Erik W. Weibust, Member of the Firm in the Litigation & Business Disputes and Employment, Labor & Workforce Management practices, in the firm’s Boston office, was quoted in the Bloomberg Law Daily Labor Report, in “FTC Faces Calls for IP Carveouts in Noncompete Ban Rulemaking,” by Dan Papscun and Kyle Jahner.
Following is an excerpt:
On the campaign trail, President Joe Biden pledged to eliminate noncompete agreements, with a few exceptions for protecting companies’ trade secrets.
The Federal Trade Commission’s proposed ban this month on noncompetes largely contains no such exception, triggering intellectual property attorneys’ responses that the agency’s rulemaking will have to include discussions on protecting sensitive corporate information.
The FTC’s notice of proposed rulemaking would make illegal all employee agreements that prevent them from working for an employers’ competitor after they leave. The notice includes only one exemption to the ban, for the founders and significant shareholders of acquired companies.
Companies have long used noncompetes, along with a patchwork of other restrictive deals like non-disclosure agreements and non-solicitation agreements, to protect their intellectual property when knowledgeable employees jump to competitors and risk taking sensitive information with them. Noncompetes cover as many as one in five American workers, the FTC estimates.
Intellectual property and trade secrets experts—and the companies they represent—will push the issue, including some exceptions to the ban, to the forefront during the FTC’s 60-day comment period and subsequent deliberations. One of solutions they likely will pitch would be to permit noncompete agreements for workers making more than a certain amount per year. …
The FTC pushed back against the claim that its proposal would hamstringing IP protections. …
Amassed Knowledge
The proposed ban would upend companies’ approach to protecting their proprietary information, several IP and trade secrets attorneys said. Businesses across the economy would be forced to lean on other mechanisms, such as expensive, time-consuming, and harder-to-prove trade secrets litigation instead, they said. …
Industries working on cutting edge technology—such as Silicon Valley companies, biotech, and pharmaceutical manufacturers—will pay particularly close attention as the rulemaking process unfolds.
Engineers or scientists in those industries often amass so much knowledge—even in rejected ideas during R&D—that they might unintentionally expose trade secrets to their new employers, said Erik Weibust, a member of the firm Epstein Becker Green PC. …
Proactive States
If the FTC were to consider certain carve-outs on the noncompete ban, the agency could look to states that have taken steps to curb such abuse.
Some states, including California, ban noncompetes outright, while others limit them to employees above an income threshold.
Courts in some states are empowered with substantial discretion to either strike excessive provisions or invalidate entire agreements. …
Trade secrets claims are far more cumbersome and expensive to resolve than contract disputes. Noncompete agreements offer proactive protections in safekeeping proprietary information. But protecting such information through trade secrets litigation often happens after the damage has been done, Weibust said.
