For every patented invention in a business, there are typically dozens of pieces of unpatented technology and know-how that contribute to competitive advantage. Manufacturing processes refined over decades. Configuration expertise for complex systems. Recipes and formulations that are deliberately not patented (to avoid disclosure). Engineering techniques passed between generations of practitioners.
Under IFRS 3, unpatented technology and know-how is classified as a technology-based intangible asset. It is recognisable when it can be identified (either through contractual rights, such as confidentiality agreements, or through separability — it can be transferred, sold, or licensed) and when it has measurable fair value.
In many acquisitions, unpatented technology represents more value than the patent portfolio because it encompasses the practical knowledge needed to actually implement, manufacture, and deliver the patented inventions.
| Category | Examples | Protection Mechanism |
|---|---|---|
| Manufacturing know-how | Process parameters, yield optimisation techniques, quality control methods | Trade secret, NDAs, employee agreements |
| Formulations and recipes | Chemical formulations, food recipes, material compositions | Trade secret (deliberately not patented) |
| Engineering techniques | Design methodologies, testing protocols, integration approaches | Documented procedures, restricted access |
| Operational expertise | Deployment procedures, troubleshooting guides, maintenance protocols | Training materials, internal documentation |
| Configuration knowledge | System setup parameters, optimisation settings, calibration data | Restricted access, employee agreements |
Unpatented technology is often more commercially valuable than patents because it represents the practical, accumulated knowledge needed to run the business. Coca-Cola's formula, Google's search algorithm, and KFC's recipe blend are all examples of know-how that their owners deliberately chose not to patent — precisely because trade secret protection can last indefinitely, while patent protection expires.
Businesses face a strategic choice: patent their technology (gaining strong but time-limited protection with mandatory public disclosure) or keep it secret (gaining potentially indefinite protection but with the risk of independent discovery).
For valuation purposes, this strategic choice affects both the useful life assumption and the risk profile. Patents have defined expiry dates; trade secrets can last indefinitely but carry the constant risk of leakage or independent discovery.
The cost approach is often the most practical method for unpatented technology because the development costs are typically documented:
A chemical manufacturer is acquired with proprietary formulation know-how for 200 speciality compounds. The formulations were developed over 30 years at an estimated cumulative R&D cost of £45 million. The replacement cost — what it would cost a new market entrant to develop equivalent formulations using current technology — is estimated at £28 million (lower because modern analytical tools accelerate development). The know-how is valued at £28 million using the replacement cost approach.
Where unpatented technology enables a measurable competitive advantage — higher yields, lower costs, superior product quality — the income approach captures the incremental profit:
What does the know-how enable that competitors without it cannot achieve? Higher manufacturing yield, lower defect rates, faster production, superior product performance?
Measure the economic difference: additional revenue, reduced costs, or improved margins attributable to the proprietary know-how compared to industry-standard approaches.
How long before competitors could develop equivalent know-how independently? This determines the useful life of the incremental benefit.
Apply a risk premium reflecting the vulnerability of the know-how to leakage, reverse engineering, or independent development.
The value of unpatented technology is directly linked to the effectiveness of its protection:
| Protection Measure | Effectiveness | Valuation Impact |
|---|---|---|
| Non-disclosure agreements | Moderate (enforceable but requires litigation) | Baseline protection; supports recognition |
| Employee non-compete clauses | Variable (jurisdiction-dependent) | Reduces key person departure risk |
| Restricted access systems | High (physical and digital access controls) | Demonstrates active secrecy measures |
| Compartmentalisation | High (no single person knows everything) | Reduces single-point-of-failure risk |
| Documentation and encoding | High (knowledge captured in systems, not just people) | Increases separability and transferability |
Unpatented technology that resides primarily in the heads of a few key employees is highly vulnerable to departure risk. If three engineers leave and take the know-how with them, the intangible asset may be significantly impaired. Valuation should apply a risk discount for know-how that is poorly documented and concentrated in a small team.
Unlike patents, unpatented technology has no defined expiry date. The useful life depends on:
For founders and CTOs, the message is clear: document your proprietary knowledge systematically. Unpatented technology that exists only as tribal knowledge in experienced engineers' heads is both fragile and difficult to value. Knowledge captured in standard operating procedures, process control systems, and training materials is separable, transferable, and therefore more valuable as a recognisable intangible asset.
Unpatented technology and know-how is one of ten technology-based intangible assets under IFRS 3. For the full taxonomy, see 35 types of intangible assets. For a deeper look at trade secrets specifically, read our guide to trade secret identification, protection, and valuation.
Ivan Gowan is the Founder and CEO of Opagio. He brings 25 years of experience building and scaling technology platforms in financial services. Meet the team.
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