Transaction-Related Noncompete Agreements Face FTC Fire | New York Law Journal

Here, the FTC alleged that Nexus Gas Transmission was not protecting a legitimate business interest and the agreement was overly broad. The FTC argued that “a mere general desire to be free from competition is not a legitimate business interest” and the non-compete agreement did not protect any recognized business interests such as “intellectual property, goodwill, or a customer relationship.” The FTC went on to say that even if the non-compete did protect a legitimate business interest, it was unreasonably broad because it restricted NCGT’s ability to compete “for any opportunity” in the Toledo, Ohio area. Ultimately, the parties settled and the FTC approved a consent agreement in which the parties’ agreed to eliminate the non-compete agreement. No other remedy or divestiture was required as the noncompete agreement was the FTC’s only focus, and the transaction closed in September 2019.

‘In the Matter of Axon Enterprise’

In January, the FTC filed a second administrative complaint regarding a noncompete—this time against Axon Enterprises and Safariland. The FTC alleged both that the transaction at issue and the non-compete and nonsolicitation agreements entered into as part of the transaction violated the antitrust laws. Complaint, In the Matter of Axon Enterprise, No. 1810162 (F.T.C. filed Jan. 3, 2020). Axon acquired VieVu from Safariland in May 2018 in a deal valued at about $7 million. The transaction was not HSR-reportable and had already closed when the FTC filed suit. Pre-merger, both parties manufactured and supplied body-worn cameras and digital evidence management systems to large, metropolitan police departments. Safariland continues to manufacture equipment for law enforcement, public safety, military and recreational markets and agreed to supply certain products to Axon post-merger.

As part of the transaction, the parties agreed to several non-compete and nonsolicitation agreements that the FTC alleged were overly broad and did not protect a legitimate business interest. The parties agreed not to solicit the other’s clients for ten years and the other’s employees for eleven years. The parties also agreed that Safariland would not compete for Axon’s customers for ten years nor would it compete for products and services that Axon supplied and in industries where Axon was active. Safariland agreed not to engage in product lines for body-worn video, in-car video, digital evidence management and enterprise records management globally for 10 years and agreed not to compete in the industries for conducted electrical weapons, body-worn cameras, fleet or vehicle cameras, surveillance room cameras and digital evidence management globally for twelve years. In contrast to Nexus Gas Transmission’s three-year noncompete agreement, the non-competes at issue here were much broader in time and geographic scope.