Source: http://maddinhauser.com/Law/DrawCases.aspx?CaseID=739&PageID=34
Timestamp: 2019-04-22 11:37:44+00:00

Document:
Both Michigan law and federal law have long prohibited “restraints” on trade or commerce.1 Violations can include fines and criminal prosecution.2 There is the additional risk that a court will refuse to enforce agreements, including settlement agreements, that contain restraints on trade, upending expectations.
But what is a restraint on trade? And do non-solicitation provisions within settlement agreements qualify as unlawful restraints on trade?
As to the last question, the short answer is that Michigan courts have not yet tackled this specific question—if and when they do, there are strong legal and policy arguments supporting the legality of non-solicitation provisions within bona fide settlement agreements. Until this area of law is settled, businesses are wise to pay particular attention to how their non-solicitation provisions are worded.
The question, then, is whether non-solicitation provisions constitute “unreasonable restraints” on trade—and thus violations of state and federal law.
What about non-solicitation agreements outside of the employer-employee context, such as agreements with competitors, customers, joint venture partners, and vendors? Such agreements are broadly referred to as “commercial” non-solicitation agreements.
In applying the rule of reason, the courts “must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable."11 Further, the court must assess “[t]he history of the restraint, the evil believed to exist, the reason for adopting the particular [agreement], [and] the purpose or end sought to be attained."12 In other words, the courts are tasked with a factually-intensive inquiry that seeks to understand the reason for the non-solicitation agreement’s existence and its impact on competition.
Within this “rule of reason” framework, it would seem that Michigan courts would be inclined to enforce non-solicitation provisions set forth in a bona fide settlement agreement. For example, competitors may have been engaged in litigation after one of the competitor’s employees joined the other competitor and allegedly took confidential information allowing the competitor and employee to unfairly solicit and divert customers. This is not an uncommon factual scenario. A settlement agreement settling that dispute may well include a non-solicitation provision prohibiting the offending competitor from soliciting, or doing business with, the illicitly diverted customers. Under the rule of reason, such a non-solicitation agreement would appear to have a legitimate reason—designed not to restrain trade but to restore the parties, as best they can, to the state of affairs that existed before the illicit diversion of customers. This scenario starkly differs from those found in the above-referenced agreements involving major companies who agreed—before any kind of dispute or wrongdoing—not to recruit each other’s employees.
A Michigan court taking a simplistic approach may very well categorize the above-referenced non-solicitation settlement agreement between competitors as a horizontal agreement and, accordingly, conclude it is an unlawful restraint on trade. That said, parties who employ non-solicitation provisions within bona fide settlement agreements have strong arguments that the non-solicitation provisions do not qualify as conventional horizontal agreements and should not be subject to the doctrine of per se violations. To the contrary, there are strong policy reasons for permitting parties to solve suspected unfair competition through non-solicitation provisions. Indeed, it is noteworthy that the Department of Justice permitted Ebay, Adobe, Google, Apple, Intel, Intuit, and Pixar to enter into non-solicitation agreements “reasonably necessary for the settlement or compromise of legal disputes.” While non-solicitation agreements among competitors may seem to impair competition on the surface and constitute unreasonable restraints on trade, non-solicitation provisions within the context of unfair competitive practices may actually promote fair competition by addressing and discouraging, among other ills, unlawful diversion of customers.
Businesses should understand that the legality of non-solicitation provisions within settlement agreements is not yet settled under Michigan law. While there are strong arguments regarding the lawfulness and enforceability of such provisions, they remain subject to attack until a court or law states otherwise. If such provisions are employed, counsel must carefully draft those provisions to make clear that they are designed to address and cure a particular problem between the competitors rather than to stifle competition.
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1See Michigan Antitrust Reform Act, MCL 450.771 et seq. and its federal counterpart, The Sherman Antitrust Act of 1890, 15 U.S.C. §§ 1–7.
3Staebler–Kempf Oil Co v. Mac's Auto Mart, Inc., 329 Mich. 351, 356; 45 N.W.2d 316 (1951).
5Restrictive Covenants: Burdens, Benefits, or Both?, Hon. Christopher P. Yates, Michigan Bar Journal (September 2018).
6See, e.g., Rooyakker & Sitz, P.L.L.C. v. Plante & Moran, P.L.L.C., 276 Mich. App. 146, 158; 742 N.W.2d 409 (2007).
7Details may be found at https://www.federalregister.gov/documents/2014/05/14/2014-11056/united-states-v-ebay-inc-proposed-final-judgment-and-competitive-impact-statement and https://www.justice.gov/atr/case-document/competitive-impact-statement-0.
9Innovation Ventures v. Liquid Mfg., 499 Mich. 491, 513–15, 885 N.W.2d 861, reh'g denied sub nom. Innovation Ventures, L.L.C. v. Liquid Mfg., L.L.C., 500 Mich. 859, 884 N.W.2d 573 (2016).
10Innovation Ventures, 499 Mich at 515. See also MCL 445.784 (“It is the intent of the legislature that in constructing all sections of [the Michigan Antitrust Reform Act], the courts shall give deference to interpretations given by the federal courts to comparable antitrust statutes, including, without limitation the doctrine of per se violations and the rule of reason.”).
11Innovation Ventures, 499 Mich at 514–15, citing Bd. of Trade of City of Chicago v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918).
12Innovation Ventures, 499 Mich at 515.
13Similarly, the Federal Trade Commission has concluded that “[p]lain agreements among competitors to divide sales territories or assign customers are almost always prohibited. These arrangements are essentially agreements not to compete: ‘I won't sell in your market if you don't sell in mine.’” https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/dealings-competitors/market-division-or.
14McDill v. McDonald Co-op. Dairy Co., 91 Mich. App. 611, 617–18, 283 N.W.2d 819 (1979), citing United States v. Topco Associates, Inc., 405 U.S. 596, 608, 92 S.Ct. 1126 (1972).

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