FTC Moves to Ban Non-competes – but don’t panic!
The Federal Trade Commission (FTC) has recommended a new rule (open for public comment for 60 days from Jan 5) that will ban non-competes, having a major impact on employee retention and mobility in many industries. Although this rule would have far-reaching implications, one of them should NOT be that this new rule vitiates the protections companies now have for their trade secret assets. These assets are arguably the most valuable IP asset and the only type of IP that is not “registered”, therefore requiring other types of risk management techniques to be strongly in place. This rule would put further emphasis on the need for contractual (non-disclosure agreements separate and apart from non-competes), physical protections, technology protections, and business processes in general. This would allow a company to show that it used “reasonable measures” to protect specifically identified know-how as “trade secrets” vs. confidential information.
I’ve highlighted a couple of major points from the Holland & Knight LLP article that should give comfort to the fact that even without non-competes, Non-Disclosure Agreements are still acceptable, particularly when addressing confidential information and Trade Secrets. Another key point, though not in this article, is that California banned non-competes several years back as unenforceable (as anticompetitive), yet there is still a lot of successful enforcement/litigation of non-disclosure rules/requirements pertaining to trade secrets at the state level.
From the H&K article:
“Third, in the meantime, companies should revisit and ensure enforceability of their other restrictive covenants, including confidentiality provisions and non-solicitation covenants. Even if non-competes are banned, companies can still include strict confidentiality and other protective clauses into employment contracts that protect legitimate business interests.
Fourth, companies should consider aligning their existing non-compete and enforcement practices to comply with the purpose of the FTC's proposed rule, i.e., ensuring that non-competes are not targeting low-wage workers and enforcement is limited to protect legitimate business interests such as trade secrets and other proprietary and confidential information.”
My sense from recent attendance at multiple trade secret conferences (American Intellectual Property Law Association (AIPLA), GIPA, USIPA, etc.) is that the FTCs final rule is going to be limited to lower-level workers (or those who receive certain types of comp such as hourly) who rarely have access to trade secrets, and that protection for trade secrets will be exempted from such rule. However, it does make the identification of certain assets as trade secrets and the management of theft/misappropriation risk all that much more important. I invite my trade secret/IP attorney friends to comment below with relevant talking points.
On the positive, I do believe this topic will get the “strategic risk” discussion around IP assets started (or bring to the fore) and drive many companies (and their Boards and investors) towards the need for trade secret risk management and insurance.
#tradesecrets, #tradesecretinsurance, #riskmanagement, #intellectualproperty #noncompetes #nondisclosure,
