Robert Milligan and James McNairy Published in Business Law News

"Comedy Club, Inc v. Improv West Associates: The Ninth Circuit Limits Franchisors’ Use Of In-Term Non-Competition Covenants to those Situations Where the Covenant is Narrowly Tailored”

Robert Milligan and James McNairy’s article “Comedy Club, Inc v. Improv West Associates: The Ninth Circuit Limits Franchisors’ Use Of In-Term Non-Competition Covenants to those Situations Where the Covenant is Narrowly Tailored,” was published in The State Bar of California’s newsletter, Business Law News. In their article, the authors discuss the Ninth Circuit decision in the Comedy Club Inc. v. Improv West Associates case. According to the authors, “In Comedy Club, Inc. v. Improv West Associates, the Ninth Circuit held that an in-term (during the term of the contact/relations) covenant not to compete governed by California law was enforceable to the extent that it did not foreclose competition in a substantial share of a business, trade or market.”

The authors note that “the court relied on an apparent variant of the Ninth Circuit’s ‘narrow restraint’ doctrine and older California state law authority to support a watered-down version of the covenant not to compete.” Robert and James explain that the ruling was somewhat expected in light of a 2008 U.S. Supreme Court decision “that many believed disposed of the ‘manifest disregard of the law’ standard entirely.” They also discuss the implications that the Ninth Circuit’s decision will have for franchisors with a California presence. They point out that “the court’s decision has the potential to limit franchisor’s use of non-competition covenants during the term of the franchise agreement.”