The Ninth Circuit's Comedy Club, Inc. v. Improv West Associates Decision Is No Laughing Matter For Franchisors

 

By Robert Milligan & Jim McNairy

After obtaining a sweeping nationwide injunction from an arbitrator that enjoined licensee Comedy Club, Inc. (“CCI”) from opening any new comedy clubs until 2019 pursuant to a trademark license agreement, licensor/competitor Improv West Associates (“Improv”) could not have been in the mood for laughs when the U.S. Court of Appeals for the Ninth Circuit modified the arbitrator’s injunction by significantly narrowing its scope and breadth. The decision is an important one for franchisors because the court indicated that in-term covenants not to compete in franchise like agreements will be void if they foreclose competition in a substantial share of a business, trade, or market.

The Ninth Circuit held in Comedy Club, Inc. v. Improv West Associates that an arbitrator’s injunction based on in-term covenant not to compete in a trademark license agreement, which precluded CCI and its affiliates (including tangential relatives of CCI principals) from competing in the comedy club business (apart from existing licensed “Improv” clubs that CCI continued to operate under the license agreement) until 2019, was not enforceable. Specifically, the court modified the nationwide scope and inclusion of tangential relatives of CCI principles in the arbitrator’s injunction.

The court found that the arbitrator’s injunction violated California Business & Professions Code Section 16600 (“CBPC § 16600”). With respect to the injunction barring affiliates from competing, the court stated:

Moreover, precluding non-party relatives or ex-spouses from opening or operating improv-comedy-related businesses or restaurants violates CBPC § 16600. . . . By restricting non-party relatives and ex-spouses from engaging in a lawful business, the injunctions, with respect to those persons, exceed the arbitrator’s authority.

 Regarding the scope of the nationwide injunction, the court stated that under existing California case law that it was evident that under CBPC § 16600 an in-term covenant not to compete in a franchise-like agreement will be void if it forecloses competition in a substantial share of a business, trade, or market. The court also stated that California courts are less willing to approve in-term covenants not to compete outside a franchise context because there is not a need to protect and maintain the franchisor’s trademark, trade name and goodwill.

The court indicated that under existing California case law that the franchisor-franchisee context was different from an employment or partnership context. The court stated that CCI’s relationship with Improv was in essence a franchise agreement as CCI contracted with Improv to use Improv’s trademarks and open comedy clubs modeled on Improv’s clubs. Assessing the requirements of California law, the court weighed CCI’s right to operate its business against Improv’s interest “to protect and maintain its trademark, trade name and goodwill.”  The court concluded that “this balance tilts in favor of Improv with regard to counties where CCI is operating an Improv club, but under the restraint of CBPC § 16600 California law does not permit an arbitrator to foreclose CCI’s competition in opening comedy clubs throughout the United States.” Accordingly, the court upheld a more limited injunction that restricted competition by CCI and those persons in active concert or participation with CCI but only in counties where CCI continued to operate comedy clubs using the licensed “Improv” name. Because the parties did not address its application, the court did not address whether the in-term covenant could be upheld under the trade secrets exception to CBPC § 16600.

Lessons from this case include:

1. In-term covenants not to compete may be enforceable in the franchise context “to protect trademarks, trade names, and goodwill of a licensor” if they are narrowly tailored and do not foreclose a party from engaging in its business or trade in a substantial section of the market—the geographic scope should be the territory where the company is or companies are doing business during the agreement. If franchisors can show that the in-term covenant is necessary to protect trade secrets, then they may be able to support a broader covenant. Franchisors should review their agreements to ensure that they comport with the court’s decision. 

2. Businesses should use caution before utilizing any covenants not to compete in California and should assess whether the restriction on competition can be tied to one of the statutory exceptions to California Business and Professions Code section 16600, to the protection of trade secrets, or the court’s in-term “franchise” exception to section 16600. These exceptions to California’s general prohibition against non-compete agreements were recognized by the court.

3. Franchisors should not include overly broad definitions of affiliates in their franchise agreements in California. Courts will not enforce overly broad covenants that restrict non-party relatives and ex-spouses from engaging in a lawful business because such covenants violate Business and Professions Code Section 16600.

4. The court’s decision highlights what the California Supreme Court made clear in its Edwards v. Arthur Andersen opinion: unless falling within one of few exceptions to Business and Professions Code Section 16600, post-term covenants not to compete are invalid in California regardless of whether such covenants are narrowly drawn.

5. The court’s decision places an increased focus on trade secrets. The court’s decision may be seen by some franchisees/employees as allowing greater mobility, even where proprietary information is taken. Auditing your organization’s trade secret protections is a valuable first step toward protecting against this risk, ensuring that your organization’s intellectual capital is adequately protected, and attempting to enforce a non-compete/non-solicit provision under the trade secrets exception to Business and Professions Code Section 16600.

Update on the Proposed Georgia Restrictive Covenant Legislation

 

The Georgia House of Representatives is hard at work on the restrictive covenant bill (HB 173 - note that the linked version is not the most current as we understand it).  The House Civil Judiciary Subcommittee (led by Rep. Mike Jacobs) has been reviewing the proposed legislation.  Although a vote was anticipated earlier this week, the bill was held over so the subcommittee could look at adding language to ensure that the statute did not have the unintended consequence of reaching employees who were not involved in sales and whose duties would not normally involve interacting with customers or access to trade secrets and confidential information. 

On Tuesday of this week, HR 178, the companion resolution recommending an amendment to the Georgia constitution "so as to allow the enforcement of contracts that restrict competition during or after the term of employment or of a commercial relationship so long as such contracts are reasonable in time, area, and line of business; to provide that courts may modify such contracts to achieve the intent of the contracting parties; to provide for the submission of this amendment for ratification or rejection; and for other purposes," was cleared through the subcommittee with a "do pass" recommendation. 

We are not sure when we will see a new draft of the proposed legislation, but we will post a link when it is available.

 

 

New Hampshire Judge Dissolves Injunction Preventing Former Dell EqualLogic Executive From Working for Competitor

EqualLogic, Inc. v. Shea, (N.H. Superior Court, Hillsborough County).

In an unusual reversal, a Nashua, New Hampshire judge admitted recently that she had erred in granting a preliminary injunction barring a former executive for computer data storage company EqualLogic from working for a competitor. 

EqualLogic was acquired by computer giant Dell for approximately $1.4 billion shortly before area vice president of sales Richard Shea left EqualLogic to take an identical position with LeftHand Networks, a direct competitor in the data storage industry. Dell subsequently sought to enforce the non-compete provision of Shea’s employment contract, which prohibited him from rendering any services to a competitor within twelve months of his departure from EqualLogic. According to Shea, Dell took the overly broad position that the non-compete prevented him from talking to any EqualLogic customers or former customers, although the law allows a company to protect only its actual business interests and goodwill.

In July 2008, Judge Diane Nicolosi granted Dell’s motion for a temporary restraining order, and in September 2008, she converted the TRO to a preliminary injunction barring Shea from working for LeftHand entirely. But Shea challenged the injunction, arguing that it was improperly granted because Judge Nicolosi had failed to apply the three-part test for injunctive relief, considering the likelihood of success on the merits, the risk of irreparable harm, and the absence of an adequate remedy at law. Specifically, Shea’s attorney asserted, Dell’s position on the non-compete went above and beyond protecting its legitimate business interests and goodwill since Shea had agreed not to contact any EqualLogic customers or former customers, and Dell was now seeking to prevent Shea from contacting even potential customers who had no association with EqualLogic. The court admitted its error and lifted the injunction, concluding that EqualLogic was neither likely to succeed on the merits nor in danger of suffering irreparable harm.

While the injunction was in effect, however, Shea was forced to resign from LeftHand, forsaking both his wages and stock options that later increased in value due to LeftHand’s subsequent sale to Hewlett Packard. Arbitration between Shea and Dell over the employment agreement has not yet been resolved, and the agreement leaves open the option for Shea to seek damages. Although the ultimate outcome is uncertain, the case serves as a reminder of the potential risks to employers who seek to broadly enforce non-compete provisions.

Georgia's Restrictive Covenant Legislation Moves Towards A Vote

Representative Kevin Levitas's HB 173 is headed for another hearing on Monday at the Georgia Capitol.  It may be up for a vote before the full Judiciary Committee as soon as Tuesday, February 17, 2009.  

Subcommittee chairman Representative Mike Jacobs led the latest hearing on Tuesday, February 10, 2009.  The subcommittee heard support for the bill from Reed Elsevier, Inc. and Gould Hagler, the Executive Director of the Independent Insurance Agents of Georgia, Inc. (who also suggested a few potential modifications) among others.  

Restrictive Covenant Lessons from...College Football Recruiting?

The recent travails of newly hired Tennessee head football coach Lane Kiffin provide some interesting parallels to issues faced by a host of employers. As the penultimate paragraph of this piece from SportsIllustrated.com’s Andy Staples sets forth, Tennessee raided the coaching staffs of conference rivals Alabama and South Carolina to hire David Reaves and Lance Thompson, respectively. According to Staples, Reaves immediately began recruiting high school players whom he had previously recruited on behalf of South Carolina. 

Reaves, like most assistant coaches for major college football programs, is tasked with developing relationships with promising high school players and then convincing the players to come play for his employer. Without a restrictive covenant in place, Reaves apparently was free to move from South Carolina to Tennessee and commence recruiting his prior contacts to play football for the Volunteers instead of the Gamecocks. Moreover, knowing South Carolina’s tailored pitches to the players and the players’ responses to the pitches, Reaves would have been in a prime position to undercut the sales message that South Carolina was making to the players.

Although not apparent at first blush, Reaves’ recruiting role makes his assistant coaching position similar to the sales representative positions that are common throughout the country. In this analogy, high school recruits function as the “customers” of major college football programs. Like football coaches, sales representatives are tasked with establishing and cultivating relationships that are critical to the continued success of their employers. Like football coaches, sales representatives know their employers’ customer-base, as well as the methods used to identify the customers, the preferences of those customers, and the way that the employer has pitched and serviced those customers. Because of those relationships and that knowledge, football coaches and sales representatives can represent competitive threats to their former employers when they move to competitors. 

In the commercial context, a non-compete or non-solicitation of customers provision is the most common way for an employer to protect itself against a sales representative resigning and then making a play for the employer’s customers. Although these clauses are rare in the employment agreements of college football coaches, they are not unheard of. Recently, there has been discussion of a non-compete provision in Arkansas head coach Bobby Petrino’s employment agreement with the school that would forbid Petrino from accepting a coaching position with any of Arkansas’s divisional rivals. As the stakes increase in college football, one would expect such restrictive covenants to become more common. The same is true in any industry where relationships and non-public information are critical.

With Mass Layoffs Comes The Potential For Mass Misappropriation

By Kurt Kappes and Jim McNairy, Sacramento

Mass layoffs are painful events for employees and employers alike.  But for employers, increasingly more than just personnel are leaving their facilities: researchers estimate that data theft cost businesses $1 trillion in 2008.

In a recent study commissioned by McAfee, Inc., researchers at Purdue University's Center for Education and Research in Information Assurance and Security (CERIAS) polled 800 executives at businesses with more than $250 million in annual sales.  Of the executives surveyed, 42 percent said that laid off workers were the biggest threat to business caused by the current recession.  Businesses reported losing $4.6 million on average in 2008 as a result of data theft.  McAfee noted that a lot of anecdotal evidence shows that many of the thefts were internal. 

Wall Street Journal Provides Flawed Advice to Brokers

On February 2, 2009, the Wall Street Journal published an “advisor alert” for “The World of Investment Planning.” The alert, titled “Staying Mum When Switching Firms” discusses the sensitive issues a broker faces when he/she leaves one financial investment firm for another. Although the alert correctly notes that “discussing an impending move with clients before resigning is probably the most dangerous thing you can do,” the article provides flawed advice with respect to removing the former employer’s confidential information.

Specifically, the alert discusses an initiative called the “Protocol for Broker Recruiting.” The protocol, which has been signed by companies such as Bank of America (which signed the protocol in order to retain brokers from Merrill Lynch) and Citigroup, concerns certain client information such as addresses, phone numbers, email addresses and account types. Under the protocol and despite the fact that this information is typically considered confidential/trade secret information, a broker may take this client information to his new firm. More importantly, the protocol allows the broker to use this confidential information to contact his/her former clients about transferring their accounts to the new firm. 

The Wall Street Journal alert states that brokers who are moving to or from “firms that are not part of the [protocol] should still follow its guidelines.” This advice is flawed because the advice/alert fails to inform the broker that a non-protocol firm will not excuse a broker’s removal of confidential information simply because the broker followed the protocol. Nor will following the protocol allow the broker to ignore the confidentiality and non-solicitation provisions that are likely founder in the broker’s employment agreement with the non-protocol firm. Put another way, following the Wall Street Journal’s advice when leaving a firm that has not signed the protocol could subject the broker, and the broker’s new firm, to litigation.  Such litigation could concern the breach of an employment agreement and the theft of confidential trade secret information and could lead to restraining orders and injunctions being entered against the former broker and the broker’s new firm.

In addition, firms who signed the protocol should be aware of the protocol’s impact on their ability to enforce restrictive covenants contained in their employment agreements. For example, Merrill Lynch found out in 2007 that it could not enforce its non-disclosure and non-solicitation agreements against a former broker because Merrill Lynch had signed the protocol. Merrill Lynch, Pierce, Fenner, and Smith, Inc. v. Brennan, 2007 WL 632904 (N.D. Ohio, Feb. 23, 2007). Consequently, both brokers and firms need to be aware of the protocol’s potential impact and should consult with competent counsel prior to hiring brokers.

Ohio Appellate Court Upholds Entry of Temporary Injunction

The Ohio 12th District Court of Appeals recently upheld a lower court’s injunction against two former employees and their new employer in light of defendants’ apparent breach of duty of loyalty, misappropriation of trade secrets, and tortious interference with business relations. DK Prods., Inc. v. Miller, Case No. CA2008-05-060, 2009 WL 243089 (Ohio Ct. App. 12 Dist. Feb. 2, 2009)

System Cycle, a branch of DK Products, Inc., located in Springboro, Ohio, distributes BMX bicycles, parts and accessories to bicycle retailers throughout the United States. System Cycle employed Matthew Miller and Charles Johantges until System Cycle learned that Miller and Johantges had disclosed sensitive financial information to vendors and attempted to broker distribution deals on behalf of Two Zero Distribution, Inc., a company created by Miller while Miller and Johantges were still employed by System Cycle (“Two Zero”). Per a Dayton Daily News article discussing the case, System Cycle learned about Miller and Johantges’s activities by intercepting an e-mail from the defendants to one of System Cycle’s customers.  

 The Ohio courts granted System Cycle ’s request for injunctive relief on each of the counts in the complaint, rejecting each and everyone of defendants’ counter-arguments. With respect to System Cycle’s tortious interference claim that defendants improperly interfered with System Cycle’s existing business relationships through improper disclosure of financial information, defendants argued that System Cycle had not showed evidence of malice on their part, but the Court of Appeals declined to find that malice is a necessary showing for a claim of tortious interference. Additionally, there was ample evidence of irreparable harm to System Cycle. Even defendant Miller admitted that his disclosure of confidential financial information regarding System Cycle was “pretty devastating.”

The courts also rejected Defendants’ challenge to the injunction as it related to the trade secret misappropriation claim. Defendants had asserted that the injunction was improper because System Cycle did not proffer evidence that they used System Cycle’s trade secrets Yet, the Court of Appeals pointed to Defendant Miller’s admission that he had discussed certain trade secret information with a vendor, which falls within the definition of “misappropriation” under the Ohio Uniform Trade Secret Act. 

Defendants’ final challenge was to the injunction as a remedy for the apparent breach of defendants’ duties of good faith and loyalty. The defendants contended that System Cycle failed to show irreparable injury in connection with this claim, but the defense fell on deaf ears. The Court of Appeals deflected that criticism by pointing to the very real potential for irreparable injury in connection with the other two claims.

As a result, the Court of Appeals affirmed the trial court’s order enjoining Defendants from solicitng System Cycle’s customers and from misappropriating System Cycle’s confidential information for the benefit of Two Zero. The case now returns to the trial court, where System Cycle may pursue a permanent injunction and money damages.

The key to System Cycle’s success likely had much to do with the early interception of the e-mail from Miller to a System Cycle customer. Procedures designed to prevent the loss of trade secrets through electronic means are becoming more commonplace and more important to protecting a company’s intellectual property. 

 

An excellent analysis of California Law Post-Edwards

Our own Robert Milligan and Damon Anastasia published an oustanding article in the California Lawyer on the status of the law in California on non-competition agreements in light of Edwards v. Arthur Anderson.  The article is publicly available here.

Muskat v. United States: Considering Tax Ramifications for Non-Competition Income.

The First Circuit recently rejected a taxpayer’s claim for a refund based on recharacterization of a payment for a noncompetition agreement. Muskat v. United States, 2009 WL 211067 (1st Cir. 2009).

Irwin Muskat was the CEO and largest shareholder of his company, Jac Pac Foods. He entered into an agreement with Corporate Brand Foods America to sell the company with him to remain as CEO. Muskat’s overall compensation package (a part of the asset purchase agreement between Jac Pac and Corporate Brand) included a covenant not to compete, in return for which he was provided separate compensation from his salary at the now-sold company, including an initial $1 million payout under the non-competition agreement.

Although Muskat initially recorded that payout as ordinary income for his 1998 taxes, in 2002 he filed an amended return for 1998, recharacterizing the $1 million payment as a capital gain (which would have entitled him to a refund of over $200,000). The IRS denied Muskat’s request so he brought an enforcement action against the IRS. The district court, too, denied his request, finding that Muskat lacked “strong proof” that the non-competition payment was intended as payment for personal “good will” rather than as a covenant not to compete.

The First Circuit noted two principles in reviewing Muskat’s appeal of this decision; first, that generally speaking, payments in return for covenants not to compete are taxable as ordinary income and payments for goodwill are taxable as capital gains; and, second, that ordinary income is usually taxed at a higher rate than capital gains. It also explained the “strong proof” rule to which Muskat’s claim was subject. This rule of heightened burden for one appealing a decision of the IRS applies “when the parties to a transaction have executed a written instrument allocating sums of money for particular items, and one party thereafter seeks to alter the written allocation for tax purposes on the basis that the sums were, in reality, intended as compensation for some other item.”

Here, Muskat argued, among other things, that his non competition agreement was in reality a payment for his personal goodwill as president of the company, which was what Corporate Brand purchased in connection with the non competition agreement. The First Circuit rejected that argument, noting that his non competition agreement was a “garden-variety agreement not to compete” and it affirmed the district court’s decision. It reiterated that compensation for non-competition agreements remain ordinary income. It is only if an agreement is actually a purchase of goodwill that the compensation may be classified as capital gains.

This case, however, raises a point of consideration for drafters and parties to non competition agreements and asset purchase agreements where one of the primary assets is goodwill. Although Muskat had to overcome a significant burden (of strong proof) to reverse the IRS qualification, the First Circuit did note that the compensation under the agreement expressly was for Muskat’s promise not to compete against the purchaser (Corporate Brand) and “to protect Jac Pac’s goodwill.” Thus, the questions then raised are whether Muskat could or should have executed separate agreements to take the tax benefits of the goodwill presumably purchased as a part of the sale of the business and whether, ab initio, it was the heightened legal burden placed on Muskat that kept him from successfully qualifying his compensation as a capital gain. The company or individual dealing in non-competition agreements in the sale of a business or goodwill should consult a tax professional for advice about these issues.
 

Tennessee Court of Appeals Reverses Dismissal of Former Employer's Complaint Alleging Violations of Non-compete Agreement

In Southern Fire Analysis v. Rambo, No. M2008-00056-COA-R3-CV, 2009 WL 161088 (Tenn. Ct. App. Jan. 22, 2009), the Tennessee Court of Appeals reversed a trial court’s dismissal of a complaint alleging violations of three non-compete agreements. The facts are as follows:

Plaintiff Southern Fire Analysis is in the business of investigating fires on behalf of insurance company clients. Southern Fire Analysis employed James Jennings and Glenn Johnson as fire investigators. Jennings and Johnson signed “Corporate Resolution” documents in 1996 and 1997, respectively, that stated the following:

WHEREAS, in the opinion of this Board, it is for the best interests of this Corporation to adopt a No-Compete Agreement, be it

RESOLVED, That a No-Compete Agreement shall remain in effect for a period of Six (6) Months from the date of Termination with the Corporation by James D. Jennings, and shall cover an area of up to and including a One Hundred & Fifty (150) Mile radius from Nashville, Tennessee.

In 2004, Jennings and Johnson changed from being employees to being independent contractors. The Independent Contractor Agreements that Jennings and Johnson executed with Southern Fire Analysis stated that “[t]he Independent Contractor must have and maintain and must provide [Southern Fire] with documents of”... a “Valid Non-Compete Agreement effective for six (6) month time period.” Southern Fire Analysis also hired David Edge in 2005. Edge signed an independent contractor agreement, but Southern Fire Analysis was unable to locate a non-compete agreement attached to or part of the independent contractor agreement.

On July 2, 2007, Jennings, Johnson, and Edge resigned from Southern Fire Analysis, along with Southern Fire Analysis’s Nashville office manager, Michael Rambo. The four individuals started working for Southern Fire, Unified Investigations and Science, a competitor of Southern Fire Analysis. One month later, on August 3, 2007, Southern Fire Analysis initiated an action against Rambo, Jennings, Johnson and Edge. Southern Fire Analysis alleged that Edge, Jennings and Johnson were working in violation of their respective non-compete agreements. Southern Fire Analysis attached copies of the Corporate Resolutions and Independent Contractor Agreements for Jennings and Johnson. It further alleged, upon information and belief, that Rambo removed Edge’s Independent Contractor Agreement and Non-Compete Agreement from Southern Fire Analysis’s files. The Complaint also included a breach of the duty of loyalty claim against Rambo and civil conspiracy claims against all four defendants.

On September 18, 2007, all four defendants moved to dismiss, arguing that the non-compete agreements were invalid. Specifically, defendants argued that Southern Fire Analysis had not pled a protectable business interest, the non-compete agreements were overbroad in their scope, and if valid, the non-compete provisions had expired six months after the Independent Contractor Agreements were signed. Additionally, Edge moved to dismiss the breach of contract claim on the ground there was no evidence that he had entered into a non-compete agreement. The trial court granted the Motion to Dismiss, finding that “the documents relied upon by Plaintiff and attached to the Petition as non-compete agreements between it and Defendants Edge, Jennings, and Johnson are unenforceable and fail to support the claims alleged in the Complaint.” It is unclear from the Court of Appeals’s decision whether the trial court provided any further reasoning in reaching its decision.

The Tennessee Court of Appeals reversed the trial court’s finding, reciting the Tennessee standard that: “Covenants not to compete are enforceable if an employee or independent contractor would otherwise be able ‘to exercise an unfair advantage in future competition with his employer, and if they are no broader in duration or as to the territory they embrace than is reasonably necessary to secure the protection of the business or good will of the employer.’” The Court of Appeals pointed out that:

  • Southern Fire Analysis attached to its Complaint copies of the alleged non-compete agreements with Jennings and Johnson.
  • Southern Fire Analysis alleged upon information and belief that Edge had signed a non-compete agreement and an independent contractor agreement identical to those of Jennings and Johnson, but they could not be produced because Rambo, had removed the signed documents from the company’s files.
  • Southern Fire Analysis alleged that the non-compete agreements were signed by the defendants in exchange for specialized training.
  • Finally, Southern Fire Analysis alleged that defendants were competing within 150 miles of its Nashville office, the same geographic area in which they worked as fire investigators for Southern Fire Analysis.

Thus, the Court of Appeals found that Southern Fire Analysis had made a sufficient showing under Tennessee law to survive a motion to dismiss. The Court of Appeals did not explain why the trial court was wrong. Instead, it described the allegations made by Southern Fire Analysis in its Complaint and then concluded that the allegations were sufficient to set forth a claim for breach of contract. It is not clear if the Court of Appeals held that the trial court applied the wrong standard or erred in applying the right standard, possibly because the trial court likely did not set forth its reasoning. 

Georgia's House Study Committee on Restrictive Covenants in the Commercial Arena Issues Final Report

Just before the end of 2008, Georgia's House Study Committee on Restrictive Covenants in the Commercia Arena, chaired by Representative Kevin Levitas, issued its final report, asking for support to "[m]oderniz[e] Georgia law" and to "attract new business to our great state and retain those companies that are already located here." 

Following two hearings involving testimony and letters from a number of witnesses (in full disclosure, I participated in providing testimony), the Committee concluded that "[t]he time has come for a change in Georgia law, both to bring our state in line with the overwhelming majority of other states as well as to establish a rule of reasonableness in the analysis of restrictive covenants." 

Additionally, the Committee recommended that Georgia courts be allowed to "blue pencil" restrictive covenants in connection with employment agreements (blue-pencling in connection with agreements relating to sale of a business already is allowed).  A couple of practitioners who testified before the Committee expressed concern that blue-penciling would make it more difficult to predict outcomes; that is that there is no certainty until the litigation concludes.  Proponents of blue-penciling countered that argument by noting that blue-penciling may lead to more negotiated settlements of disputes. 

It appears that the legislation may be headed for a hearing this session.   The question that remains is whether a constitutional amendment will be required.  Previous attempts by the General Assembly to bring clarity to Georgia's law were struck down by Georgia's Supreme Court as violating Art. III, Sec. VI, Par.  V(c) of the Constitution of Georgia of 1983, which reads: "The General Assembly shall not have the power to authorize any contract or agreement which may have the effect of or which is intended to have the effect of defeating or lessening competition, or encouraging a monopoly, which are hereby declared to be unlawful and void."  So, in addition to making it through the General Assembly, we may also see support for a constitutional amendment to avoid uncertainty in the Georgia's courts.