Medtech industry group AdvaMed is publicly opposing a proposed ban on non-compete clauses that restrict the ability of a former employee to work elsewhere.
The Federal Trade Commission calls the use of non-compete clauses “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.”
The agency says a ban on non-competes could increase annual wages by nearly $300 billion, reduce pay gaps for women and racial minorities, and promote innovation through competition. The FTC also said its proposal would save consumers up to $148 billion per year in health care costs.
AdvaMed — which represents medtech firms as large as Medtronic and as small as some with fewer than 20 employees, along with tech giants such as Amazon, Microsoft and Google — disagrees.
“The proposed rule would significantly impede medical technology innovation and reduce competition, resulting in diminished quality and increased cost of healthcare available to patients,” AdvaMed General Counsel and Chief Policy Officer Christopher White said in a statement this week.
AdvaMed has also submitted 10 pages of comments to the FTC on its proposal, making the case against new rules.
The confidentiality of business information is central to AdvaMed’s argument against a broad ban on non-competes. Medtech developers have others tools at their disposal on that front: The U.S. Economic Espionage Act — which implemented criminal penalties — and the Trade Secrets Act, which lets companies sue over misappropriation.
But AdvaMed says the innovation cycle in medtech is so fast that a company might not learn about stolen secrets until it’s too late.
One example from the FTC of an overly broad non-compete clause was at a glass container manufacturer that said former employees could not “perform or provide the same or substantially similar services” at any business in the U.S., Mexico or Canada that is “involved with or that supports the sale, design, development, manufacture, or production of glass containers” in competition with their former employer.
In its comments to the FTC, AdvaMed said the agency’s “suggestion that non-compete agreements harm competition does not apply to the medical technology industry where innovation/investment drives competition and prohibiting non-compete agreements harms innovation/investment.”
The proposal would apply to employees and independent contractors alike, both in new and existing agreements. The rule would not apply to non-disclosure agreements unless they’re so broad that they’re effectively a broad non-compete. And the proposal would allow non-competes for someone selling their business if they have at least a 25% ownership stake.
The FTC is taking public comments on the proposal through April 19, 2023.