Sources and Notes: Data on trade secret case counts obtained from Lex Machina, district court cases database. For each year, the total number of cases filed across states in each of the three categories was divided by the total population across those states. In the year of transition, each state was assigned to its post-change category. Population data for the fifty states and Washington, D.C., were sourced from Release Tables: Resident Population by State, Annual, FRED (2000–2023).
When we abstracted from aggregate analyses and instead analyzed individual state-level data, our findings were once again mixed. For some states, including Illinois, Louisiana, and Washington, implementing some form of restriction on the enforcement of noncompetes was followed by a decline in per capita trade secret cases. This implies that doing away with noncompetes may not lead to more trade secret cases. On the other hand, in states like Nevada, Oregon, Utah, and Virginia, implementing some form of restriction on the enforcement of noncompetes was followed by an increase in per capita trade secret cases. The experience in these states implies that doing away with noncompetes may lead to more trade secret cases.
Considerations Regarding How Companies May Approach IP Policy
When the aggregate analysis of the different categories of states and the before-and-after experiences of select individual states are taken together, our findings lead us to conclude that a nationwide ban on noncompetes is unlikely to lead to any immediate surge in trade secret cases. At the same time, however, we recognize that any impact of a nationwide ban on the volume of trade secret cases may not be immediate. Moreover, we do not claim our estimated effects or lack thereof to be causal. We interpret our findings as preliminary and as motivation for state-level analyses that control for additional confounding factors that may impact both the enforcement of noncompetes and the volume of trade secret cases.
Our findings highlight some important considerations regarding how companies may approach their IP policies. When evaluating both existing and new IP strategies, it may be prudent to consider the potential short-term and long-term impacts. This can ensure the retention of valuable IP developed within a company, particularly before any employee departure.
To this end, an initial consideration is determining the most suitable IP protection for the technology being developed. Specifically, companies can prioritize assessing whether patent protection is more appropriate than trade secret protection. A ban on noncompetes could change how companies assess their IP strategy. In particular, when employees and the knowledge they gain from their employers become more portable, it may become harder to keep proprietary, inventive knowledge a secret. If this knowledge offers a competitive advantage, companies may place greater emphasis on securing patent protection. At the same time, as other studies have suggested, trade secrets and patents don’t need to be viewed as mutually exclusive. A viable IP strategy could involve patenting certain aspects of a technology while maintaining trade secret status for others.
Regardless, this highlights an essential task companies should undertake in the light of the potential noncompete ban—revisiting and redefining clear trade secret policies. While trade secret policies may vary across companies due to budget constraints and the nature of the business, having a strong chance of enforcing trade secret protection in litigation requires clear policies. Companies must define what constitutes a trade secret and specify the protective measures in place to maintain its secrecy. This includes establishing protocols for the development, marking, and accessing of the information both physically and electronically. Additionally, in light of the potential ban on noncompetes, trade secret protocols should include oversight of individuals with access to sensitive information. In the absence of noncompete agreements, measures like assignment and confidentiality agreements can help alleviate concerns about the portability of a company’s trade secrets or confidential information.