https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule...
It's not surprising after thinking about it for a minute, but it did startle me to read that the FTC measures innovation by the number of patents issued.
> In addition, the final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.
I've always thought of that as representing a stifling of innovation.
The short lifetime of patents and the requirement that you publish detailed information about the invention significantly mitigates this. If they were measuring innovation by the number of copyrights filed, then I might agree with you.
For a lot of industries 20 years is an awfully long time to the point of complete irrelevance - and that "detailed information" is often vague enough to be unusable. Combine that with an overly-broad range of patent-able things and an overworked USPTO granting clearly invalid patents, and in practice (at least in the tech/software world) it's doing more harm than good.
Patents are no longer about protecting R&D investments. They have become more about patenting the vaguest concepts possible, in the hope of making a profit when someone else does an actual invention which somehow stumbles into your patents' wording.
There are some industries where due to slow-moving markets the 20 year patent period is still sensible, but for most sectors we would be better off with a 5 or 10 year patent period to account for the increased speed of innovation.
Further, most patents may contain key details, but they also intentionally contain as much broad information as to create a massive exclusionary zone, not to mention burying any legitimately useful information.
20 years is not short! 20 years might be appropriate for capital-intensive innovations (e.g., in pharma), but definitely not for industries where innovations are not typically capital-intensive. E.g., 20 years for cryptography and software patents is a disaster.
not if patents become a weapon against actual innovation - which it has devolved into being today.
Far from being made to progress science and the arts, patents have become a method for which large corporations can add moats to competition. Things like codecs for video/audio, which are purely mathematical expressions, have been patented. Genes and molecules, even tho they might occur naturally, can be patented (a very tenuous form of invention - it's discovered, even if not naturally occurring!).
And not to mention design patents.
I say the entire patent system needs to be abolished, or at least, made such that only applicable to physical mechanisms, and not software, nor biological systems.
Most of the purported benefits of patents seem based on theories that most people don’t understand. We all take some received knowledge about their supposed operation, and usually proponents of patents know nothing about how powerful innovation in open source and other patent-free spaces can be.
However, it's true that this property - of being a valid measure, but interventions to change it having the opposite effect on the inferred variable - is a very unfortunate one in a metric.
https://www.stlouisfed.org/open-vault/2021/june/how-to-measu....
Insane to me that they use this as a measure of innovation, when almost by definition it is the antithesis of innovation.
Sure, for any individual‘s fitness or a company’s “innovativeness” they are useless, but in aggregate they can be revealing.
Sadly, over my long career as a tech startup entrepreneur, my experience has been that your assumption is correct the vast majority of the time. Now when I teach or mentor young tech entrepreneurs I'm often explaining why they probably don't want to prioritize filing patents as part of their startup strategy. While there are certain exceptions, especially in pharma, biotech, materials science or medical fields, the years it takes for a patent to become enforceable and then the upfront cost + further years required to actually get a judgement, make patents largely ineffective in most startup contexts. There's also substantial uncertainty as to whether a startup can get the patent granted at all. After that, there's the challenge of getting it granted in a form which remains defensible and can't be easily worked around. Many people don't realize patent examiners can refuse to grant a patent unless the applicant narrows the claims.
Conversely, as a tech startup these days you do need to worry about patents potentially being used against you. The majority of tech patent cases are giant vs giant fighting over turf, a large incumbent trying to kneecap an emerging startup competitor (usually filing suit to make the startup unattractive to investors for a year and never intending to actually go to court) or patent troll vs everyone. Personally, I had both a giant trying to stop my startup's Series A funding and several patent trolls. Despite having no actual merit, the giant's suit did freeze our Series A and we nearly died. After seven months we'd demonstrated we could survive without a Series A so they dropped the suit (of course) but by then they'd cost us more than half our cash in just defending an obviously sham claim. As one investor told me, "Yes, it's clearly a bullshit claim but it will still cost serious money and a lot of founder attention over the next 18 months to get it thrown out and that, unfortunately, tips this deal over our risk threshold." And responding to the constant patent trolls just burns up startup founder attention and scarce cash in nuisance legal fees.
Despite the old-school trope of "garage inventor patents invention, makes fortune", frankly, from the perspective of fostering typical tech startups, you'd probably prefer a world where there were no patents outside of pharma, medical, bio, etc.
But as for the usefulness of patents to startups, at least with material-science-y hardware, I've heard possession of a defensive patent portfolio described as "table stakes" for existence, with enforceability et al being secondary.
It was interesting watching patents and unicorn dreams shape VR. Instead of years of commercial ferment exploring low-hanging niches, we wait for monoliths to eventually create maximally-hard mass-market consumer tech, and will then backfill easier niches, eventually. An industrial policy optimized for pharma, yielding pharma-shaped industries.
When I worked at FAANG you had a whole class of PE engineer who literally couldn’t build anything to save their lives. But they would constantly file patents with a frenzy like IT guys rack up certifications. Of course when the patent office gets an application from $FAANG they approve it.
And people who aren’t in the know just see patent on the resume and keep hiring these people thinking they are the next Elon Musk or something, unfortunately.
https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule...
This would be a game changer. My experience with garden leaves was that the base salary remained but since the bonus and benefits were gone, the total comp was severely affected
> Furthermore, where a worker does not meet a condition to earn a particular aspect of their expected compensation, like a prerequisite for a bonus, the Commission would still consider the arrangement “garden leave” that is not a non-compete clause under this final rule even if the employer did not pay the bonus or other expected compensation
I think TC is not included, will still get a base, but benefits seems to be included
I'm interested to see how this hits finance firms – I know people who were forced to take a year off between jobs (although they were compensated the whole time). Always thought that would be a pretty sweet deal.
> With respect to garden leave agreements, as noted previously, commenters used the term “garden leave” to refer to a wide variety of agreements. The Commission declines to opine on how the definition of non-compete clause in § 910.1 would apply in every potential factual scenario. However, the Commission notes that an agreement whereby the worker is still employed and receiving the same total annual compensation and benefits on a pro rata basis would not be a non-compete clause under the definition, because such an agreement is not a post-employment restriction. Instead, the worker continues to be employed, even though the worker’s job duties or access to colleagues or the workplace may be significantly or entirely curtailed. Furthermore, where a worker does not meet a condition to earn a particular aspect of their expected compensation, like a prerequisite for a bonus, the Commission would still consider the arrangement “garden leave” that is not a non-compete clause under this final rule even if the employer did not pay the bonus or other expected compensation. Similarly, a severance agreement that imposes no restrictions on where the worker may work following the employment associated with the severance agreement is not a non-compete clause under § 910.1, because it does not impose a post-employment restriction.
If this survives the Supreme Court, wouldn't a company would have to put in your employment contract that you/they must give x months notice to end employment if they wanted to restrict you? Otherwise you could give one days notice and they wouldn't be able to put you on gardening leave.
I have no idea why the recruiter was willing to put this in writing, and thankfully, I was able to find other work instead.
I know it's not a non-compete, but there are other ways that companies can illegally form cartels to suppress labor.
You passed on a juicy class action lawsuit.
If a company wants to pay someone not to work for a year, they're free to do that whenever they want. Maybe without noncompetes, they'll have to pay more to make it worth it for the guy being paid to sit around!
EDIT: Er, the FTC explicitly does not comment on garden leave:
> With respect to garden leave agreements, as noted previously, commenters used the term “garden leave” to refer to a wide variety of agreements. The Commission declines to opine on how the definition of non-compete clause in § 910.1 would apply in every potential factual scenario. However, the Commission notes that an agreement whereby the worker is still employed and receiving the same total annual compensation and benefits on a pro rata basis would not be a non-compete clause under the definition,350 because such an agreement is not a post-employment restriction. Instead, the worker continues to be employed, even though the worker’s job duties or access to colleagues or the workplace may be significantly or entirely curtailed. Furthermore, where a worker does not meet a condition to earn a particular aspect of their expected compensation, like a prerequisite for a bonus, the Commission would still consider the arrangement “garden leave” that is not a non-compete clause under this final rule even if the employer did not pay the bonus or other expected compensation. Similarly, a severance agreement that imposes no restrictions on where the worker may work following the employment associated with the severance agreement is not a non-compete clause under § 910.1, because it does not impose a post-employment restriction.
My guess is that garden leave will be offered, but in right-to-work states there will be no way to enforce that the employee remains employed.
Yeah. Remember this when you go to vote in November. Elections matter.
Senior executives cannot enter into new non-competes though.
I've been surprised I haven't seen this mentioned on social media or in the news. Are my friends wrong, or are people celebrating because this is just a step in the right direction even if it may not do anything yet?
The federal government can absolutely regulate both employment and contract law. (Merger agreements are contracts. The FTC was established to block bad mergers.)
Whether the FTC can do this is untested. But that’s more a Chevron issue than a federal powers one.
https://www.scotusblog.com/2024/01/supreme-court-likely-to-d...
Where in Article I Section 8 does the Constitution grant that power?
Now, that doesn't mean the Supreme Court won't come up with their own hot take, but at some point appeals and district courts are just going to say no when they send a case back.
What is the Supreme Court going to do? Federal judges can only be removed by impeachment of the House and conviction of the Senate. The Supreme Court has no power to enforce its decisions.
They will kill this faster than they killed the COVID vaccine mandate. Govt. agencies can’t make laws, even if we may agree with them (I actually do in this case). However this isn’t the role of an unelected government agency.
What I'm referring to here is Wickard v Filburn in which the Supreme Court ruled that a farmer growing food on his own land to feed to his own animals was participating in "interstate commerce" and could thus be regulated by the federal government.
This is a big part of why the federal government can control things like which plants you are allowed to grow in your home.
But when the FTC tries to regulate something like non-competes and protect average workers the corporate attorneys come out of the woodwork, "oh no, the federal government can't do that!"
This would be an example of an "unfair" practice, which mostly are about predation in the context of unequal bargaining position when litigated under "Little FTC Acts"[2]. I don't know offhand whether these similar laws have been used to achieve the same thing state-by-state, but the FTC rule meets the straight face test for sure. So, regardless of what happens next at the Federal level, this is about to become a white-hot area of litigation under state "Little FTC Acts".
[1] https://www.law.cornell.edu/uscode/text/15/57a
[2] https://litigationcommentary.org/2021/06/15/a-fresh-look-at-...
So, yeah, seems like at least those non-competes impacts interstate commerce.
This Supreme Court could be friendly to invalidating that expansive interpretation though
so, big mismatch from the executive branch / agencies with the judicial branch which could completely warp our relationship with the Federal Government and what we find familiar in our way of life
But I dont think its as simple as saying “contract law is part of state law”
I say contingent because the history of the Supreme Court is far from a deductive process of pure interpretation.
I recognize the utility of the Supreme Court while dismissing any grandiose claims of objective morality or obvious legality. It is a body of people after all.
it seems like thats a mixture of the SEC and IRS
https://www.uschamber.com/finance/antitrust/chamber-comments...
>The Chamber and its membership are strongly opposed to the Proposed Rule. It would categorically ban nearly all noncompete agreements—regardless of individual circumstances, such as a worker’s skill, job responsibilities, access to competitively sensitive and proprietary information, bargaining power, or compensation—and require that organizations rescind all existing agreements and provide notice to affected workers of such rescission. Such a proposal fails to recognize that noncompete agreements can serve vital procompetitive business and individual interests—such as protecting investments in research and development, promoting workforce training, and reducing free-riding—that cannot be adequately protected through other mechanisms such as trade-secret suits or nondisclosure agreements. For centuries, courts have recognized the procompetitive benefits of noncompete agreements and balanced those benefits against any negative costs imposed by particular noncompete agreements. As perhaps acknowledged by the Commission’s request for comments on narrower alternatives, the Commission’s categorical ban would sweep in millions of noncompete agreements that pose no harm to competition, and in fact benefit the U.S. business community, economy, workers, and consumers.
https://www.uschamber.com/finance/antitrust/u-s-chamber-to-s...
>The Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.
Edit: it was a dig to the pro-competition façade some pro-business people put forward.
It may be aimed at prodding the Congress into action.
Without anti compete stealing your competitors staff becomes a valid business strategy. Buy up the competitions best people and cripple them.
This favors those with the most capital not the least.
Should be the motto of every government in the world.
I seriously can't understand how anyone could be opposed to this. Laws that help people and protect them from people who have power of them are... good. That's what laws are for.
Given in tech industry / FANG, most people earn above the $151,164 I wonder how they define "policy-making positions" ?
As I read the above sentence I understand that this is a binary and and not an either you earn that much or are in policy making positions?
That plus tax subsidies for third-party insurance and we ended up in the current mess.
More importantly, and especially if the Chevron doctrine falls, I don't see how the Congress can delegate so much power, so ambiguously, to the FTC. It seems like a "major questions" issue, especially if the FTC then uses this to regulate practices in a way that amounts to usurping Congress's power. For example, imagine that the FTC declared walled gardens an unfair practice. Or suppose the FTC set a maximum transaction fee (think of Apple here). Such examples would have such tremendous impact as to arguably require legislation rather than bureaucratic fiat.
There has to be a better way. Perhaps the best way would be for Congress to every term consider banning recent innovations in business practices that are "unfair" -- to do it before the businesses using those new practices can use them to gain so much power that Congress might have a hard time banning those practices later.
(how bad? I don't know.)
Some of those non-competes were ridiculous with their "in perpetuity throughout the ends of the Universe" type wordplay, I'm surprised governments haven't been more vigilant on things like the stifling of entrepreneurial mobility, since it only helps their economies in the long run to do so.
Make it possible to disrupt, design economies for entrepreneurs as much as for corporations, and reap the benefits IMO. Let those big evil uglies get disrupted if they can't stay relevant or retain top talent.
https://natlawreview.com/article/state-law-restrictive-coven...
I wonder how many companies will start offering "consulting" over brunch on a saturday to their competitors employees?
Sure, NDA's still apply, but have fun proving that if it's all verbal over brunch...
"The Commission declines to extend the reach of the final rule to restraints on concurrent employment. Although several commenters raised this issue, the evidentiary record before the Commission at this time principally relates to post-employment restraints, not concurrent employment restraints. The fact that the Commission is not covering concurrent-employment restraints in this final rule does not represent a finding or determination as to whether these terms are beneficial or harmful to competition. The Commission relatedly clarifies that fixed-duration employment contracts, i.e., contracts between employers and workers whereby a worker agrees to remain employed with an employer for a fixed term and the employer agrees to employ the worker for that period, are not non-compete clauses under the final rule because they do not restrain post-employment conduct."
Isn’t it premature to get excited before the proverbial ink is dry?
I’m very much in favor of a total ban of noncompete agreements.
That said, it seems like all the parties that stand to benefit from them will fight tooth and nail to see this doesn’t come to pass.
Thoughts?
Use gray areas in the law to do things that it was obviously not intended for, then advertise how you did the thing, and then when it inevitably gets shut down because its not legal you blame the other side for killing it.
He is just playing with voters.
0. Get hired by any MAANG or tech company of sufficient size outside of California.
1. Watch as the employment agreement is marked on the edges or in the metadata as being specifically tailored to that state with different protections and obligations than employment agreements signed by other workers doing the same job in different states.
2. Negotiate on onerous terms that are harmful to your interests.
I don't know if this is more of an "executive order" wish because if the FTC had the power, it probably would've done so already.
I have no idea how much every server I go to is making. How do I know if it's good or bad? How do I know if they have any benefits? Especially now that everyone wants a fucking tip. I buy some ice cream with my kids and I'm supposed to tip 20% to someone for scooping my ice cream? I have no idea if the server is making $15/hour or $4/hour to determine if the tip is part of their pay or pure bonus etc.
It's baffling you blame the consumer. Employers are the ones that don't want to pay what their employee is worth.
Honestly the entire country is broken because of simple issues of non-guaranteed healthcare and non-guaranteed time off etc. If basic human rights were guaranteed we wouldn't have to play this constant game of figuring out what to pay people at a minimum.
Why economists are so critical of non-competes - https://www.nominalnews.com/p/to-compete-or-non-compete
> Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.
> The final rule will become effective 120 days after publication in the Federal Register.
That's not to say that patents can't be abused—they certainly can—but it can give a smaller person leverage.
For example, I could see this leading to overreaching non-solicitation agreements, where you can't approach "any person/company ever added to our CRM" (for a period of time), thereby effectively ending any chance of you have of building or working for a competitor.
Apple+ is like MSNBC: they only want incrementalist pseudo-agitators rather than those who speak truth to power. (MSNBC has a history of firing hosts who Washington king makers or Comcast executives disapprove of.)
"existing noncompetes for senior executives can remain in force."
So what happens to these people, are they stuck with the noncompete forever?
so if they leave, they can still be sued?
or is it that they can't start a competing business at the same time?
The Commission also finds that instead of using noncompetes to lock in workers, employers that wish to retain employees can compete on the merits for the worker’s labor services by improving wages and working conditions.
(A decent LLM + RAG + LexisNexis or Westlaw’s proprietary extremely extensively human annotated datasets of constutitons, statutes, case law, precedent, and scholarship, OTOH, would likely be ingredients from which a powerful professional tool could be built.)
> wouldn’t even provide reliable legal tooling.
There are already funded companies and even hobbyists in Discords I'm in doing this with RAG, also patient medical docs, etc. it's really great for that use case of specific document data like laws or a patient's medical history.
Here are some AI assistants that I created that can interpret law, examine medical docs, help you buy shampoo, or even give you price and parts comparisons at your local auto parts store: https://github.com/bennyschmidt/ragdoll-studio/tree/master/e...
I say said in jest because (and this is counter to your second point) it very likely will not replace lawyers, but become tooling for lawyers.
Also - what happens in situation where someone is leaving one company to work for a direct competitor? How do noncompetes function there to prevent sharing of confidential information or trade secrets that will help the competitor?
Folks can easily hop around, ask for higher wages and take their skills to a new company that directly competes with the old.
There's a heavy competition among the tech companies both for talent and for their businesses
The next few years will be interesting. We’ll see if any other metro outside of California will offer it real competition now that the ban on non-competes is national.
It's so dystopian that this was ever a thing.
Non-competes were supposed to exist to prevent employees from bringing trade secrets to competitors. Instead, they were used to trap people in poorly paying jobs.
What were these guys up to? https://www.ftc.gov/about-ftc/commissioners-staff/former-com...
Not losing in court every other month.
Lot's of devs will be surprised to discover they are in policy making positions.
I absolutely love this.
I tried to negotiate to get them to at least agree making the non-compete periods pay out my full comp and not just base, but they absolutely refused to budge an inch. Some people I knew there had non-competes locked in at their base salary when they started, which in some cases was 10+ years ago, meaning that it was a relatively paltry amount. They also had a clause in them that stipulated that it was 100% at the discretion of the firm as to whether they would enforce it or not- meaning that it wasn't even a guaranteed paycheck if you left... they would decide- and only after you left or were fired- if they were going to enforce it, leaving you in limbo until they made their decision.
F non-competes. Mine worked out okay, my wife got burned hard on them and it took her career at least 2 years to recover from hers.
This is a problem for two main reasons:
1. The executive branch can unilaterally revoke these regulations, making them more volatile. Maybe my non-compete is invalid today, but will it be in 4 years when I actually want to change jobs? Changing a law takes approval of either majority of both chambers plus the president, or a supermajority of both chambers.
2. It lowers the stakes in congress, which I believe causes more misbehavior. When the stakes are actually high enough, congress tends to get things done. When the stakes are low, congress grandstands for reelection.
So at least this way, things can get done.
I predict this will be kicked around the executive branch and bounced in courts. Even if it stands, like you point out, future administrations can just revoke it. All the while, Congress should be taking action and codifying this.
The US Constitution + amendments delineates the powers of the branches. Is the situation you describe possibly a window in time when executive branch constitutional overreach has not been yet challenged?
[ edit : great explanations below -> sincere thanks ]
That's the duty of the legislature? To make more rules?
[0]: https://www.cbsnews.com/news/noncompete-agreement-feds-sue-3...
This doesn't mean you can scurry off a just build a competing product/service to your existing employer. You probably also have NDA and/or IP agreements too.
> The Commission found that employers have several alternatives to noncompetes that still enable firms to protect their investments without having to enforce a noncompete.
> Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a noncompete already have an NDA.
Trade secrets would generally include anything from code, approaches to problems, product roadmaps, customer lists, etc (so spans not only engineering... but also product, sales, etc).
I had to sign a noncompete once, in order to get a severance package when the company was going out of business. I asked a lawyer about it, who said don't worry about it, there isn't going to be anyone who will ever enforce it.
I have been hired to write software to implement investment strategies. My noncompete prevents me from leaving and immediately taking a job at company that invests in the same markets. That is a reasonable way for the company to protect its intellectual property.
> My noncompete prevents me from leaving and immediately taking a job at company that invests in the same markets. That is a reasonable way for the company to protect its intellectual property.
Takee your investment industry example - a non-compete could prevent you from taking a lucrative position in a competitor of your current employer, doing completely unrelated work like writing software for their settlement system. I would rather have the freedom to choose where I work.