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On February 10, 2025, the NAM filed an amicus brief urging the 5th Circuit to affirm the Northern District of Texas’ decision to vacate the FTC final rule banning noncompete agreements. As previously reported, in April 2024, the FTC finalized the noncompete rule to prohibit employers from entering noncompete agreements with their employees. Under the rule, it is an unfair method of competition—and therefore a violation of Section 5 of the FTC Act—for an employer to enter a noncompete agreement with an employee, including a “senior executive.” The district court, however, found that the FTC lacked authority to issue the rule because the Federal Trade Commission Act “does not expressly grant the Commission authority to promulgate substantive rules regarding unfair methods of competition.” In addition, the rule is arbitrary and capricious because of the FTC’s failure to provide a rationale for the rule’s broad scope and to adequately examine less restrictive alternative solutions to the problem the rule aims to solve. The FTC appealed that decision to the 5th Circuit during the Biden Administration.

We argue that the district court’s decision is correct. Further, the rule is arbitrary and capricious because the FTC failed to adequately address comments by the NAM and others during the rulemaking process regarding the significant intellectual property interests at stake—contrary to the FTC’s assertions, trade secret misappropriation litigation and non-disclosure agreements are imperfect substitutes for noncompete agreements which are vital for protecting manufacturers’ intellectual property and trade secrets.