How The FTC Noncompete Rule Impacts Your Intellectual Property

Apr 24, 2024 2 min read

On April 23, 2024, the FTC adopted a comprehensive ban on noncompetes. The FTC’s noncompete ban affects both intellectual property protection and employment agreements/procedures. We recommend consulting with your Wolf Greenfield intellectual property counsel and your employment counsel to discuss next steps for your business well before the ban is enacted.

OVERVIEW

When the ban goes into effect (120 days from publication in the Federal Register), employers will be prohibited from entering into new noncompetes with all workers and will be prohibited from enforcing existing noncompetes against workers who are not senior executives. The ban covers all conditions of employment that prohibit a worker from, penalize a worker for, or function to prevent a worker from seeking or accepting work for a different person or company in the US, or operating a business in the US. Employers also will be required to give notice before the effective date to workers whose noncompetes are no longer enforceable.

INTELLECTUAL PROPERTY

Noncompetes have long been used as a tool for protecting business’s intellectual property. In view of the FTC’s comprehensive ban, businesses will no longer be able to use noncompetes to prevent knowledgeable employees from departing for competing businesses. Accordingly, businesses cannot rely on noncompetes to protect their intellectual property. Given this ban, now is a good time for businesses to reevaluate and reinvigorate efforts to protect their intellectual property, and their trade secrets in particular.

TRADE SECRETS

Under federal law, trade secrets are information that have value in businesses because they are secret and are subject to reasonable measures by the owner to keep the information secret. Acceptable measures need not be perfect measures but need to be reasonable under the circumstances. Some examples of what courts consider in assessing whether the measures taken to protect trade secrets were reasonable include using nondisclosure agreements, limiting access, requiring passwords to computer systems, documenting access, and marking information “confidential.” Some businesses may choose to keep a catalog or inventory of their most valuable trade secrets to ensure reasonable measures are being used to protect them. The measures taken to protect trade secrets should be tailored to the specific needs of your business.

Companies should reevaluate their confidential information and trade secret practices to ensure they are sufficiently robust to protect valuable company assets. Please feel free to contact us if you have any questions or would like to discuss how this guidance affects your IP strategy.