II. The FTC’s Final Rule on Non-Compete Agreements with Workers
The FTC’s final rule effectively bans companies and individuals from entering into or enforcing a non-compete agreement with a worker. The rule applies to all such non-compete agreements that were or are in effect before and after May 7, 2024. There are a few exemptions to this comprehensive ban, such as for existing non-compete agreements for senior executives and for certain sale transactions.
Despite this limited senior executive exemption, employers use non-compete agreements as a cost-effective way to protect trade secrets. For example, commentators suggested that non-compete agreements offer protection for businesses outside of the U.S. and banning non-compete agreements would drag U.S. businesses into lengthy litigations in foreign jurisdictions. Because the FTC’s non-compete ban purports to strip away a practical trade secrets protection method for employers, one commentator suggested that the banning non-compete agreement would violate U.S.’s duty under Article 39 of TRIPS.
III. Article 39 of TRIPS
In 1995, TRIPS was created by incorporating various international treaties on intellectual property, including the Paris Convention, the Berne Convention, the Rome Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits. Article 39 of TRIPS imposed a duty for member states to protect trade secrets. This duty to protect trade secrets is separated into two parts. First, paragraph 2 of Article 39 requires member states to protect trade secrets through law.
Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices.
Second, paragraph 3 of Article 39 requires member states to protect trade secrets when such information is submitted to the respective government agency. Rather than imposing a high level of intellectual property protection, TRIPS only established a uniform minimum standard for trade secrets protection. Therefore, while TRIPS does not include specific measures to protect trade secrets, it is certainly reasonable to interpret the “possibility of preventing information lawfully” include using non-compete agreements to protect trade secrets. However, on the face of Article 39, it does not impose an explicit duty for member states to enforce non-compete agreements. By plaint text, as long as member states adopt measures to protect trade secrets in law, i.e., the minimum standard, the Article 39 duties are satisfied.
IV. Analyzing TRIPs as a Self-Executing vs. Non-Self-Executing Treaty
The principle of self-executing and non-self-executing treaty is rooted in the ancient Head Money Case. In this 1884 case, the Supreme Court defined a self-executing treaty as where a treaty “prescribe[s] a rule by which the rights of the private citizen or subject maybe determined.” Nonetheless, Justice Miller recognized Congress’s superior authority by concluding that “congress may pass for [treaty’s] enforcement, modification, or repeal.” Thus, the Head Money Case established the basic principle of a self-executing treaty and non-self-executing treaty: self-executing treaty is explicit and does not require the domestic implementing legislature to act whereas non-self-executing treaty requires such domestic implementation. The court may apply the law directly from a self-executing treaty while the court cannot apply the law from a non-self-executing treaty because the domestic implementing legislature assumes a higher priority.
More than 200 years later, the Supreme Court again reinforced the principle of a self-executing treaty and non-self-executing treaty in Medellin. The issue before the Supreme Court was whether the Vienna Convention on Consular Relations (Vienna Convention) and the Optional Protocol Concerning the Compulsory Settlement of Disputes to the Vienna Convention (Optional Protocol) were self-executing treaties. Through plain text interpretation, Chief Justice Roberts concluded that the Vienna Convention and the Optional Protocol were not self-executing treaties due to the lack of enforcement languages. From the Head Money Case to Medellin, the Supreme Court clearly showed its preference on interpretation of the plain text of a treaty in order to determine whether it is self-executing or not.
V. The Implications of TRIPS as a Non-Self-Executing Treaty for the Non-Compete Rule
While the Supreme Court has not ruled on whether TRIPS is a self-executing or non-self-executing treaty, circuit courts had repeatedly ruled that TRIPS is not a self-executing treaty. In Kawai, the Court of Customs and Patent Appeals held that the Pair Convention, the predecessor of TRIPS, was a non-self-executing treaty and required implementing legislation. In In re Rath and ITC Ltd., the Federal Circuit reaffirmed that TRIPS was not a self-executing treaty. Since TRIPS is a non-self-executing treaty, it does not require the United States to enforce non-compete agreements as a measure to protect trade secrets because the plain text is silent with respect to non-compete agreements. Therefore, the next step is whether the domestic implementing legislature requires using non-compete agreements as a measure to protect trade secrets.
VI. Analyzing the Potential Conflict between TRIPS (as implemented by the EEA) and the FTC’s Non-Compete Rule
In 1996, Congress enacted the first federal trade secrets law, the EEA, criminalizing trade secret theft. The EEA imposes both criminal (imprisonment no more than 15 years) and civil penalties (fine up to $5 million) for trade secret theft. In addition to criminal penalties, the EEA created a cause of action for civil plaintiffs to sue for either injunctive or monetary damages. The plain language of the EEA also corresponds to Article 39 of TRIPS. For example, TRIPS defined one of the elements of trade secrets as “has been subject to reasonable steps under the circumstances . . . to keep it secret.” The EEA also includes similar language such that “the owner thereof has been taken reasonable measures to keep such information secret.” While it is uncertain whether Congress specifically intended to implement TRIPS with the EEA, it is reasonable to say that by using similar language aimed at the same goal, the EEA is the domestic implementing legislature of TRIPS. If the EEA is the domestic implementation of TRIPS, does the EEA requires the enforcement of non-compete agreement as a measure to protect trade secrets? This author submits that the answer is no.
First, the plain language of the EEA does not mention non-compete agreements. Second, the EEA only makes trade secret theft a crime and grants a cause of action for civil suits. The EEA does not include nor impose any measures for protecting trade secrets. Private entities could freely set up their own protection mechanism for trade secrets, and the EEA only gives plaintiffs a federal forum after trade secrets theft occurs. Lastly, the EEA does not implicate any congressional intent to regulate non-compete agreements.
The purpose of the EEA was straightforward—making trade secrets theft a crime under federal law. If Congress wanted the EEA to either enforce or ban non-compete agreements, it will include language implicating its intent. Therefore, the EEA does not require enforcement of non-compete agreements and the EEA is likely not an effective defense against the FTC’s ban of non-compete agreements with workers.
VII. Conclusion
The purpose of TRIPS was to establish a minimum uniform standard for protection of intellectual property among WTO members. Because TRIPS is not a self-executing treaty, there is no legal basis to argue that TRIPS alone requires the United States to enforce non-compete agreements as a measure to protect trade secrets. Rather, TRIPS requires implementation and it is implemented through the EEA. However, the EEA is silent on non-compete agreements. Therefore, the FTC’s rule banning non-compete agreements does not conflict with TRIPS.
