In Ixchel Pharma, LLC v. Biogen, Inc., the Supreme Court today answers business competition questions for the Ninth Circuit (see here and here) in a lawsuit between two biotechnology companies about the cancellation of a contract that by its terms was terminable at will. [Disclosure: Horvitz & Levy filed an amicus curiae brief in this case.] The plaintiff company’s contract with a third company was ended by the third company at the behest of the defendant company.
The court’s unanimous opinion by Justice Goodwin Liu holds that the tort of interfering with a contract terminable at will requires a wrongful act independent of the interference itself, which is the same rule as with interference-with-economic-relations causes of actions, but is more than is required to sue for interference with non-at-will contracts. The court applies the reasoning for interference actions where there is no contract at all: “Because the expectation of future relations is weaker and the interest in maintaining open competition is stronger, ‘the law usually takes care to draw lines of legal liability in a way that maximizes areas of competition free of legal penalties.’ ”
Because the defendant company’s agreement with the third company barred the third company from competing altogether with the defendant in one respect (including the object of the at-will contract with the plaintiff company), the court also examines whether that agreement might violate Business and Professions Code section 16600, which generally voids contract provisions “by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.” The court doesn’t resolve that particular question, stating only the legal framework for the federal court to analyze the issue.
The court rejects the argument that any contract in restraint of trade is per se void. Instead, it adopts a “rule of reason” that requires determination of “ ‘whether an agreement harms competition more than it helps’ by considering ‘ “the facts peculiar to the business in which the restraint is applied, the nature of the restraint and its effects, and the history of the restraint and the reasons for its adoption.” ’ ” The court also explains that it construes the statute “more strictly” as to certain contracts different from the one before it, i.e., “agreements not to compete after the termination of employment or the sale of interest in a business.”
On the independent-wrongful-act issue, the court disapproves a 2018 decision by the Second District, Division Seven, Court of Appeal, and a 2016 Sixth District opinion.