic Activities on Commodity Markets” ofMarch 22, 1991.In fact, before the collapse of the USSR, there had been no legal protection of manufacturing secrets. For the first time inthe domestic legislation the “manufacturing secret (know-how)” is enshrined in Article 151 of the Fundamental Principlesof the Civil Legislation of the USSR and the Republics, the Supreme Soviet of the USSR of May 31, 1991 No. 2211-1,which established granting the legal protection to the holder of the particular information from the illegal use of it bythird parties and the reimbursement by them for the damages in case of the illegal use of it.Granting the legal protection to the “manufacturing secret” (know-how) as a result of intellectual activities wasintroduced into the legislation of the Russian Federation on January 1, 2008 by the introduction of Part Four of the CivilCode of the Russian Federation.In the Civil Code of the Russian Federation (hereinafter referred to as the C.C.R.F.), Chapter 75 is devoted to the topicrelated to the right to a manufacturing secret (know-how).Article 1465 gives the following definition to the term know-how: A manufacturing secret (know-how) shall be deemed theinformation of any nature (production, technological, economic, organizational and others) about the results of intellectualactivities in the scientific and technological field and about the methods of carrying out the professional activities that has areal or potential commercial value due to the fact that it is unknown to the third parties, if this information is not freelyaccessible to the third parties on legal grounds, and the holder of such information takes reasonable measures aimed atkeeping it confidential, including by introducing a commercial secret regime.

In addition to the above, in accordance with Article 1466 of the C.C.R.F.: The holder of a manufacturing secret has anexclusive right to use it in accordance with Article 1229 of the this Code in any manner, which does not contradict to the law(an exclusive right to a manufacturing secret), including in case of manufacturing articles and implementing economic andorganizational solutions. The holder of a manufacturing secret may dispose of the said exclusive right.Issuing a document for the manufacturing secret (know-how) confirming the exclusive right of the holder of themanufacturing secret to use it is not stipulated in the current legislation.However, the rights to manufacturing secrets (know-how) in accordance with Order of the Ministry of Finance of theRussian Federation of December 27, 2007 No. 153n “On approval of the Regulations on Accounting “Accounting forIntangible Assets” PBU 14/2007” may be included in intangible assets of the organization on the equal basis with othersubject matters of intellectual rights.The validity period of the exclusive right to a manufacturing secret shall last as long as the confidentiality of theinformation constituting its content is kept. The exclusive right to a manufacturing secret shall be terminated for all rightholders (Article 1467 of the C.C.R.F.), since the moment the correspondent information ceases to be confidential.As mentioned above, the holder of a manufacturing secret may dispose of the exclusive right belonging to him. The rightholder may conclude an agreement for the alienation of the exclusive right, according to which he undertakes to transferthe exclusive right to a manufacturing secret belonging to him to another party – the acquirer of the exclusive right tothis manufacturing secret, or the right holder may conclude a license agreement, according to which the holder of theexclusive right to a manufacturing secret (licensor) grants or undertakes to grant to another party (licensee) the right touse the correspondent manufacturing secret within the limits established by the agreement (Articles 1468 and 1469 ofthe C.C.R.F.).It should be noted that the exclusive right to a manufacturing secret created by an employee in connection with theperformance of his job duties or a specific task of an employer (a business manufacturing secret) belongs to theemployer.In the event if the manufacturing secret is obtained during the execution of a contract agreement, an agreement for theexecution of research, development or technological work, or under a state or municipal contract for the state ormunicipal needs, the exclusive right to such manufacturing secret belongs to the contractor (performer), unlessotherwise is stipulated by the corresponding agreement (the state or municipal contract).It must be borne in mind that any person, who has disclosed the information constituting a manufacturing secret (or whohas committed other violations of the exclusive right), including the governmental units (the Russian Federation, asubject of the Russian Federation, a municipal unit) can be held liable for the violation of the exclusive right to amanufacturing secret (Article 1472 of the C.C.R.F.), if its body that had received access to the correspondent information,disclosed such information (Article 14 of the Federal Law “On a Commercial Secret”).The legal protection in the form of a manufacturing secret (know-how) is often used for such subject matters, which,provided there is a patent protection, can be reproduced relatively easily in accordance with the published patentdescription.In addition, a nonpatent form of protection compared to a patent form of protection provides a number of advantages:– the absence of requirements for a mandatory state registration and an official recognition of the protectability of thesubject matters constituting the content of a manufacturing secret (know-how);– an unlimited period of protection (as long as the confidentiality of the information constituting the content of amanufacturing secret (know-how) is kept);– greater freedom in choosing a subject matter of protection (the kinds of subject matters of the patent protection arestrictly defined by the legislation).At the same time, the nonpatent form of protection requires the confidentiality compliance and holding thearrangements to ensure a commercial secret regime in respect of the subject matters of protection.Thus, based on the above legal provisions, the information constituting a manufacturing secret must have a real orpotential commercial value. The real value shall include the costs incurred by the right holder in order to create theinformation constituting manufacturing secrets, as well as to maintain a commercial secret regime and a market value ofsuch information, and the potential value shall be the probable damages that the right holder may incur in the event ofdisclosure or an improper use of such information.It should be borne in mind that the exclusive right to a manufacturing secret shall last as long as the confidentiality ofthe information constituting its content is kept, and therefore there should not be a free access to the informationconstituting a manufacturing secret. The holder of a manufacturing secret (know-how) must take measures to protect theconfidentiality of this information by introducing a commercial secret regime.

The protection of a commercial secret shall be carried out by organizational and legal methods, namely:– the information protection system established by its holder should ensure its effective functioning and it shouldprevent unauthorized dissemination of the protected information;– the state shall guarantee the prevention from an unfair competition by way of the proceedings in respect of thepersons, who have assumed illegally, used or disclosed the information that was a confidential one, including acommercial secret of its holder.At the same time, those guilty must return to the holder of the information its value, determined at the moment of filinga claim for its return, as well as to return or reimburse all income that they have gained or should have gained from thisinformation, starting from the moment, when they have learned or should have learned about the illegal assignment anduse of the information.