PROTECTION OF KNOW-HOW i.e. On The Importance Of NDAs

Enterprises, apart from movable or immovable property, also possess intangible assets and know-how can be such a resource. Global technology companies are in a constant race to acquire the best know-how, the value of which sometimes far exceeds the value of the products and devices to which it pertains. Examples of such companies include Asseco and Amazon, and thanks to operations on international markets, such companies gather comprehensive, unique experiences that create know-how. It certainly adds value to their customers.

Know-how – what is it?

There is no strict definition of know-how in the Polish legal system. In the Personal Income Tax Act (Article 5a (34) (c)) there is only a mention that defines know-how as being: ‘the equivalent of documented knowledge (information) suitable for use in industrial, scientific or commercial activities (know-how)’. Another article of the same act (Article 29 (1) (1)) indicates that know-how is ‘information related to experience gained in the industrial, commercial or scientific field’.

Bearing the above in mind, in order for the information to be defined as know-how, it must meet the following conditions: confidentiality, relevance to the process of providing a service or production, and appropriate documentation.

Know-how and trade secrets

Know-how often appears in the context of trade secrets. These terms have many common elements, but these should not be used as synonyms. Trade secrets are a broader concept. The protection of a trade secret is not necessarily the same as protection of know-how. Trade secrets (apart from know-how) also include information such as the company’s assets or its financial liabilities; breaches of a trade secret are not uncommon.

‘Trade secret’ is defined in Art. 11 Sec. 2 of the Act on Combating Unfair Competition as ‘technical, technological or organisational information of a company or other information having economic value, which as a whole or in a specific combination and set of its elements are not commonly known to people who usually deal with this type of information or are not easily accessible to such persons, as long as the person authorised to use the information or dispose of it has taken all due diligence to keep it confidential.”

How to protect know-how?

Without doubt, one of the basic principles that should be followed by an entrepreneur – especially in the technology or production industry – should be the protection of commercial and financial information, information about the company’s strategies, customer databases, etc. The protection of trade secrets, and in particular know-how, allows the company to maintain a certain position on the market and its competitive advantage. Proper management of the information base, e.g. data about customers, and the use of information about their behavior, which could significantly affect or indeed provide an advantage over competing companies, is crucial. In the case of technology and production companies, the production process consists of experience, knowledge and expenditure which allow the entrepreneur to use information in a unique way, so it comes as no surprise that entrepreneurs want to protect this type of information.

Disclosure of information as an act of unfair competition

Disclosure of know-how or trade secrets without the consent of the entrepreneur will be treated as an act of unfair competition. According to Art. 23 of the Act on Combating Unfair Competition, in this case there is a fine, restriction of liberty or imprisonment for up to 2 years. Depending on the circumstances of the act of unfair competition, the court will also be able to order the person who committed the act to redress the damage or prohibit him in future from holding a specific position, performing a specific profession or conducting a specific business activity. The entrepreneur also has the option to claim compensation in general terms, pursuant to Art. 415 of the Polish Civil Code (basically, anyone who causes damage to another through his own fault is obliged to repair it).

Non-disclosure agreement – what is it?

The most important issue in the field of know-how protection is to ensure the security of information flow both inside and outside the company. Usually, appropriate provisions are made for this purpose, including in civil law agreements, separate non-disclosure agreements (NDAs). Such agreements are aimed at specifying mutual obligations in the context of the transfer of confidential information. In industrial and technological companies, access to confidential information most often has a certain group of employees employed on the basis of employment agreements or civil law agreements (contract-mandate or contract for specific work). Confidential information is used by these people, for example, to carry out work on new technologies. Often, several companies cooperate within one project.

Essential elements of the NDA

There is no specific NDA template. Often the content of such an agreement depends on the entity with which it is concluded or on a specific project.

The NDA should first of all contain an adequately described context for its conclusion, which most often appears in the preamble.

This type of agreement should define exactly what confidential information is. Often in such an agreement you can find a reference to Art. 11 Sec. 2 of the Act on Combating Unfair Competition, although the parties may also extend these definitions. The agreement should indicate what information will not be covered by the obligation of confidentiality, as well as decide whether the obligation of confidentiality applies to only one or both parties to the agreement.

There should be a provision in the NDA that entitles the party receiving confidential information to pass it on to, for example, employees or associates. It is also necessary to specify for how long the parties to the agreement will be bound by the obligation of confidentiality. Another important element of the NDA is the provision on contractual penalties. It happens that in practice it is very difficult to prove the amount of damage. The reservation of such a penalty relieves the obligation to show any harm to the disclosure of confidential information. Moreover, the parties may, in the NDA, reserve the right to claim damages in excess of the reserved contractual penalties, if the damage exceeds the value of the penalty imposed.

Industrial and technology companies should remember to enter NDAs. The initiative to conclude such an agreement is mainly to point out that the information provided should be protected. Above all, however, by concluding such an agreement, it is possible to prevent possible breaches, and in the event of breach of know-how – effectively pursue claims for damages.

Author:

Monika Gaczkowska, associate, WOLF THEISS

Last Updated on February 2, 2021 by Karolina Ampulska