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Non-Competes Before the California Supreme Court

Non-Competes Before the California Supreme Court

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Non-Competes Before the California Supreme Court

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  1. Non-Competes Before the California Supreme Court

  2. Business and Professions Code Section 16600 “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” (Enacted 1872, renumbered and added to Business and Professions Code in 1941.)

  3. Advanced Bionics v. Medtronic • Medtronic: Manufacturer of high-tech medical equipment, holding 90% of a $220 million market for spinal cord stimulation devices • Advanced Bionics: A California company with a competing device pending FDA approval • Mark Stultz: Medtronic’s Senior Product Manager for neurostimulation devices

  4. Medtronic’s Non-Compete For two years, the employee may not do any kind of work “in connection with the design, development, manufacture, marketing, or sale of a Competitive Product” for sale anywhere that Medtronic “actively markets . . . or intends to actively market” a similar Medtronic product.

  5. A “Competitive Product” is a product: • that is “of the same general type, performs similar functions, or is used for the same purposes as a Medtronic Product on which the employee worked during the last two years of employment” or • about which the employee “received or had knowledge of Confidential Information.”

  6. California 6/7/00: Advanced Bionics and Stultz sue in California state court to enjoin enforcement of non-compete 6/8/00: Advanced Bionics gives notice of 6/9 TRO hearing Minnesota 6/7/00: Stultz resigns from Medtronic Procedural Ping-Pong

  7. California 6/9/00: Medtronic files notice of removal to federal court 6/16/00: Federal court remands case to state court 6/21/00: Medtronic files motion to dismiss Minnesota 6/9/00: Medtronic sues in Minnesota, obtains TRO limiting Advanced Bionics’ and Stultz’ ability to obtain California injunctive relief

  8. California 7/21/00: Court denies Medtronic’s motion to dismiss 8/8/00: Court issues TRO barring further prosecution of Minnesota action Minnesota 8/3/00: Court grants preliminary injunction limiting Stultz’s work for Advanced Bionics

  9. California Minnesota 8/16/00: Court amends preliminary injunction “nunc pro tunc” to bar Advanced Bionics and Stultz from seeking relief in California that would limit Minnesota action 8/22/00: Advanced Bionics and Stultz appeal TRO

  10. California 9/22/00: Medtronic appeals TRO 3/22/01: Court of Appeal affirms TRO 6/13/2001: Supreme Court grants review Minnesota 6/26/01: Court of Appeals affirms TRO

  11. Issues Raised by Medtronic’sPetition for Review • What is the effect of filing first? • When can a court issue an anti-suit injunction?

  12. Waiting in the Wings—Walia Walia v. Aetna, Inc., 93 Cal.App.4th 1213 (11/21/01): • The Court of Appeal affirmed a wrongful termination judgment arising from termination for refusal to sign a non-compete—$180,000 compensatories, $1,080,000 punitives. • The Supreme Court granted review on 2/27/02, but deferred briefing pending its decision in Advanced Bionics.

  13. Some Issues Raised by Aetna’sPetition for Review • Are there circumstances under which section 16600 allows the use of non-competes to prevent disclosure of trade secrets? • To what extent are employers subject to tort liability and punitive damages for requiring California employees to sign non-competes?