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What the FTC’s Noncompete Ban Means for Trade Secret Protection

Trade Secret Protection

On April 23rd, 2024, the Federal Trade Commission (FTC) issued a groundbreaking final rule that effectively bans the use of non-compete agreements in most employment contracts nationwide. While aimed at promoting worker mobility and fair competition, this rule will have significant implications for businesses relying on non-compete agreements as part of their trade secret protection strategies.

At Stevens Law Group, our intellectual property experts recognize the profound impact this FTC rule will have on trade secret owners and workplace dynamics.

Here are the key takeaways:

The FTC Rule Broadly Prohibits Non-Compete Agreements With limited exceptions, the FTC’s rule prohibits employers from imposing non-compete clauses that restrict employees or independent contractors from joining a competitor or starting a competing business. The rule applies across industries, excluding only a few sectors like banking and common carriers.

In light of the FTC’s rule, we advise trade secret owners to take several proactive measures including:

Limit access to trade secrets through physical and technological controls.

Update trade secret-related contracts, including NDAs and non-solicitation agreements.

Increased Risk of Trade Secret Misappropriation

Non-compete agreements have long served as a valuable tool for businesses to protect their trade secrets and confidential information. By restricting employees from immediately joining competitors, non-competes reduced the risk of trade secret misuse, whether intentional or unintentional. Without this safeguard, trade secret owners may face a higher likelihood of misappropriation litigation as employees transition to new roles.

Potential Shift Toward Patent Protection

For trade secrets eligible for patent protection, the loss of non-compete agreements may tip the scales in favor of pursuing patents instead. Additionally, with more employees potentially starting their own ventures unencumbered by non-competes, we may see an uptick in patent filings for new innovations.

Alternative Contractual Measures Remain Available

While non-compete agreements are restricted, trade secret owners can still rely on other contractual tools like non-disclosure agreements (NDAs) and non-solicitation agreements as part of their protection strategies. However, parties must take care to ensure these agreements are not overly broad, as the FTC rule scrutinizes provisions that may function as de facto non-competes.

Proactive Steps for Trade Secret Protection

In light of the FTC’s rule, we advise trade secret owners to take the following proactive measures:

  1. Limit access to trade secrets through physical and technological controls.
  2. Update trade secret-related contracts, including NDAs and non-solicitation agreements.
  3. Review employee manuals and training materials to reinforce trade secret handling expectations.
  4. Reevaluate IP protection options, considering the benefits of patent protection where applicable.
  5. Study best practices from jurisdictions that have previously restricted non-compete agreements.

At Stevens Law Group, we understand the challenges businesses face in adapting to this new landscape. Our experienced intellectual property attorneys stand ready to assist in revising trade secret protection strategies, drafting compliant agreements, and navigating any potential litigation arising from trade secret misappropriation.

Protect Your Valuable Trade Secrets with Confidence

The FTC’s non-compete ban is a seismic shift in the legal landscape, but it does not diminish the importance of safeguarding your company’s trade secrets and intellectual property. Our team at Stevens Law Group is well-versed in the intricacies of trade secret law and committed to providing strategic guidance to help you adapt and thrive in this new era of enhanced worker mobility.

Contact us today to discuss your trade secret protection needs and ensure your valuable intellectual assets remain secure.

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