Friday, June 18, 2021

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

Must read

Congressional Commerce Subcommittee Democrats Seek to Advance FTC Act 13(b) Reform Legislation

On May 27, 2021, the House Energy and Commerce Committee’s Subcommittee on Consumer Protection and Commerce sought to advance H.R. 2668, a...

Feds Charges First Person Under Covid19 Scam Laws

A St. Louis-based chiropractor became the first person charged under a new federal law aimed at protecting Americans from fraudulent COVID-19 claims. Eric...

Supreme Court TCPA ATDS Ruling a Big Win for Telemarketers

On April 1, 2021, the U.S. Supreme Court issued a unanimous decision in the matter of Facebook, Inc. v. Duguid that is...

Is John Monarch Behind a $100 Million Bank Scam?

John Monarch was promoted Heavily by Affiliate Summit Founder Missy Ward, raising lots of questions. The Securities and Exchange commission delivered an early...
Avatar
Richard B. Newmanhttp://www.hinchnewman.com
Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

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 an affiliate and performance marketing attorney 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.

Richard B. Newman is FTC TRO and asset freeze counsel at Hinch Newman LLP. 

Informational purposes only. Not legal advice. May be considered attorney advertising.

- Advertisement -

More articles

What's your opinion?

- Advertisement -

Latest article

Congressional Commerce Subcommittee Democrats Seek to Advance FTC Act 13(b) Reform Legislation

On May 27, 2021, the House Energy and Commerce Committee’s Subcommittee on Consumer Protection and Commerce sought to advance H.R. 2668, a...

Feds Charges First Person Under Covid19 Scam Laws

A St. Louis-based chiropractor became the first person charged under a new federal law aimed at protecting Americans from fraudulent COVID-19 claims. Eric...

Supreme Court TCPA ATDS Ruling a Big Win for Telemarketers

On April 1, 2021, the U.S. Supreme Court issued a unanimous decision in the matter of Facebook, Inc. v. Duguid that is...

Is John Monarch Behind a $100 Million Bank Scam?

John Monarch was promoted Heavily by Affiliate Summit Founder Missy Ward, raising lots of questions. The Securities and Exchange commission delivered an early...

FTC Releases 2020 Annual Highlights

On March 25, 2021, the Federal Trade Commission released its 2020 Annual Highlights, emphasizing the agency’s ongoing efforts to protect consumers. “Despite the challenges...