The White House, citing a commitment to improve US trade secrecy law through the Defend Trade Secrets Act (DTSA), released a new report that critiques non-compete agreements and the state laws that fervently enforce those agreements. The report identifies that non-compete agreements are tied up with trade secret enforcement, but proposes a large number of non-competes are not utilized for that purpose.
The new law has been described by some as the “most significant expansion of federal law in intellectual property since the Lanham Act in 1946,” as it creates a federal private cause of action for trade secrets misappropriation. Prior to the adoption of the DTSA, civil actions for trade secrets misappropriation was largely a matter of state law, with no uniform adoption among the states.
The DTSA explicitly states that it does not preempt state law and does not replace state trade secret law. Thus companies are not prohibited from filing their claims in state court, but rather, the DTSA provides them with an additional litigation option by allowing them to bring lawsuits automatically in federal court.
The White House report explains:
[T]he U.S. economy faces a number of longer-run challenges, some of which go back several decades. In at least part of the economy, evidence suggests that competition for consumers and workers is declining, and the number of new firms each year is experiencing a downward trend. In addition to this trend, there has been a decrease in ‘business dynamism’—the so-called churn of firms and who is working for whom in the labor market— since the 1970s. One factor driving these issues may be institutional changes in labor markets, such as greater restrictions on a worker’s ability to move between jobs. To address these and other issues that limit competition in the marketplace, the President has directed executive departments and agencies to propose new ways of promoting competition and providing consumers and workers with information they need to make informed choices, in an effort to improve competitive markets and empower consumers’ and workers’ voices across the country. Building on these efforts, this document provides a starting place for further investigation of the problematic usage of one institutional factor that has the potential to hold back wages—noncompete agreements. These agreements currently impact nearly a fifth of U.S. workers, including a large number of low-wage workers. . . .
The main economically and societally beneficial uses of non-competes are to protect trade secrets, which can promote innovation, and to incentivize employers to invest in worker training because of reduced probability of exit from the firm. However, evidence indicates that non-competes are also being used in instances where the benefit is likely to be low (e.g., where workers report they do not have trade secrets), but the cost is still high to the worker.
Although no immediate action will be taken by the White House, it is expected to offer discussion points in an effort to expand the ongoing conversation on non-compete agreements.
