Explore a recent M&A legal case where a New York federal district court examined non-compete breaches and trademark infringement. Gain insights into non-compete obligations, the introduction of a new competing product post-closing, preliminary injunctions, and the nuanced interpretation of M&A agreements in the context of New York law.
M&A Stories
January 31, 2019
In a recent M&A legal dispute, a New York federal district court examined allegations of non-compete breaches and trademark infringement. This case involved a seller who had entered into an asset purchase agreement with a buyer, selling intellectual property, formulae, and goodwill associated with their Biotene product line for $170 million. The court’s judgment encompassed various critical elements:
Non-Compete Obligations:
The seller was subject to a non-compete agreement that extended for three years. The seller’s owner was also bound by a non-compete provision, though it notably lacked a specified time limit.
The Introduction of Salivea:
Over three years after the initial agreement, the seller introduced a new line of products known as Salivea. These products directly competed with the items sold to the buyer. Of particular significance was the use of the Biotene trademark in the advertising campaign for Salivea.
Preliminary Injunction:
In response to the introduction of Salivea, the buyer sought a preliminary injunction to halt the seller and its owner from using the Biotene trademark in Salivea advertising. The court granted the injunction, thereby ordering the seller to cease using the Biotene mark in their advertisements.
Nonsolicitation Obligation:
The buyer contended that, under New York law, there existed a perpetual implied obligation not to solicit former Biotene customers, independent of the non-compete provisions stipulated in the agreement. The court’s assessment revealed that the seller’s advertising campaign was of a general nature and not specifically directed at former customers, which did not warrant the issuance of a preliminary injunction.
Perpetual Non-Compete:
The seller’s non-compete obligation was observed to expire in three years, and there was no violation thereof. However, the seller’s owner had a non-compete agreement that lacked a specified time limit. The court found this perpetual non-compete to be unreasonable, leading to the conclusion that the buyer’s claim of a perpetual non-compete was likely unenforceable.
Trademark Infringement:
The court directed the seller to desist from using the Biotene trademark in their advertising campaign during the course of litigation. This action was taken as it was deemed likely that the seller had infringed on the buyer’s trademark.
This case illuminates the intricate nature of M&A agreements and the nuanced interpretation of non-compete and nonsolicitation obligations, particularly in the context of New York law.
Case Reference:
This case is referred to Glaxosmithkline LLC v. Laclede, Inc., No. 18-CV-4945 (JMF), United States District Court, S.D. New York, (January 23, 2019).
By John McCauley: I help people start, grow, buy and sell their businesses.
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