les Nouvelles February 2024 Article of the Month: 
Commercialising Trade Secrets And Know-How

Featured in the December 2023 edition of les Nouvelles

Jake MarshallJake Marshall

Carpmaels & Ransford LLP
London, England
United Kingdom


On 19th September 2023, LESI’s Patent & Technology Licensing Committee hosted a webinar that brought together industry experts to discuss their experiences of using undisclosed information (such as know-how and trade secrets), and how to protect and value this information during commercialisation. On the panel were Roberto Dini, Metroconsult; Subodh Kumar, Tata Consultancy Services; Matthieu Lebrun, Sanofi; Jennifer Pierce, McCarthy Denning; Federico Pogliani, Pirelli; Munish Sudan, Tata Steel; and Fernando Da Cruz Vasconcellos, Valuation Consulting. This article provides an overview of the key discussion points and insights shared during the webinar.

What Constitutes Undisclosed Information?

The webinar considered undisclosed information in its broadest sense, from recorded and non-recorded information to employee knowledge, physical skills and know-how. For the panellists, this covers any previously undisclosed information which is necessary for commercial engagement. Subodh Kumar of Tata Consultancy Services said that in the software development industry, for example, this includes skills and sector-specific knowledge (which are not always documented), which are important for the actual functioning of a software product. Munish Sudan of Tata Steel said that in the manufacturing industry, know-how includes business critical information that is key to output efficiency, such as where to source materials and customer preferences.

The reason this information is so valuable, Roberto Dini of Metroconsult explained, is because of the huge time and resources required to develop it in the first place—this can be particularly valuable for a company looking to move into a new market with specialised or bespoke manufacturing requirements and wanting to get their products on sale as quickly as possible. Matthieu Lebrun of Sanofi highlighted that, with the adoption of AI and machine learning, companies are finding new uses for their data/information, thereby making undisclosed information even more valuable.

Employee Know-How

The panellists all agreed that employee expertise accounts for a significant part of a company’s know-how. While training can provide employees with relevant skills, the nuanced expertise and practical insights that are only gained through experiential learning are difficult to document, replicate and protect. Jennifer Pierce of McCarthy Denning shared a story about a client whose only competitor set up a new factory a few kilometres away from the client’s factory. The introduction of competition for staff in the local market and the risk of losing employees (and their skills) to their competitor quickly made them realise the importance and high value of the know-how encompassed in their workforce.

Employee skills are especially difficult to protect from a legal standpoint, with Jennifer Pierce noting that this is the area where most of the litigation in respect of know-how arises. In many countries, workers have the right to move to another employer and to take their general knowledge and skills with them. It is important that businesses put in place incentives and organisational measures to retain skilled employees and protect information when they leave. Subodh Kumar of Tata Consultancy Services noted that one of the challenges in the software industry is the mobility of skills and knowledge into inter-related projects. Licensing of know-how is generally a long term project, whereas a lot of technical staff are employed on short term contracts and rotated between teams. Therefore, businesses need to consider the origin of licensed know-how and have warranties and indemnification in place to prevent know-how from being misappropriated.

Subodh Kumar added that the intangible value derived by the skills of employees is intrinsic to the development of software and a key differentiator in business engagement. The skills of a knowledgeable worker in the software industry are the ability to articulate a business problem and resolve it through a creative and effective solution expressed in the form of “machine understandable language or code—which we understand.” This is a manifestation of know-how and an integral component in transferring business value.

How to Commercialise Undisclosed Information

The first step in commercialising any undisclosed information from the licensor’s perspective is identifying clearly what that information is and, to the extent possible, limiting the amount of undisclosed information that will be provided to licensees. Matthieu Lebrun explained that in the context of a platform technology licence, for example, this means avoiding blanket grants of “all know-how” relating to the platform and instead listing the specific undisclosed information that is relevant to the licensee’s proposed activities (which is perhaps easier to do in highly regulated sectors like the life sciences industry where product information is well documented). Another way to approach this, suggested Federico Pogliani of Pirelli, is to describe the knowhow by reference to the concrete benefits that a licensee can derive from its implementation. For example, if the know-how relates to making a mixture of ingredients to achieve a particular outcome, don’t describe the know-how by reference to the mixing process, but rather the outcome of the process (e.g., the overcoming of a particular technical issue).

The initial disclosure of know-how to potential licensees needs careful consideration. The panel agreed that while no disclosure of know-how should take place without an NDA, this is often challenging to enforce in practice, since parties may be reluctant to commit to an NDA or a wider agreement without some knowledge of the sort of information that will be disclosed. For some, a way around this could be a very limited initial disclosure focused on the results or benefits that the licensee may enjoy from the implementation of the know-how. Another option may be to use a third party expert to examine the know-how and report to the potential licensee.

The panel went on to explain that combining undisclosed information with other rights can help to protect licensors and to increase the overall value of the rights being licensed. These other rights may be legal rights, such as data exclusivity, or may even be rights relating to physical property such as the supply of genetic material. Combining patents with knowhow is common across many industries, particularly in circumstances where the effective implementation of inventions requires knowledge that is not disclosed in the patents. The panel also pointed out that a strategic combination of patents and know-how can be deployed to gain a royalty stream that goes beyond the term of the licensed patents.

Subodh Kumar stressed that, in his view, a successful IP strategy to maximise business value is all about provisioning know-how together with a patent licence and that know-how is well utilised through a practical demonstration of a technique technology on how skilfully, effectively and resourcefully a product can be processed or manufactured, or a specific functionality can be deployed in a software delivery environment.

On a more practical level, once it’s clear what undisclosed information and other rights are going to be licensed, the parties invariably need to agree on the process for transferring that information to the licensee. This could be as simple as transmitting the relevant data, or it might necessitate the provision of consultancy services/technical assistance by the licensor. The panel remarked that defining the scope of the technical assistance services can be challenging as it can be a huge burden for the licensor. Consideration needs to be given to the experience and skills of the personnel involved (i.e., how hard it is to get the licensee’s personnel up to speed), the subject matter of the training activities, the number of people to be trained and the duration of the training.

What Should Licensees Investigate?

From a licensee perspective, it is crucial that a prospective licensee is equipped with skilled personnel to conduct a comprehensive due diligence process on technical aspects of the information to be licensed and that the due diligence process itself is duly regulated and formalized. This includes a virtual data room with a dedicated area for Q&A, limited access granted only to necessary technicians, cryptography, and traceability of the accesses. Matthieu Lebrun added that it is important to include formal Q&A sessions in the due diligence process and to ensure that all relevant inventors/ know-how creators are present. In some instances, it may be worth recording these Q&A sessions and making them part of the know-how items to be licensed.

Licensees should analyse the results or benefits being represented by the licensor when conducting due diligence, while also considering the other types of intellectual property rights and other legal rights that they might need.

In some industries it is also common to carry out testing as part of the due diligence process. In manufacturing, this could include testing specific raw materials since there can be a lot of variation in source materials which could impact results. In the life sciences industry, Material Transfer Agreements (MTAs) are often used to allow licensees to run pre-agreed experiments for the purpose of ensuring that the technology will deliver the expected results.

Valuing Know-How

When valuing a company’s know-how, Fernando Da Cruz Vasconcellos of Valuation Consulting said he generally starts with the overall value of the company (or business opportunity); including both its tangible and intangible assets and the market in which it operates. These intangible assets may not all be disclosed in the company’s financial or public accounts, so it is important to talk to senior management in order to clearly identify all of the most important intangible assets and to understand how they interrelate with the company’s products and services, as well as with other IP rights. Once these are identified, Fernando seeks to confirm ownership of those assets (e.g., is all the know-how vested in the company, and how well is it documented and managed). The next step is to consider the importance of each asset and rank them in terms of overall importance to the business and its future business plan and overall profitability expectations, e.g., software, patents, proprietary know-how, clinical data, etc.

Once ranked, valuations are based on International Valuation Standards and on a combination of evidence- based approaches such as the cost approach (based on, for example, establishing the cost of replacing the asset), the market approach (identifying market comparators for similar transactions), the future income approach (using a financial model to calculate the net present value of future cash flows), as well as the real option approach or advanced modelling approaches using Monte Carlo simulations.

Fernando explained that all assets can be defined as sequences of future cashflows, which could be positive, negative or zero. He noted that one needs to analyse the likelihood of achieving the revenues, profits and cashflows and to then take into account time and risk, two key parameters in determining value in finance. For specific know-how, he explained that one needs to know what cashflows are attributable to that knowhow and the probability of achieving those cashflows in the future. How does that know-how support the company’s profits and what part of those profits (or profit margin percentage) can one really attribute to knowhow? Once one is able to understand that potential future cashflows of an asset together with an assessment of risk (and the time value of money), one is able to estimate the value of the asset, accepting that it is not an exact science.

Fernando emphasised that one should try to support all assumptions in the valuation with evidence and facts where possible. He stated that it is also very important to remember that valuation is time-dependent and that it consists of two main elements: (1) the narrative, data, assumptions on the business opportunity and IA / IP assets (i.e., the “story”); and (2) the data, assumptions and calculations of the financial figures and valuation (i.e., the “numbers”), and that these should go hand in hand. Preparing your valuation arguments in advance will only improve a business’s position in licensing discussions and negotiations.

In the life sciences industry, Matthieu Lebrun pointed out that a key valuation element is the time spent on developing a particular product. Therefore, one way to value product-specific know-how is to determine how long it took to develop to its current stage and to assess how long it would take to re-create it. This amount of time, multiplied by the standard development cost of the industry, can provide the basis for a financial discussion. Another key factor is the competitive advantage that is provided by the licensed know-how, which normally translates to a larger market share and higher revenues.


While the use and application of know-how clearly differs from industry to industry, the overall message of the webinar was clear—know-how is a crucial commercial asset, and it must be protected at all costs. There will always be risks involved with managing and licensing know-how, but with careful preparation, businesses can leverage their valuable information while minimizing the risks of disclosure. ■

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