On August 3, 2020, a unanimous California Supreme Court approved the statutory standards for claims for unlawful interference with contracts that are terminable at will and the substantive standard for reviewing alleged violations of the prohibition on freedom of human freedom under Section 16600 of the California Business and Professions Code specifies how to get involved in a business. Ixchel Pharma, LLC v Biogen, Inc., No. S256927, 2020 WL 4432623 (Cal. Aug. 3, 2020). On appeal from the Eastern District of California, the Ninth Circuit (Ixchel Pharma, LLC v Biogen, Inc., 930 F.3d 1031 (Cir. 9, 2019)) asked the California Supreme Court to answer two certified unresolved questions California Law: (1) whether a plaintiff must independently seek an unlawful act in order to make a claim for unauthorized interference in a contract that is terminable at will; and (2) whether a contract under Section 16600 is void if it prevents a company from doing lawful business or trading with another company.
According to the complaint, plaintiffs Ixchel Pharma, LLC (“Ixchel”) and Forward Pharma A / S (“Forward”), two biotechnology companies, have entered into an agreement to jointly develop a drug containing an active ingredient called dimethyl fumarate (“DMF”) “) . Within the framework of this agreement, Forward can withdraw “at any time” with a notice period of 60 days. Forward has exercised its right to terminate its agreement with Ixchel because Forward has entered into a settlement agreement with another biotechnology company, Defendant Biogen, Inc. (“Biogen”), to resolve a patent dispute. Under the settlement agreement with Biogen, Forward had to terminate the agreement with Ixchel and was not allowed to work with Ixchel or anyone else to develop drugs or treatments that contain DMF. Ixchel sued Biogen in a federal court, among other things, for unlawful impairment of contractual relationships. After the District Court rejected Ixchel’s complaint twice, Ixchel appealed to the Ninth Circle. The Ninth Circle then asked the California Supreme Court to answer two certified questions to determine whether Ixchel had to allege that Biogen had committed an independent wrongful act to make a claim for unlawful interference with its contractual relationship, and Whether Biogen’s Settlement Agreement with Forward is void Violation of Section 16600.
With regard to the first question, after discussing the historical development of the law, the California Supreme Court turned to the political interests associated with economic problems. “The purpose of the independent requirement of unlawfulness in economic interference,” the Court wrote, “is to strike a balance between providing a remedy for predatory economic conduct and maintaining legitimate commercial competition outside the confines of litigation.” “In general, non-tied parties should be free to compete for business. However, once business relationships have solidified into binding promises, the stability of the business relationship takes precedence over business competition. “However, if a contract can be terminated at will, the parties have agreed a structure that” offers no legal guarantee of future economic relations. “In these circumstances, there is a risk of the breach of contract being compromised for reasons of the risk of efficient economic conduct. Hence this Court concluded that the plaintiff had to assert an unlawful act in his own right, and not just compete for the contract, in order to assert a right to unlawful interference in an agreement of intent.
This led the court to the next question – the appropriate standard for evaluating a contract that allegedly violates Section 16600 of the California Business and Professions Code – based on plaintiff’s allegation that the non-compete provisions for DMF drugs in the Forward / Biogen – Settlement Agreement, any independently unlawful act will be deemed to unduly restrict your freedom to conduct any business or trade in violation of Section 16600.
Pursuant to Section 16600, “any contract that prevents someone from exercising a lawful occupation, trade or business of any kind is null and void”. The law has long been interpreted broadly to prevent non-compete obligations in the employment context per se from becoming invalid regardless of appropriateness. However, the Court had never specifically dealt with the appropriate standard to be applied to contracts preventing an enterprise from entering a trade or business. Not surprisingly, the plaintiff advocated a per se similar standard to the employment context, while the defendant advocated the rule of common sense. After an in-depth analysis of how the law was evolving, the Court concluded that the Court had been contractually prevented from doing legitimate business or trading with another, given the possible pro-competitive effects of contractual restrictions on companies operating one business or trade Company must be analyzed according to the basic rule for claims from § 16600.
This opinion is useful in providing clear guidance to both companies competing for a contract and companies negotiating contracts where some restrictions on certain aspects of competition may be required in order to achieve pro-competitive objectives. It’s also in line with the overall scheme of California (and federal) antitrust laws. It would be unusual to condemn the multitude of potential agreements between companies that could restrict entry into a new company on a per se standard without an analysis of their competitive effects. And that decision doesn’t limit the categories of hardcore cartel behavior such as: B. bare market or customer allocation systems that are still condemned per se under the California Cartwright Act (or the Sherman Act).
Ixchel Pharma, LLC v Biogen, Inc.
Pharma, LLC v Biogen, Inc.