December 4, 2020

Volume X, Number 339

Advertisement

December 03, 2020

Subscribe to Latest Legal News and Analysis

December 02, 2020

Subscribe to Latest Legal News and Analysis

December 01, 2020

Subscribe to Latest Legal News and Analysis
Advertisement

Is That Non-Circumvent Provision in Your Marketing Agreement Really Enforceable?

In California,  it depends.

California is notorious in the non-compete world for its virtual prohibition and scrutiny of individual non-compete and other types of restrictive covenant agreements, such as non-circumvention and non-solicitation agreement.

But what about when the agreement is between two commercial entities?

Rule of Reason

In August 2020, the Supreme Court of California in Ixchel Pharma, LLC v. Biogen, Inc., 470 P.3d 571, 573 (Cal. 2020), examined an agreement between two businesses and found “that a rule of reason applies to determine the validity” of business-to-business non-compete agreements.

California courts have generally invalidated agreements not to compete upon the termination of employment or upon the sale of interest in a business without inquiring into their reasonableness, they have invalidated other contractual restraints on businesses operations and commercial dealings only if such restraints were unreasonable.

Retraining commercial trade in some way is not necessarily illegitimate in California.  In fact, that court identified a multitude of ways in which contractual limitations on the freedom to engage in commercial dealings can promote competition, including, but not limited to, ensuring that marketing efforts are not exploited by contractual partners.

California’s “per se” ban on non-competition agreements is generally limited to employment agreements.  As long as a business-to-business noncompetition provision does not negatively affect the public interests, is designed to protect the parties in their dealings, and does not attempt to establish a monopoly, it may be reasonable and valid.

This case should be of interest to networks, lead aggregators, publishers, lead generators and general counsel.  Contact experienced digital marketing counsel if you are interested in the implications of the Ixchel decision, or for assistance with professionally drafted affiliate agreements, ad network agreements and other performance marketing agreements.

Takeaway:  Commercial entities should strive to ensure that contracts with restraints on business dealings are objectively reasonable and otherwise satisfy applicable legal standards, including, without limitation, whether the agreement harms competition more than it helps by considering the facts peculiar to the business in which the restraint is applied, the nature of the restraint and its effects, and the history of the restraint and the reasons for its adoption.

© 2020 Hinch Newman LLPNational Law Review, Volume X, Number 324
Advertisement

TRENDING LEGAL ANALYSIS

Advertisement
Advertisement

About this Author

Richard Newman, FTC Defense Lawyer, Internet Marketing, Hinch Newman Law Firm

Richard B. Newman is a nationally recognized FTC defense lawyer and advertising compliance attorney.  He regularly provides advertising counsel and represents clients in high-profile investigations (CIDs) and enforcement proceedings initiated by the Federal Trade Commission, state attorneys general, departments of consumer affairs, and other federal and state agencies with jurisdiction over advertising and marketing practices.  Richard’s practice also concentrates upon transactional matters relating to the dissemination of national advertising campaigns, including the...

212-756-8777
Advertisement
Advertisement