Covenants Not to Compete and Nonsignatories: Enjoining Unfair Conspiracies MICHAEL R
Covenants Not to Compete and Nonsignatories: Enjoining Unfair Conspiracies MICHAEL R. GRAY AND JASON M. MURRAY ost franchise agreements today contain some form of Instead, the franchisor should focus on whether its former noncompetition clause, covenant not to compete, franchisee, a signatory of the franchise agreement, has Mrestrictive covenant, or other agreement by the fran- breached the terms of the agreement and whether anyone else chisee “not to compete with the franchise system it is entering, has aided, assisted, or participated in the breach. Although a either during the term of the franchise agreement or for a peri- court may not be able to enforce the written contract against od following termination of the agreement, or both.”1 These nonsignatories, a court can enjoin individuals and entities noncompete agreements are one of the best means available to from engaging in activities that constitute a conspiracy to a franchisor to protect its interest in its trademarks, service breach the franchise agreement’s covenant not to compete, marks, trade secrets, processes, and other confidential busi- “which is, in effect, a conspiracy for unfair competition.”4 The ness information.2 By preventing the franchisee from wrong- conspiratorial act of aiding and abetting the former fran- fully using these assets, a franchisor can serve its long-term chisee’s breach of the franchise agreement is the critical ele- interests; preserve its goodwill, name recognition, market ment that provides the basis for seeking equitable relief share, and the integrity of its trademarks and service marks; against nonsignatories who aid, facilitate, or participate in the and protect its other franchisees while stopping competition former franchisee’s violation of the franchise agreement’s from the franchisee made possible by the franchisor’s own post-termination covenant not to compete.
[Show full text]