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FTC Issues Final Rule on the Negative Option Rule
The Federal Trade Commission (“FTC” or “Commission”) issues final amendments to the Commission’s trade regulation “Rule Concerning Use of Prenotification Negative Option Plans,” retitled the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” (“Rule,” “final Rule” or “Negative Option Rule”). The final Rule now applies to all negative option programs in any media, and, among other things, (1) prohibits misrepresentations of any material fact made while marketing using negative option features; (2) requires sellers to provide important information prior to obtaining consumers’ billing information and charging consumers; (3) requires sellers to obtain consumers’ unambiguously affirmative consent to the negative option feature prior to charging them; and (4) requires sellers to provide consumers with simple cancellation mechanisms to immediately halt all recurring charges.
FTC Final Rule Limiting Non-Compete Agreements: Considerations for M&A Transactions
On April 23, 2024, the Federal Trade Commission (“FTC”) published a final rule (the “Final Rule”) that wouldsignificantly curtail the use of employee non-competes throughout the United States and invalidate many existingagreements subject to a few exceptions. The Final Rule was set to become effective on September 3, 2024. U.S.District Judge Ada Brown of the Northern District of Texas struck down the Final Rule in a decision on August 20,2024 that will almost certainly delay the implementation of the Final Rule and puts any future implementation in peril.That said, the judgement will be appealed and the legal saga relating to the Final Rule is far from over.Below we discuss some of the implications on employee retention in the M&A context if the Final Rule were tobe implemented as written. Even if the Final Rule were to be substantially modified or invalidated altogether, thestrategies and concepts laid out here will remain relevant and still be useful alternatives when considering state lawrestrictions or deal dynamics that make non-competes less palatable.The Final Rule allows a sale-based non-compete to be valid for any individual entering into such non-competeclause pursuant to a “bona fide” sale, including such individual selling their ownership interest in the business entity,seemingly regardless of the size of their interest.Historically, non-compete agreements executed by sellers in connection with the sale of a business have garneredless scrutiny from agencies and courts than non-competes in the context of post-employment restrictions and the FinalRule maintains this lineage by preserving the ability to obtain non-competes from sellers of a “bona fide” interest in abusiness entity is a welcome. Below, we discuss further how the interpretation of “bona fide” may impact theapplication of a Final Rule, but at the highest level, business principals and in-house counsel should be aware that thesale of business exception is preserved in the Final Rule can apply to any seller in a sale of a business entity (regardlessof the size of the ownership interest sold or the purchase price paid for such interest) so long as the exception is utilizedin connection with a “bona fide” sale.Another point in the Final Rule that will be notable for transactional professionals is the inability of firms toenforce employment-based non-competes that were in existence prior to the implementation of the Final Rule if suchnon-competes would be prohibited under the Final Rule. This means that almost all non-competes entered into in acontext other than the sale of a business will no longer be enforceable, with the sole limited exception in theemployment context applying to existing non-competes with “senior executives.”