In some e-commerce transactions involving know-how payments it is necessary to distinguish whether the consideration for a payment is the provision of services or the provision of know-how (e.g, information concerning industrial, commercial or scientific experience).
Essential hallmarks of “know-how” transactions include:
- “undivulged technical information that is necessary for the industrial reproduction of a product or process……..”;
- imparting of special knowledge and experience by one party to a know-how transaction to the other party so the other party can perform the task or process;
- the transferor of the know-how is generally not required to play any part himself in the application of the process and does not guarantee the results thereof;
- the provision of know-how must be distinguished from the provision of services where one of the parties uses the required skills by performing the task himself for the other party.
Applying the above criteria to e-commerce transactions it is generally agreed that, for example, online advice, communications with technicians, help-desks and use of trouble shooting databases would be regarded as actual services being performed on demand rather than the provision of know-how.
CASE STUDY: KNOW-HOW
A US software company MiniSoftie (MS) contracts with an Indian technology company, OutSourcers AreUs, so that an American software engineer will travel to India to transfer certain technology not known or developed in India which will enable OutSourcers to process BPO transactions more efficiently. This is secret knowledge or expertise developed by MS over many years and is being transferred under non-disclosure conditions and is subject to trade secret protection.
This transaction contains essential elements of the hallmarks described above and will be regarded as provision of know-how by MS to OutSourcers rather than a provision of services.