Since September 2019, the Federal Trade Commission has challenged noncompete provisions in at least three transactions. These challenges demonstrate that the FTC will challenge noncompete provisions even when it concludes that the underlying transaction raises no substantive antitrust issues and when the provision relates to
minority investments.
Noncompete provisions help protect a buyer’s significant investment in an acquired business by restricting the seller from turning around and starting a new business that devalues the business sold. Although noncompete clauses often play a vital role in mergers and acquisitions, they are not immune from antitrust scrutiny. The recent challenges to noncompete provisions show that the FTC and other antitrust enforcers are closely scrutinizing noncompetes and will not hesitate to challenge problematic provisions — whether standalone or as part of a larger challenge to a transaction.
Parties to a commercial transaction, however, can easily manage these risks by carefully tailoring the scope of the noncompete to the transaction at hand. This article reviews recent enforcement actions involving noncompetes and provides practical guidance for mitigating antitrust risk associated with these valuable provisions.