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

The FTC challenged the parties’ noncompete and non-solicitation agreements alleging they were unreasonable restraints of trade. The FTC argued that customers were harmed from the lack of “potential or actual competition by Respondent Safariland.” Similar to its prior complaint, the FTC alleged that the parties were not protecting a legitimate business interest as “a mere general desire to be free from competition is not a legitimate business interest.” And even if there was a legitimate business interest, the FTC argued that the agreements were too long to reasonably protect such interest.  In support of these arguments, the FTC quoted unhelpful language from the parties’ documents, which referenced the intense price competition between the merging parties. In particular, Axon’s CEO referred to the twelve-year non-compete as a “hidden jewel in the deal.” The parties ultimately settled the FTC’s claims regarding the noncompete and nonsolicitation agreements and agreed to eliminate the agreements at issue. The FTC’s challenge to the transaction itself remains pending, and the administrative trial is scheduled to begin in October 2020.

‘In the Matter of Altria Group’

Most recently, the FTC filed a complaint against Altria Group and Juul Labs (JLI) alleging the parties unlawfully agreed to restrict competition in their purchase agreement. Complaint, In the Matter of Altria Group., No. 1910075 (F.T.C. filed Apr. 1, 2020). Altria, a leading tobacco company, purchased a 35% minority stake in JLI. As part of the transaction, Altria agreed not to compete with JLI in the U.S. market for closed-system electronic cigarettes. Altria also agreed to provide a variety of support functions and license its intellectual property to JLI and appoint members to JLI’s board of directors. As in Axon, the Altria/JLI transaction was not HSR-reportable, but the FTC nonetheless took issue with the transaction’s non-compete agreement.

The FTC alleged that the parties’ agreed-upon conduct harmed competition in violation of the Sherman, Clayton and FTC Acts. It argued that the transaction eliminated current and future competition with respect to price, innovation, and shelf space in the market for closed-system electronic cigarettes. In defining the market, the FTC argued that traditional cigarettes and open-system electronic cigarettes were not substitutable for the parties’ closed-system products. The FTC further argued that Altria had no intention of exiting the market absent the transaction even though it issued a press release in which Altria said it was exiting the marketplace due to concerns that pod-based systems and non-traditional flavors could contribute to increased use by young persons. The FTC’s complaint focused more on the transaction’s effects as a whole and did not specifically claim that the non-compete agreement lacked a legitimate business interest or was not reasonable in time or geographic scope. The FTC’s complaint was filed on April 1, and neither Altria or JLI has responded.

1 2 3 4 5 6