Confidential information, know-how and trade secrets: which one is which?

Often the terms ‘confidential information’, ‘trade secret’ and ‘know-how’ are used interchangeably. However, each has a specific meaning which can affect the way an organisation controls and exploits that information.

‘Confidential Information’ is the overarching term for information which is confidential to an organisation. ‘Know-how’ is the knowledge of how to do something, and is usually acquired through experience. The Courts in Australia have recognised that know-how forms part of, and is inseparable from, an employee’s acquired or inherent state of knowledge. Know-how travels with an employee. If an organisation wishes to restrain the use of ‘know-how’, contractual restraints are required.

‘Trade secrets’ are a more specialised type of commercially valuable information, regarded as being ‘owned’ by an organisation. Well known examples of trade secrets include the Google search algorithm and the recipe for Coca-Cola. Whether something rises to the level of a trade secret is indicated by factors such as:

  • the extent to which it was known outside the
  • its value to the organisation and to competitors
    should they get hold of
  • the measures taken to safeguard its secrecy

There can be a very fine line between know-how and trade secrets. There are a number of advantages to relying on and exploiting trade secrets, either as an alternative to, or to complement patent protection. These include where research or discovery does not result in a patentable invention, where patent rights have expired or been invalidated, or where a patented invention can be more profitably used with additional information. At least in theory, trade secrets can be protected indefinitely as long as they are kept secret, however they do not protect against independent invention or reverse engineering.

The decision to rely on trade secrets or to seek patent protection should be made early, to ensure that the opportunity to obtain patent protection is not lost. Organisations should ensure they have a good handle on what trade secrets, know-how or other confidential information is held by the organisation and its employees or consultants. This should be identified and captured like any form of intellectual property. Once it has been identified, it can be effectively exploited by way of licenses to use the information, and royalties or licence fees can be obtained.

POF can assist organisations to audit and identify their confidential information, draft contracts to restrain the use of know-how by employees, and license trade secrets and information to be used by third parties.