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Mirabile Dictu! Court Finds No Per Se Application Of Non-Compete Ban

California Business & Professions Code Section 16600 declares void "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind".  The California Supreme Court famously held that non-compete agreements are invalid under the statute, even if narrowly drawn, unless they come a statutory exception.  Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 955 (2008).  This combination of statute and interpretation would seem to allow no room for non-compete agreements that are not specifically excepted by statute.  Yesterday, however, a California Court of Appeal found that there was some room.  Quidel Corp. v. Superior Ct., Cal. Ct. Appeal Case No. D075217 (Aug. 8, 2019).

Quidel involved a non-compete clause in a patent license agreement and that is where the Court of Appeal found an opening for enforcement:  "Simply put, this matter falls outside the confines of Edwards because it does not address an individual's ability to engage in a profession, trade, or business."  Outside of the employment context, the Court found that "as long as a 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". 

In addition to distinguishing between employment and non-employment related agreements, the Court of Appeal also recognized a distinction between in-term covenants not to compete in exclusive dealing agreements.  According to the court, these latter covenants are not invalid per se.

Quidel does not green light all non-compete agreements.  First, it is the decision of the Fourth District Court of Appeal.  Other District Courts of Appeal or the Supreme Court may see things differently.  Even if the lines drawn in Justice Richard D. Huffman are upheld, there will be inevitable questions about whether the a covenant is employment related.  Then, there will be disputes about the reasonableness of restrictions.

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