Abstract
Data, algorithms, and proprietary information and processes are critical assets for increasing numbers of companies. Since information assets often cannot be protected through patent, companies may instead rely on trade secret law. To meet the legal standard of a trade secret, companies must show that their information assets confer a competitive advantage to them by virtue of the secret status, and that they have taken reasonable measures to preserve the secrecy.
One of the reliable methods companies use to maintain secrecy, and to show that they have taken the required reasonable measures, is the use of restrictive covenants. Traditionally, companies have relied heavily on contracts, especially nondisclosure agreements and noncompete agreements. However, now that a number of states have greatly limited the enforceability of noncompete clauses and agreements, or banned them entirely, using noncompete clauses and agreements to secure trade secrets is risky. A proposed Federal Trade Commission (FTC) ban on all noncompete agreements in 2024 almost removed the practice as an option forever.
Although the FTC rulemaking was halted at the eleventh hour, companies that rely on noncompete agreements to protect their trade secrets do so at their peril. At a time when information assets are ubiquitous as well as critical to a company’s competitive position, companies must instead build out a system of corporate policies, technological solutions, and other more enforceable contractual provisions to protect their trade secrets going forward.
Included in
Antitrust and Trade Regulation Commons, Banking and Finance Law Commons, Business Organizations Law Commons