Banning Non-Compete Agreements Hurts U.S. Companies and Workers
By Andrei Iancu and David Kappos
President Biden recently touted the Federal Trade Commission's proposal to ban all non-compete agreements, which prevent employees who leave jobs from working for rival firms for a limited time.
But the FTC's staggeringly broad proposal would stunt job growth and curb investment in research and development. That'll hurt every U.S. worker.
Non-competes are common in high-tech industries, where senior employees are privy to highly confidential data, formulas, techniques, processes, and other trade secrets that provide their company with a competitive edge. That insider knowledge drives innovation and economic growth.
Quite rationally, companies don't want workers to jump ship and immediately share secrets with competitors, or use proprietary information to start their own businesses. Once secret information is divulged, the harm is done and the competitive edge can be erased forever. If companies had no way to prevent such behavior, they'd be hesitant to invest in risky new technologies and expand hiring.
Some argue that non-competes are unnecessary because we already have robust trade secret laws. But trade secret laws alone aren't enough. If a high-level executive at a company that depends on proprietary technology moves to a Chinese competitor, for example, and shares highly confidential information taken from his last employer, that last employer's competitive edge might evaporate forever to China's benefit. By the time the afflicted company sues to enforce trade secret laws, it may be too late; irreparable damage is often done when the information is disclosed to the new employer because that bell can't be unrung.
Occasionally, companies try to foist non-compete agreements on low-level employees with limited knowledge and responsibility -- which does nothing to protect trade secrets, but simply limits these workers' earning potential and job mobility. Fortunately, such contracts are rare, and already largely illegal. Courts routinely strike down overly broad non-competes, especially those that last longer than two years or attempt to protect "trade secrets" that aren't really secrets. Hurting the job prospects of low and middle-income earners is, quite literally, indefensible.
On the other hand, U.S. technology leadership depends on the continued effectiveness of non-compete clauses that protect actual trade secrets, which are a type of intellectual property alongside patents, trademarks, and copyrights. IP is the cornerstone of every cutting-edge sector, from agriculture to biotechnology to artificial intelligence.
The FTC proposal would effectively greenlight corporate espionage, all to "solve" a problem that's already easily -- and regularly -- handled by the courts. The rule would make it much harder for companies to stop trillions of dollars' worth of IP from walking out the door. Given that America's R&D-heavy companies are already grappling with a well-organized Chinese campaign to steal their trade secrets, losing a critical tool for fighting IP theft would only add insult to injury.
Andrei Iancu served as the undersecretary of Commerce for intellectual property and director of the U.S. Patent and Trademark Office from 2018 to 2021, under former President Donald Trump. David Kappos served as the undersecretary of Commerce for intellectual property and director of the United States Patent and Trademark Office from 2009 to 2013, under former President Barack Obama. Both serve as board co-chairs of the Council for Innovation Promotion. This piece originally ran in the Hill.
