Blog
BFV Perspectives, Noncompete & Trade Secrets, | Jun 03, 2024

Update: Litigation Challenging FTC’s Rule Banning Noncompetes

On May 29th, the Federal Trade Commission (FTC) filed its response to Ryan LLC and the U.S. Chamber of Commerce’s motions for stay and preliminary injunction on the FTC’s final rule banning noncompetes.

The following summarizes the FTC’s main arguments against Ryan LLC and the U.S. Chamber of Commerce motions:

  1. Ryan LLC and the U.S. Chamber of Commerce are unlikely to succeed on the merits of their claims.

The FTC states that Ryan LLC and the U.S Chamber of Commerce have not contested the argument that noncompetes are an unfair method of competition. Instead, the FTC says their argument centers around the FTC’s rulemaking ability. Going through the history of the statutory interpretation and legislative action of section 6 of the FTC Act the FTC argues that it has the authority to regulate “unfair methods of competition.”

  1. The major questions doctrine is not relevant in this case.

To decide that noncompetes are an “unfair method of competition” is not expanding the FTC’s regulatory power but is fundamentally what the FTC has been tasked to do.

  1. Ryan LLC and the U.S. Chamber of Commerce have not given a compelling reason for why the FTC cannot regulate generally.

The FTC has determined that noncompetes are an “unfair method of competition.” Therefore, it is allowed to regulate them as a whole and does not need to determine noncompetes on a case-by case basis.

  1. The Final Rule is within the FTC’s power.

In the FTC Act Congress clearly gives the FTC the power to prevent “unfair methods of competition.”

  1. The effects of the rule are only prospective and there are not “past legal consequences” attached to it.

Because of the prospective effects the rule is not unlawfully retroactive.

  1. The FTC has not been arbitrary and capricious given its extensive study on noncompetes and its economic justifications.

Historically the Supreme Court has backed the FTC’s regulation of “unfair methods of competition.”

  1. There is no irreparable harm caused by the final rule.

The FTC points out that litigation expenses are not considered irreparable harm. Additionally, even without the rule the FTC could still take enforcement action through Section 5 of the FTC Act.

  1. Equities and public interest weigh in the FTC’s favor and against a preliminary injunction.

Ryan LLC and the U.S Chambers of Commerce have not adequately established that the costs that they could incur from the rule outweigh the benefits of the rule.

June 12th is the deadline Ryan LLC and the U.S. Chambers of Commerce have to respond to the FTC’s motion. July 3rd is the day Judge Brown will likely decide the issues.

 

Marissa Cripe, a summer associate at BFV, contributed to this article.

BFV Perspectives, Noncompete & Trade Secrets, | Jun 03, 2024
Benjamin I. Fink
Benjamin I. Fink

Benjamin Fink is known for his work in noncompete, trade secret and competition-related disputes. A shareholder at Berman Fink Van Horn, Ben concentrates his practice in business and employment litigation.

Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.