~--~~-- --- --~--~-~--------~-------~-~-----~-------------------

Case No.: S147190

IN THE SUPREME COURT

OF CALIFORNIA

RAYMOND EDWARDS II,

Plaintiffand Appellant,

vs.

ARTHUR ANDERSEN, LLP,

Defendant and Respondent.

After a Decision by the Court of Appeal

Second Appellate District, Division Three, Case No. B178246
Los Angeles Superior Court Case No. BC 294853
Honorable Andria K. Richey

APPLICATION OF ST. JUDE MEDICAL, S.C., INC.,

PACESETTER, INC. AND ADVANCED BIONICS
CORPORATION FOR LEAVE TO FILE AMICUS CURIAE
BRIEF AND AMICUS CURIAE BRIEF IN SUPPORT OF
APPELLANT RAYMOND EDWARDS II

FELDMAN GALE, P.A.

James A. Gale (FL Bar No. 371726)
Todd M. Malynn (CA Bar No. 181595)
Michael J. Weber (FL Bar No.: 918570)
880 West First Street, Suite 315
Los Angeles, California 90012
Telephone: 213-625-5992
Facsimile: 213-625-5993

Attorneys for Amicus Curiae St. Jude Medical, S.C., Inc., Pacesetter,
Inc. and Advanced Bionics Corporation
Case No.: S147190

IN THE SUPREME COURT

OF CALIFORNIA

RAYMOND EDWARDS II,

Plaintiffand Appellant,

vs.

ARTHUR ANDERSEN, LLP,

Defendant and Respondent.

After a Decision by the Court of Appeal

Second Appellate District, Division Three, Case No. B178246
Los Angeles Superior Court Case No. BC 294853
Honorable Andria K. Richey

APPLICATION OF ST. JUDE MEDICAL, S.C., INC.,

PACESETTER, INC. AND ADVANCED BIONICS CORP. FOR
LEAVE TO FILE AMICUS CURIAE BRIEF IN SUPPORT OF
APPELLANT RAYMOND EDWARDS II

FELDMAN GALE, P.A.

James A. Gale (FL Bar No. 371726)
Todd M. Malynn (CA Bar No. 181595)
Michael J. Weber (FL Bar No.: 918570)
880 West First Street, Suite 315
Los Angeles, California 90012
Telephone: 213-625-5992
Facsimile: 213-625-5993

Attorneys for Amicus Curiae St. Jude Medical, S.C., Inc., Pacesetter,
Inc. and Advanced Bionics Corporation

1
TO THE HONORABLE CHIEF JUSTICE RONALD M. GEORGE AND
HONORABLE ASSOCIATE JUSTICES:
St. Jude Medical, S.C., Inc. ("St. Jude"), Pacesetter, Inc.
("Pacesetter") and Advanced Bionics Corporation ("Advanced Bionics")
respectfully request permission to file a brief as amicus curiae in support of
plaintiff and respondent Raymond Edwards II and the decision of the
California Court of Appeal, Second Appellate District, Division Three,
rejecting the Ninth Circuit Court of Appeals' interpretation of Business and
Professions Code section 16600 ("Section 16600").
The proposed Amicus Curiae Brief is combined with and
accompanies this Application, and addresses the following important issue
of California law, which has remained unsettled since the Supreme Court's
decision in Muggill v. Reuben H Donnelley Corp. (1965) 62 Ca1.2d 239:
Whether there are and should be any judicially created exceptions to the
Legislature's statutory scheme regulating contracts in restraint o/trade.
The Identity of Amicus Curiae
St. Jude, Pacesetter and Advanced Bionics (collectively, the
"Amicus Curiae") are companies that conduct substantial business in
California - researching, manufacturing, selling and!or supporting the sales
of implantable medical devices. They employ over 3,000 residents in
California. Pacesetter's principal place of business is Sylmar, California.
St. Jude's western regional office is located in Sylmar, California.
Advanced Bionics' principal place of business is in the neighboring city of
Santa Clarita, California.
The Interests of the Amicus Curiae
The Amicus Curiae follow long-standing and previously well-settled
law and embrace the public policy embodied in Section 16600 and the

1
fundamental right of all Californians to engage in a profession, trade or
business of their choosing, which is protected by that statue. To that end,
the Amicus Curiae do not use contractual restraints in their California
employment agreements, even though they might employ such restraints in
other jurisdictions where contractual restraints are both legal and
enforceable.
Given the current state of the law, however, the Amicus Curiae's
decision not to use contractual restraints in this State puts them at a distinct
and increasing competitive disadvantage. Other companies may freely
recruit and hire the Amicus Curiae's employees in California without any
concern about contractual restraints and without incurring the often
substantial costs involved in litigating over the validity of such restraints.
Unlike the Amicus Curiae, there are other companies doing
substantial business in California that - whether due to confusion or
malicious intent - routinely insert restraints on competition in their
California employment agreements. Should the Amicus Curiae desire to
recruit an employee who has signed such an agreement, they are faced with
the threat, and the corresponding effort and expense, of litigating over the
validity and enforceability of the restraints. In most cases, the cost of
litigation far exceeds the salary of the recruited employee. 1 The only way

For example, between April and June 2005, St. Jude and Pacesetter hired
three mid-level employees, who were long-standing residents of California
(Deana Dowell, Steven Chapman and Claudio Plaza). St. Jude hired Dowell
and Chapman to work in Northern and Southern California, respectively,
selling St. Jude products. Pacesetter hired Plaza to work in Sylmar, California,
where Pacesetter manufactures St. Jude products. Shortly thereafter, St. Jude
Medical, Inc., the parent corporation of St. Jude and Pacesetter, received a letter
from Biosense Webster, Inc. ("Biosense"), the California company that
previously employed Dowell, Chapman and Plaza. The letter threatened to
enforce covenants not to compete in a fonn employment agreement that

2
to avoid this expense is to forego hiring employees who have signed

contractual restraints on competition.

Either way - whether the Amicus Curiae follow the law or succumb
to its violation by competitors - the Amicus Curiae lose. They either incur
a higher cost of employment than that of their less scrupulous competitors,

or forego the opportunity to hire the person best suited for the job at hand. 2

The interest of the Amicus Curiae is simple: they want a level playing

field, and that requires certainty in the law.

The Court can restore a level playing field and greatly reduce the

cost of hiring talented individuals in California by making clear that there

are no "exceptions" to Section 16600 beyond those provided by the

Legislature (Bus. & Prof. Code §§ 16601, 16602, 16602.5). The Court

Biosense attached to the letter - a form agreement that Dowell and Chapman
were required to sign as a condition of employment in California (plaza had a
different non-competition agreement). In July 2005, St. Jude and Pacesetter
filed a complaint for declaratory relief and unfair competition and obtained an
anti-suit temporary restraining order ("anti-suit TRO") prohibiting Biosense
from commencing litigation in a foreign jurisdiction to restrain competition in
California. The Court ofAppeal, Second Appellate District, issued a writ of
mandate vacating the anti-suit TRO. (See Biosense Webster, Inc. v. Superior
th
Court (2006) 135 Cal.AppA 827,830 [citingAdvancedBionics Corp. v.
Medtronic, Inc. (2002) 29 CalAth 697].) In March 2007, nearly two years later,
St. Jude and Pacesetter prevailed on a motion for summary adjudication that the
non-competition agreements signed by Dowell and Chapman were void and
"illegal" contracts under Section 16600. However, to obtain this adjudication,
St. Jude and Pacesetter had to incur substantial litigation expenses - well in
excess of $500,000 - in defending against both the actual and inherent threat of
litigation posed by Biosense's illegal contracts, and in prosecuting their claim
for unfair competition in an effort to level the playing field.
2 In addition, confusion in the law plainly discriminates against the hiring of
lower-level and mid-level employees in particular industries, as it becomes
increasingly too expensive to hire such employees in any competitive capacity
in California. Only high or executive level employees will eventually be able
to avail themselves ofthe fundament right protected by Section 16600.

3
should further declare that any contractual restraint in an employment
agreement that does not, on its face, fall within one of the enumerated
statutory exceptions is illegal per se, and that its use constitutes an unlawful
trade practice. (See People v. McKale (1979) 25 Cal.3d 626,635; D'Sa v.
Playhut, Inc. (2000) 85 Cal.App.4th 927,933; Application Group, Inc. v.
Hunter Group, Inc. (1998) 61 Cal.App.4th 881,908.)
Should the Court detennine that there are non-statutory "exceptions"
to Section 16600, and depart from prior Supreme Court precedent (see, e.g.,
Chamberlain v. Augustine (1916) 172 Cal. 285, 288-289, Continental Car-
Na-Var Corp. v. Moseley (1944) 24 Cal.2d 104, 110, New Method Laundry
Co. v. MacCann (1916) 174 Cal. 26, 31, Carpet-Beating, etc, Works v.
Jones (1894) 102 Cal. 506, 511, Howard v. Babcock (1993) 6 Cal.4th 409,
416), the Amicus Curiae will simply level the playing field for themselves.
They and others will be forced to change their current practice and use the
same contractual restraints that others are currently using in this State,
notwithstanding Section l6600's clear language and the Legislature's plain
intent when it enacted that statute.
How the Proposed Brief Will Assist the Court
The Amicus Curiae represent a point of view not presently before
the Court. Appellant Raymond Edwards II, a California resident, provides
the point of view of a California employee who is seeking to lawfully
pursue a profession, trade or business of his choosing. Respondent Arthur
Andersen LLP, a company domg business in California, provides the point
of view of a California employer who is trying to restrain lawful
competition by contract and justify a business practice that has been
declared unlawful by California courts. The Amicus Curiae provide the
point of view of a California employer who complies with the law and

4
public policy of this State, and who does not use contractual restraints on
competition in their California employment contracts.
The Amicus Curiae do not support the position being advocated by
Respondent for two reasons: (1) "naked" restraints on competition,
whetherpartial or total, have been outlawed in California since 1872; and
(2) no restraint on lawful competition can be justified under Section 16600.
Contractual restraints are not "necessary" to protect trade secrets (the
Amicus Curiae's trade secrets and confidential information are adequately
protected by California law), nor can they be "narrowly tailored" to prevent
the in terrorem effect that is inherent in contractual restraints, and that
directly undermines California's public policy of free competition and
employee mobility, which benefits all Californians.
The proposed Amicus Curiae Brief will assist the Court by laying
the historical, political and legal underpinnings of California's first antitrust
law (Bus. & Prof. Code § 16600), and by discussing relevant Supreme
Court and Ninth Circuit precedent. One objective is to inform the Court
where both the Ninth Circuit Court of Appeals, and this Court, lost sight of
Section 16600's bright-line rule and the Legislature's public policy
decision in favor of free competition and employee mobility, and
erroneously created non-statutory exceptions to Section 16600 that result in
the very anti-competitive conduct that the Legislature and prior precedent
of this Court sought to prevent.
The second objective is to support a rule that both restores
California's policy of free competition and employee mobility, and ensures
an even playing field among companies doing business in California. The
Court in Chamberlain v. Augustine set forth what the Amicus Curiae
believe is the appropriate and operative standard for determining whether a

5
contract runs afoul of Section 16600's prohibition. Contractual provisions
are void if, by enforcing them, the employee "is not as free to [engage in a
competing business] as he would have been if he were not bound by it."
(172 Cal. at 289 [emphasis added].)
Under Chamberlain v. Augustine, and for the reasons set forth in the
attached Amicus Curiae Brief, the Court should articulate a bright-line-rule
against post-employment restraints on competition that:

• Re-affrnns that California employees have the right to

compete against their former employers and that this
right is absolute so long as the competition is
conducted lawfully.

• Re-affrnns that Section 16600 prohibits "partial" as

well as "complete" restraints on competition (and
thereby overrule the Ninth Circuit's "narrow restraint"
doctrine).

• Plainly states that contractual restraints in employment

agreements are never "necessary" and cannot
effectively be "narrowly tailored" to protect the rights
of employers that are already protected by other laws
(and thereby clarify or overrule the so-called "trade
secret exception").

• Recognizes that the mere inclusion of restraints on

competition in employment agreements is anti-
competitive, as it results in de facto compliance in
many if not most cases, even where the restraints are
patently unlawful.

• Concludes that all restraints on competition in

employment contracts, including employee non-
competition agreements and customer non-solicitation
provisions, are void under Section 16600' s bright-line
rule and that their use in California employment
agreements constitutes unlawful competition and
subjects the employer to liability.

6
------~---------

For the foregoing reasons, the Amicus Curiae St. Jude, Pacesetter
and Advanced Bionics respectfully request that the Court enter an order
granting their Application to file the attached Amicus Curiae Brief.

Dated: May 14, 2007 Respectfully submitted,

FELDMAN GALE P.A.

JAMES A. GALE
TODD M. MALYNN
MICHAEL 1. WEBER
~-

BY:~ Todd M. Malynn

Attorneys for Amicus Curiae

7
 --~ ----~ ------- - -- -~----

Case No.: S147190

IN THE SUPREME COURT

OF CALIFORNIA

RAYMOND EDWARDS II,

Plaintiffand Appellant,

vs.

ARTHUR ANDERSEN, LLP,

Defendant and Respondent.

After a Decision by the Court of Appeal

Second Appellate District, Division Three, Case No. B178246
Los Angeles Superior Court Case No. BC 294853
Honorable Andria K. Richey

AMICUS CURIAE BRIEF OF ST. JUDE MEDICAL, S.C., INC.,

PACESETTER, INC. AND ADVANCED BIONICS CORP~ IN
SUPPORT OF APPELLANT RAYMOND EDWARDS II

FELDMAN GALE, P.A.

James A. Gale (FL Bar No. 371726)
Todd M. Malynn (CA Bar No. 181595)
Michael J. Weber (FL Bar No.: 918570)
880 West First Street, Suite 315
Los Angeles, California 90012
Telephone: 213-625-5992
Facsimile: 213-625-5993

Attorneys for Amicus Curiae St. Jude Medical, S.C., Inc., Pacesetter,
Inc. and Advanced Bionics Corporation
 TABLE OF CONTENTS

I. INTRODUCTION 1
II. ARGUMENT 3
A. THE LEGISLATURE HAS MADE A BINDING
POLICY CHOICE IN FAVOR OF FREE
COMPETITION AND AGAINST EMPLOYEE
NON-COMPETITION AGREEMENTS 3
1. California's First Antitrust Law 3
2. Section 16600 Was Meant To Absolutely Bar
Contractual Restraints In Employment
Contracts 4
3. Section 16600 Embodies The Legislature's
Policy Choice In Favor Of Free Competition
And Employee Mobility Over The Competitive
Interests Of The Employer 5
4. The Benefits Of The Legislature's Policy
Choice Transcend The Individual Interests
Of Employers Or Employees 6
5. Section 16600 Works 8
B. FEDERAL AND STATE COURTS HAVE LOST
SIGHT OF THE LEGISLATURE'S POLICY CHOICE
AND HAVE CREATED CONTRADICTIONS
IN THE LAW 9
1. The Legislature's Sound Policy Choice Is
Implemented By Section 16600's Bright-Line
Rule Against Contractual Restraints 9
2. The Ninth Circuit's "Partial Restraint"
Exception 10
(a) The "Partial Restraint" Doctrine is
Contrary to California Law .13
(b) Insofar as the Ninth Circuit's "Partial
Restraint" Doctrine is Premised on Prior
California Decisions, Those Decisions
Should be Clarified or Overruled 16

1
 Page
3. The So-Called "Trade Secret" Exception 18
(a) Contractual Restraints are Never
"Necessary" to Protect an Employer's
Rights 20
(b) Pure Non-Competition Clauses
Should be Declared Illegal Per Se
Because They are Unnecessary and,
by Definition, Not Narrowly Tailored
to Protect an Employer's Legal Rights 22

(c) Restraints on Soliciting Customers

Should be Declared Illegal Per Se
Because They are Unnecessary
to Protect an Employer's Legal Rights
and Cannot Be Narrowly Tailored
to Protect Those Rights 23
(d) An "Exception" for Customer
Non-Solicitation Clauses to Protect
Confidential Customer List Invites
Abuse and Creates an In Terrorem
Effect that Undermines the Important
Public Policy and Fundamental Rights
Section 16600 was Designed to Protect .......26
C. THE COURT SHOULD VINDICATE THE
FUNDAMENTAL RIGHT PROTECTED BY
SECTION 16600 AND ENSURE AN EVEN
PLAYING FIELD 28
1. The Proposed Solution 28

2. Benefits of the Proposed Solution 28

III. CONCLUSION 30
CERTIFICATE OF WORD COUNT 31

11
 -~~~._--~~~

TABLE OF AUTHORITIES
Page(s)
Cases
American Paper & Packaging Products, Inc. v. Kirgan
(1986) 183 CaLApp.3d 1318 26
Application Group, Inc. v. !lnunter Group, Inc.
(1998) 61 CaLAppAt 881 6, 7, 27
Armendariz v. Foundat~on
t
Health Psychcare Services, Inc.
(2000) 24 CaL4 83 3 n.5, 15
Avocado Sales Co. v. Wyse
(1932) 122 CaLApp. 627 26
Bosley Medical Group v. Abramson
(1984) 161 CaLApp.3d 284 10 n.11, 15
Boughton v. Socony Mobil Oil Co.
(1964) 231 CaLApp.2d 188 16, 19 n.17
Campbellthv. Board ofTrustees ofLeland Stanford Junior Univ.
(9 Cir. 1987) 817 F.2d 499 10-11, 16
Chamberlain v. Augustine
(1916) 172 CaL 285 passim
Cianci v. Superior Court
(1985) 40 CaL3d 903 7
City Carpet-Beating, etc, Works v. Jones
(1894) 102 CaL 506 10,27,29
Continental Car-Na- Var Corp. v. Moseley
(1944) 24 CaL2d 104 passim
Davis v. {ointless
t
Fire Brick Co.
(9 Cir. 1924) 300 10 n.12
Diodes, Inc. v. Franzen
(1968) 260 CaLApp.2d 244 6
D'Sa v. Playhut, Inc. h
(2000) 85 CaL App. 4t 927 23, 26
Empire Steam Laundry v. Lozier
(1913) 165 CaL 95 20
Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
(1971) 20 CaLApp.3d 668 12 n.15

111
 Page(s)
Fortna v. Martin (1958) 158 Cal.App.2d 634 26
General Commercial Packaging, Inc.
v.'[PS Package Eng'g, Inc.
(9 t Cir. 1997) 126 F.3d 1131 11, 17
Golden State Linen Service, Inc. v. Vidalin
(1977) 69 Cal.App.3d 1.. 14, 19 n.17
Gordon v. Landau (1958) 49 Cal.2d 690 18-19
Great Western etc. v. J.A. Wathen D. Co.
(1937) 10 Cal.2d 442 19 n.18
Grogan v. Shaffee (1909) 156 Cal. 611 17, 19 n.18
Hill Medical Corp. v. Wyc~.([
(2001) 86 Cal.AppA 895 10 n.ll, 15
Hollings~orth Solderless Terminal Co. v. Turley
(9 t Cir. 1980) 622 F.2d 1324 11 n.13, 19 n.19, 21 n.20, 25
Int'l Bus.thMach. Corp. v. Bajorek
(9 Cir. 1999) 191 F.3d 1033 11-12, 15
Howard v. Babcock (1993) 6 Cal.4th 409 10 n.11
Kolani v. Gluska (1998) 64 Cal.AppAth 402 19 n.16, 26
KGB, Inc. v. Giannoulas
(1980) 104 Cal.App.3d 844 10
King v. Gerold (1964) 231 Cal.App.2d 316 19 n.17
Latona v. Aetna u.s. Healthcare, Inc.
(C.D. Cal. 1999) 82 F.Supp.2d 1089 19 n.16 & n.19, 24-25
Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268 24
Mathews Paint Co. v. Seaside Paint & Lacquer Co.
(1957) 148 Cal.App.2d 168 26
Metro Traffic Control, Inc. th
v. Shadow Traffic Network
(1994) 22 Cal.AppA 853 passim
Monogram Industries, Inc. v. Star Industries, Inc.
(1976) 64 Cal.App.3d 692 4 n.7
Morey v. Paladini (1922) 187 Cal. 727 13
Morlife, Inc. v. Perry (1997) 56 Cal.AppAth 1514 3 n.2, 21

IV
 Page(s)
Morris v. Harris (1954) 127 Cal.App.2d 476 13-14
Moss, Adams & Co. v. Shilling
(1986) 179 Cal.App.3d 124 19
Muggill v. Reuben H Donnelley Corp.
(1965) 62 Cal.2d 239 12 & n.15, 18, 19 n.18
New Method Laundry Co. v. MacCann
(1916) 174 Cal. 26 4 n.6, 7
Scott v. Snelling and Snelling, Inc.
(N.D. Cal. 1990) 732 F. Supp. 1034 10 n.12
Swenson v. File (1970) 3 Cal.3d 389 7
Thompson v. Impaxx, Inc. th
(2003) 113 Cal.AppA 1425 19, 24-25
Weber, Lipshie & Co. v. Christian
(1997) 52 Cal.AppAth 645 3 n.5, 15

Statutes
Business & Professions Code
§ 16600 passim
§ 16601 5
§ 16602 5
§ 16600.5 5
§§ 16700 et seq 3 n.l
§§ 17200 et seq 20
Civil Code
§ 1668 3 n.5, 14
§ 1673 1, 3-5
§ 1674 5
§ 1675 5

§ 3513 3 n.5, 15
§§ 3426 et seq 20

v
 Page(s)
Other Authorities
Blake, Employee Agreements Not To Compete
(1960) 73 HVLR 625 4 n.7, n.8 & n.9
Code Commission, Civ. Code § 1673 c0111ment 6-7
Ronald 1. Gilson, The Legal Infrastructure of
High Technology Industrial Districts: Silicon Valley,
Route 128, and Covenants Not to Compete
(1999) 74 N.Y.U.L. Rev. 575 8 nolO
Gilson, Amicus Curiae Brief filed in Advf!nced Bionics
Corp. v. Medtronic, Inc. (2002) 29 Ca1.4 t 697 8,22 n.21
Marx, Deborah Stumsky & Lee Fleming, Noncompetes
and Inventor Mobility: Specialists, Stars, and
the Michigan Experiment
http://www.hbs.edu/research/pdf/07-042.pdf 9
Von Kalinkowski & Hanson, The California Antitrust Laws:
A Comparison With Federal Antitrust Laws,
(1959) 6 UCLA L. Rev. 533 3 n.1

VI
~--- ---------- -~--- --- - - - - - ._--~---~-------------------

I. INTRODUCTION
For well over a century, Business and Professions Code section
16600 (and its predecessor, Civ. Code § 1673) has defined and protected
the fundamental right of all Californians to pursue the profession, trade or
business of their choice, unfetter~d by contractual restraints on competition.
The statute reflects the Legislature's decision to elevate an employee's
interest in career mobility and personal betterment over the competitive
interests of his former employer.
The intent of the statute is not merely to protect individual rights.
Section 16600 reflects an important public policy guaranteeing that
California's labor pool will be put to its best and highest use, and that
consumers will have access to the full array of goods and services that an
open, competitive market provides. The Legislature's sound policy
decision is routinely cited as a major factor contributing to the unparalleled
success of California's economy.
Over time, however, the public policy and the fundamental rights
embodied in Section 16600 have been eroded by judicially created
"exceptions." In particular, the "partial restraint" doctrine espoused by the
Ninth Circuit Court of Appeals, and the so-called "trade secret exception"
referred to in decisions by this Court and other state courts, have spawned
much needless litigation as to whether certain contractual restraints on
competition are enforceable.
The creation of these "exceptions" to Section 16600's otherwise
bright-line rule against contractual restraints has the effect of encouraging
their use, rather than eliminating them as the Legislature intended. Today,
employers ignore their legal obligations by including broad,
anticompetitive restraints in California employment agreements, knowing

1
that few employees or prospective employers will challenge them. If the
restraints are challenged, the employers simply invoke one of the judicially
created exceptions and litigate over its application.
While the restraints are struck down in the overwhelming majority
of cases, the message is clear: "It will cost you substantial time and money
to secure the rights Section 16600 was intended to protect." The
uncertainties created by these "exceptions" thus give rise to what one court
called the "in terrorem effect" that enables employers to both benefit from
de facto compliance with the precise type of contractual restraints that
Section 16600 was supposed to eliminate, and obtain an advantage over
their competitors in California who comply with the law.
It is time for this Court to remove the uncertainties and restore the
balance struck by the Legislature when it enacted Section 16600 over a
century ago. Under settled law and public policy of California, there is no
place for restraints on competition in employment agreements. There are
no statutory exceptions, and should be no judicially created exceptions,
authorizing their use in California. Employers who would use or attempt to
enforce such contractual restraints should not be encouraged; they should
be deterred.

2
 II. ARGUMENT

A. THE LEGISLATURE HAS MADE A BINDING POLICY

CHOICE IN FAVOR OF FREE COMPETITION AND
AGAINST EMPLOYEE NON-COMPETITION
AGREEMENTS
1. California's First Antitrust Law.
Business and Professions Code section 16600 is California's first
antitrust law. 1 It was originally enacted in 1872 as Civil Code section 1673.
It has remained virtually unchanged for more than 135 years.
Since the enactment ofthis statute, California courts have consistently
held that Section 16600 broadly protects "one ofthe most cherished
commercial rights we possess" - "the important legal right ofpersons to
engage in businesses and occupations oftheir choosing.,,2 Section 16600
ensures that "every citizen shall retain the right to pursue any lawful
employment and enterprise oftheir choice.,,3 It provides every Californian
with a form ofimmutable "property right,,,4 one that cannot be waived by
contract,5 and one that should be "zealously" guarded by the courts. 6

1 Until the 1907 enactment ofthe Cartwright Act (Bus. & Prof. Code §§
16700 et seq.), Section 16600 was California's only antitrust law. (See Von
Kalinkowski & Hanson, The California Antitrust Laws: A Comparison With
Federal Antitrust Laws, (1959) 6 UCLA L. Rev. 533, 540 & n.50.)
2 Morlife, Inc. v. Perry (1997) 56 CaLAppAth 1514, 1520.
3 Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22
CaLAppAth 853, 859.
4 Continental Car-Na-Var Corp. v. Moseley (1944) 24 CaL2d 104, 110
["Every individual possesses as a form ofproperty, the right to pursue any
calling, business or profession he may choose."].
5 See Civ. Code §§ 1668, 3513; Armendariz v. FoundationHealthPsychcare
Services, Inc. (2000) 24 CalAth 83, 100-101; Weber, Lipshie & Co. v. Christian
(1997) 52 Cal.AppAth 645,659.

3
 2. Section 16600 Was Meant To Absolutely Bar Contractual
Restraints In Employment Contracts.
Historically, courts have dealt with contractual restraints on competition
in two distinct contexts: restraints in employment agreements; and restraints
associated with the sale of a business and its goodwill. 7 In the earliest reported
decisions, contractual restraints in employment agreements were always found
to be void without regard to their scope or duration. 8 In contrast, subsequent
cases dealing with restraints in contracts for the sale or transfer of a business
were upheld if "reasonable.,,9
The distinction is significant given the statutory scheme chosen by the .
Code Commission, and adopted by the Legislature, back in 1872. Civil Code
section 1673 - the direct predecessor to Section 16600 - speaks in sweeping
terms and provides that "Every contract by which anyone is restrained from
exercising a lawful profession, trade or business of any kind, otherwise than is

6 New Method Laundry Co. v. MacCann (1916) 174 Cal. 26, 31 ["This right
of a citizen to pursue any calling, business, or profession he may choose is a
property right to be guarded by equity as zealously as any other form of
property."].
7 See, e.g., Monogram Industries, Inc. v. Star Industries, Inc. (1976) 64
CaLAppJd 692, 697 [contractual restraints on competition have their "genesis
in either an employer-employee relationship, or in the sale ofthe 'goodwill' of
a business"]; see also Blake, Employee Agreements Not To Compete (1960) 73
HVLR 625, 631-637 [discussing distinction, dating back to fifteenth century
English court decision in the Dyer's case, between "restraints incident to the
sale or transfer of a business" and restraints in agreements between masters and
either journeymen or apprentices].
8 See Blake, Employee Agreements Not To Compete, supra, 73 HVLR at pp.
631-632 ["These are the cases always cited in support ofthe proposition that
originally the common law regarded all restraints as departures from the
principle of economic freedom and therefore void."].
9 Id. at 629-631 [discussing the oft-cited, eighteenth century English decision
in Mitchel v. Reynolds, which upheld a contractual restraint on competition in
the sale of a bakery business.].

4
provided by the next two sections, is to that extent void." The "next two
sections," sections 1674 and 1675, deal respectively with the sale of "the
goodwill of a business" and the rights ofpartners upon the dissolution of a
partnership. Both "exceptions" relate to the sale or transfer of goodwill; neither
addresses contractual restraints in an employment agreement.
With the enactment ofthe Business and Professions Code in 1941, the
sweeping prohibitions in Civil Code section 1673 were adopted virtually
verbatim in what we know today as Section 16600. Similarly, Sections 16601
and 16602 incorporated the same two exceptions provided in the initial
legislation. Since that time, the only pertinent change was the addition, in
1994, of Section 16602.5, which essentially replicates the partnership
provisions of Section 16602 for limited liability companies in recognition of
more modem fonTIS ofbusiness organization.
There are two conclusions about Section 16600 that flow ineluctably
from this historical overview. First, given that contractual restraints historically
fell into one oftwo categories - restraints attendant to the sale of a business,
and restraints in employment agreements - by limiting the statutory exceptions
to the former category the Legislature made clear that Section 16600's broad
prohibitions apply with particular force to restraints in employment agreements.
Second, there are no exceptions to Section 16600 authorizing restraints in
employment agreements.

3. Section 16600 Embodies The Legislature's Policy Choice In

Favor Of Free Competition And Employee Mobility Over
The Competitive Interests Of The Employer.
California courts have repeatedly affmned that Section 16600
establishes a definitive ordering of competitive interests: "The interests of
the employee in his own mobility and betterment are deemed paramount to

5
---~---------------- ----~--~-------------------------------------

the competitive business interests of the employers, where neither the

employee nor his new employer has committed any illegal act
accompanying the employment change." (Diodes, Inc. v. Franzen (1968)
260 Cal.App.2d 244,255; Application Group, Inc. v. Hunter Group, Inc.
(1998) 61 Cal.AppAth 881, 900; Metro Traffic Control, Inc. v. Shadow
Traffic Network, supra, 22 Cal.AppAth at pp. 859-860.)
To effectuate this ordering ofinterests, Section 16600 creates a bright-
line rule that flatly bars employers from using restraints on competition in
employment contracts. To the extent they need protection from unfair
competition, employers may avail themselves oflaws intended to protect their
rights, but they may not resort to the expedient of contractual restraints:

Equity will to the fullest extent protect the property rights of

employers in their trade secrets and otherwise, but public policy
and natural justice require that equity should also be solicitous
for the right inherent in all people, not fettered by negative
covenants upon their part to the contrary, to follow any of the
common occupations of life. . . . A former employee has the
right to engage in a competitive business for himself and to enter
into competition with his former employer, even for business of
those who had formerly been the customers of his fonner
employer, provided such - competition is fairly and legally
conducted.
(Continental Car-Na-Var Corp. v. Moseley, supra, 24 Cal.2d at p. 110.)

4. The Benefits Of The Legislature's Policy Choice Transcend

The Individual Interests Of Employers Or Employees.
Section 16600's bright-line prohibition against contractual restraints
in employment agreements results in benefits that extend far beyond the
rights of individual workers. Indeed, both the legislative history and the
pronouncements of this Court recognize that Section 16600 was enacted for
the benefit of all the citizens of this state. (See, e.g., Civ. Code § 1673

6
(1872) Code Commission comment ["[Contractual restraints on
competition] manifestly tend[] to enforce ideleness, and deprive[} the State
ofthe services afits citizens."]; Swenson v. File (1970) 3 Cal.3d 389,394
[Section 16600's prohibition against contractual restraints is "not based
upon any consideration for the party against whom the relief is sought, but
upon considerations of sound public policy. "'] [citation omitted].) Section
16600, like the Cartwright Act, rests "'on the premise that the unrestrained
interaction of competitive forces will yield the best allocation of our
economic resources, the lowest prices, the highest quality and the greatest
material progress, while at the same time providing an environment
conducive to the preservation of our democratic political and social
institutions.'" (Cianci v. Superior Court (1985) 40 Cal.3d 903,918
[citation omitted].)
Additionally, "constitutional guaranties of liberty include the
privilege of every citizen to freely select the tradesman to whom he may
desire to extend his patronage, and equity cannot invade or take away this
right, either directly or indirectly." (New Method Laundry Co. v. MacCann,
supra, 174 Cal. at p. 32.) Section 16600 vindicates this fundamental liberty
by removing restraints on open competition, thus ensuring that consumers
will have access to all the goods and services, and to all the providers of
goods and services, that are available in a free and open market.
Finally, Section 16600 promotes an efficient labor market, allowing
human resources to move to their highest and best use. It does so by
ensuring that employers "will be able to compete effectively for the most
talented, skilled employees in their industries ...." (Application Group,
Inc. v. Hunter Group, Inc., supra, 61 Cal.AppAth at p. 901.)

7
 5. Section 16600 Works.
Professor Ronald J. Gilson of Stanford and Columbia Universities

attributes the unparalleled success of California's economy to the legal

infrastructure created by Section 16600's flat prohibition against employee

non-competition agreements. lO (Gilson, Amicus Curiae Brief filed in

Advanced Bionics Corp. v. Medtronic, Inc. (2002) 29 Ca1.4th 697, at p. 8.)
He notes, however, that in the absence of a statutory prohibition against

restraints on competition, this extraordinary success would not be realized:

[T]he problem is that what is optimal for a single firm is also

optimal for every firm. Therefore, without a means to assure that
all firms allow employee mobility, California high technology
industries would be locked into a suboptimal pattern of exacting
covenants not to compete from their employees. While each
firm would be better offby assuring employee mobility provided
that all firms did the same thing, on the individual firm level, the
incentive is to restrict employee mobility. [-n Business and
Professions Code section 16600 solves this coordination
problem. By flatly prohibiting post-employment covenants not
to compete, individual firms are prevented from pursuing a
selfish strategy that undennines what is best for the industry.
(Gilson, supra, Amicus Curiae Brief, at p. 8.)

Professor Gilson's scholarly conclusions were recently corroborated

in a Harvard Business School paper by Professor Lee Fleming, Matt Marx

and Deborah Strumsky. The paper documents the state oftechnological

innovation in Michigan before 1985 - when Michigan's law was virtually

identical to California's - and after 1985 when Michigan adopted a "rule of

reason" approach to employee non-competition agreements similar to that

followed in most other states. The authors found that the enforcement of

10 See Ronald 1. Gilson, The Legal Infi-astructure of High Technology

Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete
(1999) 74 N.Y.U.L. Rev. 575, 603-609.

8
non-competition agreements in Michigan after 1985 tended to reduce
innovation by what they described as "star" and "specialist" innovators.
They concluded:

Constraining the flow of people and thus knowledge, enforcing

[jurisdictions] may fail to develop entrepreneurial and
technologically dynamic economies. Consistent with Gilson's
arguments, industry growth may be attenuated as startups fail
to condense in enforcing [jurisdictions]. The networks of small
companies so crucial to Silicon Valley's growth would be less
likely to develop in [jurisdictions] that enforce noncompetes.
(Marx, Deborah Stumsky & Lee Fleming, Noncompetes and Inventor
Mobility: Specialists, Stars, and the Michigan Experiment, at 23 [citations
omitted] [http://www.hbs.edu/research/pdf/07-042.pdfj.)
In short, California's policy of free competition and employee
mobility works. It has stood the test of time and played an important role in
the extraordinary success of California's economy. The Legislature's
sound policy decision should not be undone by judicially created
"exceptions" that tend to promote, rather than eliminate, contractual
restraints on competition.

B. FEDERAL AND STATE COURTS HAVE LOST SIGHT OF

THE LEGISLATURE'S POLICY CHOICE AND HAVE
CREATED CONTRADICTIONS IN THE LAW

1. The Legislature's Sound Policy Choice Is Implemented By

Section 16600's Bright-Line Rule Against Contractual
Restraints.
The Legislature implemented its sound policy decision by creating in
Section 16600 a bright-line rule or an "absolute bar to postemployment

9
 - - - - - - - - - - _.... -

restraints."l1 (KGB, Inc. v. Giannoulas (1980) 104 Cal. App. 3d 844, 848.)
The intended effect of Section 16600's sweeping prohibitions and
enumerated exceptions was to "eliminate[] from the controversy arising
upon such restriction the question as to what is a reasonable [restraint], by
specifically defining it, and thus preventing litigation; and in this the statute
is wise and salutary ...." (City Carpet-Beating, etc, Works v. Jones (1894)
102 Cal. 506, 511 [emphasis added].)
2. The Ninth Circuit's "Partial Restraint" Exception.
In a series of decisions over the past two decades, the Ninth Circuit
has undercut the "wise and salutary" effect of Section 16600's bright-line
rule by permitting "exceptions" for "partial" restraints. Its departure
ignores precedent,12 as well as the letter and spirit of Section 16600, and
fuels, rather than eliminates, the controversy as to which restraints are
enforceable and which restraints are not.
The "partial restraint" exception derives from the Ninth Circuit's
decision in Campbell v. Board ofTrustees ofLeland Stanford Junior Univ.
th
(9 Cir. 1987) 817 F.2d 499, where the Ninth Circuit adopted the erroneous
view that Section 16600's prohibition against contractual restraints applies
only to contracts that completely preclude a departing employee from

11 See Howardv. Babcock (1993) 6 Cal.4th409, 416 [citing Bosley Medical

Group v. Abramson (1984) 161 Cal.App.3d 284,288]; Hill Medical COlp. v.
th
Wycoff(2001) 86 Cal.AppA 895,901 [same].
12 See Chamberlain v. Augustine (1916) 172 Cal. 285, 289 [The statute
makes no exception in favor of contracts only in partial restraint of trade."];
Davis v. Jointless Fire Brick Co. (9 th Cir. 1924) 300 F. 1,3 [same]; see also
Scottv. Snelling & Snelling, Inc. (N.D.Cal. 1990) 732 F.Supp. 1034, 1042
["California courts have been clear in their expression that [Section 16600]
represents a strong public policy of the state which should not be diluted by
judicial fiat"].)

10
 engaging in an entire profession, trade or business, but does not invalidate
restraints "where one is barred from pursuing only a small or limited part of
the business, trade or profession." (Id. at 502.) Compounding it erroneous
interpretation, the court placed the burden on the employee to prove that the
restraint completely prevented him from pursuing his profession (rather
than the employer bearing the burden of proving unfair competition - the
prior Ninth Circuit standard13). (Id.)
In General Commercial Packaging, Inc. v. TPS Package Eng'g, Inc.
(9 th Cir. 1997) 126 F.3d 1131, 1134 ("TPS"), the Ninth Circuit retreated
somewhat from its all-or-nothing position by holding that Section 16600
would invalidate a restraint that "plac[ed] a substantial segment of the
market off limits," rather than the "entire" market. (Id. at 1134 [emphasis
added].) Nonetheless, the court maintained that Section 16600 would
permit restraints that merely limited access to a "narrow segment" of the
market, opining that the focus of the inquiry should be on "the breadth of
the restraint." (ld. at 1133-1134 [emphasis added].) Notwithstanding the
court's contrary claim (id.), this focus openly invites a determination as to
what might be considered "reasonable" in any given case.
The Ninth Circuit's departure from settled California law construing
Section 16600 reached its zenith in Int'l Bus. Mach. Corp. v. Bajorek (9th
Cir. 1999) 191 F.3d 1033 ("Bajorelc'), a case involving a forfeiture of stock
options if the former employee engaged in competition. The court ignored
its own holding in TPS regarding "substantial segment" of the market, and

13 See Hollingsworth Solderless Terminal Co. v. Turley (9th Cir. 1969) 622
F.2d 1324, 1338 ["'[T]he employer will be able to restrain by contract only
that conduct of the former employee that would have been subject to
judicial restraint under the law of unfair competition, absent the contract.''']
[citation omitted].

11
went beyond the "compete" versus "partial" distinction it erroneously drew
in Campbell. Instead, it upheld a restraint that required a forfeiture of stock
options if the employee worked for any competitor, in any capacity,
anywhere in the world. (Id. at 1040.) The court described this restraint as
"limited," although the basis for this characterization is unclear.
In reaching its conclusion, the Ninth Circuit was forced to recognize
the apparent conflict with this Court's decision in Muggill v. Reuben H
Donnelley Corp. (1965) 62 Cal.2d 239. In Muggill, and likewise in
Chamberlain v. Augustine (1916) 172 Cal. 285 (a case the Ninth Circuit did
not mention in Bajorek), 14 this Court held that monetary penalties or
forfeitures predicated upon an employee's decision to work for a
competitor of his former employer constitute illegal restraints under Section
16600. 15 Nonetheless, the Ninth Circuit upheld the restraint, purportedly
based on its own prior decisions, rather than on precedent set by
California's highest court on issues of California law.
The triumvirate of Ninth Circuit cases promoting the "partial
restraint" doctrine created new law by engrafting numerous, fact-intensive
"exceptions" to Section 16600's bright-line rule. The Ninth Circuit's

14 Previously, however, the Ninth Circuit had acknowledged the

Chamberlain decision, and cited it as precedent for the very proposition
that there is '''no exception in favor of contracts in partial restraint of
trade.'" (Davis v. Jointless Fire Brick Co., supra, 300 F. at p. 3 [citation
omitted].)
15 See Chamberlain v. Augustine, supra, 172 Cal. at p. 289 [because
liquidated damage clause deterred competition, it constituted an unlawful
restrain]; Muggill v. Reuben H Donnelley Corp., supra, 62 Cal.2d at p. 243
[applying same rational to void pension forfeiture clause]; see also Frame
v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1971) 20 Cal.App.3d 668,
672-674 [forfeiture of benefits under profit sharing plan contrary to public
policy and void under Section 16600].)

12
approach encourages employers to use contractual restraints against their
employees and to litigate them in every case. The "partial restraint"
doctrine thus turns the Legislature's sound policy decision on its head by
endorsing the self-interests of employers as paramount over California's
interest in free competition and employee mobility and betterment, and by
establishing a legal environment in which employers are likely to use, and
employees are likely to adhere to, restraints - even if they are patently
unlawful- in the majority of cases.

(a) The "Partial Restraint" Doctrine is Contrary to

California Law.
The Ninth Circuit's approach ignores and creates a direct conflict
with settled California law. By its plain terms, Section 16600 applies to
"every contract by which one is restrained from engaging in a lawful
profession, trade or business" (Bus. & Prof. Code § 16600 [emphasis
added]). Section 16600 does not differentiate between total or partial
restraints, but invalidates all contractual restraints on competition unless
they fall within a statutory exception.
California courts have been equally clear in their interpretation of
Section 16600. For example, in Chamberlain v. Augustine, this Court
stated unequivocally that "[t]he statute makes no exception in favor of
contracts only in partial restraint of trade." (172 Cal. at 289; see also
Morey v. Paladini (1922) 187 Cal. 727, 736; Morris v. Harris (1954) 127
Cal.App.2d 476,478.) Underscoring this pronouncement, the Chamberlain
Court set forth what the Amicus Curiae believe is the appropriate standard
for detennining whether a contract runs afoul of Section 16600's bright-line
prohibition. Such contracts are void if, by enforcing them, the employee

13
"is not as free to [engage in a competing business] as he would have been if
he were not bound by it." (Id. at 288 [emphasis added].)
Consistent with the Legislature's intent and defInitive ordering of
interests, the Chamberlain Court recognized that Section 16600
contemplates the absolute and unfettered freedom to compete, so long as
the competition is lawful. Any diminution of that freedom - whether it be
narrow or broad, "partial" or "complete" - violates the statute because then
the employee, even if only to a small degree, would not be "as free" to
compete as he otherwise would have been.
As applied, the Ninth Circuit's "partial restraint" doctrine conflicts
with long-standing California law in other ways as well. For example, this
doctrine is used to stifle or prevent the very competition Section 16600 is
designed to promote. The "minor" part of the market declared off-limits
will usually be the precise market in which the employee has developed
goodwill by virtue of his experience, knowledge and relationships. Under
California law, an employer may not use a contractual restraint to protect
customer relations and goodwill. (See Golden State Linen Service, Inc. v.
Vidalin (1977) 69 Cal.AppJd 1, 12-13 ["goodwill" in customer base
cannot be protected with covenants not to compete]; see also Continental
Car-Na-Var Corp. v. Moseley, supra, 24 Cal.2d at p. 110; Morris v. Harris,
supra, 127 Cal.App.2d at pp. 477-478.) Contrary to this settled law, the
Ninth Circuit in TPS upheld a restraint with the sole purpose of protecting
the employer's "business relationships with Disney and other California
customers." (TPS, supra, 126 F.3d at p. 1132.)
Similarly, it is well settled that the protection oflaws enacted to
promote public policy cannot be waived by contract, either directly or
through the expedient of a choice-of-law clause. (See Civ. Code §§ 1668,

14
----------~-----

3513; Armendariz v. Foundation Health Psychcare Services, supra, 24

Cal.4th atpp. 100-101; Weber, Lipshie & Co. v. Christian, supra, 52
Cal.AppAth at p. 659 ["section 16600 was adopted for a public reason. It
follows that Christian could not by agreement waive the benefit afforded by
California law."].) Nevertheless, the Ninth Circuit in Bajorek honored a
choice-of-Iaw clause and applied New York Law to uphold a complete ban
on competitive employment against a California employee. (Bajorek,
supra, 191 F.3d at pp. 1041-1042.)
Finally, it is well settled that Section 16600's flat prohibition against
contractual restraints is not subject to the vagaries of any "reasonableness"
standard. "Although at common law and in many states, a restraint on the
practice of a trade or occupation, even as applied to a former employee, is
valid if reasonable (see Rest.2d Contracts, § 188, pp. 45-47; 14 Williston on
Contracts (3d ed. 1972) § 1636, p. 88, et seq., § 1637, p. 103, et seq.), the
so-called rule ofreasonableness was rejected by this state in 1872."
(Bosley Medical Group v. Abramson, supra, 161 Cal.App.3d at p. 288
[emphasis added]; accord Hill Medical Corp. v. Wycoff, supra, 86
Cal.AppA th at p. 901.)
Contrary to this long-standing interpretation of Section 16600, it is
evident that the "partial restraint" doctrine introduces some type of
"reasonableness" inquiry into the analysis. While the Ninth Circuit
presents its approach as a factual inquiry that can be applied with
mathematical precision, in reality there can be no exact formula for
detennining whether a restraint is appropriately "limited" in scope
(Bajorek), whether it restricts a "substantial segment" as opposed to a
"narrow segment" of a market (TPS), or whether the restraint only prevents
an employee from pursuing "a small or limited part of [his] business, trade

15
-------------~-----------

or profession" (Campbell). To answer each of these questions, courts

necessarily will be required to make judgment calls, and those calls will
undoubtedly be guided by the court's view of what is "reasonable" given
the fact and circumstances of the case.

(b) Insofar as the Ninth Circuit's "Partial Restraint"

Doctrine is Premised on Prior California Decisions,
Those Decisions Should Be Clarified or Overruled.
The Ninth Circuit's foray into the "partial restraint" doctrine in
Campbell relies primarily on one appellate court decision, Boughton v.
Socony Mobil Oil Co. (1964) 231 CaLApp.2d 188. (See Campbell, supra,
817 F.2d at p. 502.) In particular, the Ninth Circuit cited and quoted
Boughton for the proposition that "where one is barred [by a contractual
restraint] from pursuing only a small or limited part of a business, trade or
profession, the contract has been upheld as valid." (Id. [quoting Boughton,
supra, 231 CaLApp.2d at 192].)
But Boughton is simply not about contractual restraints on
competition, and therefore has no place in an analysis under Section 16600.
Indeed, the contract at issue in Boughton was for the sale of real property.
The contract incorporated a deed restriction on the use of the land, but did
not restrain the purchaser's right or ability to pursue a lawful profession,
trade or business. (Boughton, supra, 231 CaLApp.2d at p. 190 ["The single
restriction is imposed, not personally on plaintiffs restraining them from
engaging or carrying on any profession, trade or business but, on the use of
the land ...."].) The Boughton court itself seemed to recognize this,
concluding at the outset that "the restriction in the deed does not fall within
the purview of [Section 16600]." (Id. at 190.)

16
 Other courts have recognized that nothing in the text of Section
16600 limits the right of property owners to control the use of their
property as they please. For example, in Grogan v. Chaffee (1909) 156
Cal. 611, this Court observed: "Section 1673 of the Civil Code makes void
every contract by which one is restrained from 'exercising a lawful
profession, trade, or business . . . . But this is far different from a contract
limiting [one's] right to dispose ofa particular piece ofproperty, except
upon certain conditions. As the owner of property has the right to withhold
it from sale, he can also, at the time of its sale, impose conditions upon its
use without violating any rule of public policy." (Id. at 615.)
Unfortunately, the inapposite statement in Boughton that Section
16600 does not invalidate contracts "where one is barred from pursuing
only a small or limited part of a business, trade or profession" has not been
confmed to contracts dealing with property rights, but instead has found its
way into the lexicon of decisional law dealing with restraints on
competition. As such, this statement cannot be reconciled with the
pronouncements of this Court, discussed above, holding that Section 16600
"makes no exception for contracts only in partial restraint of trade."
(Chamberlain v. Augustine, supra, 172 Cal. at p. 289.)
Nonetheless, the Ninth Circuit relied on Boughton's misstatement as
the basis for the "partial restraint" exception it created in Campbell,
reiterated in TPS, and extended in Bajorek. Moreover, the Ninth Circuit
expressly rejected the distinction drawn by the Boughton court itself - i.e.,
that contracts whereby property owners lawfully exercise control over the
use or disposition of their property are simply not restraints on trade that
"fall within the purview" of Section 16600. (See TPS, supra, 126 F.3d at p.

17
 1133 & fn.1 [rejecting right-to-contro1 property vs. restraint of trade
distinction] .)
Because of the Ninth Circuit's departure from settled law, it is now
necessary for this Court to reiterate the rule it laid down long ago in
Chamberlain v. Augustine: "[Section 16600] makes no exception in favor
of contracts only in partial restraint of trade." (172 Cal. at 289.) The Court
should also either clarify or overrule Boughton to the extent it suggests that
partial restraints on competition are permissible in California.
3. The So-Called "Trade Secret" Exception.
The Ninth Circuit's "partial restraint" doctrine is not the only
judicially-created exception to Section 16600 that has proven troublesome
for California employees, employers and courts. Equally problematic is the
so-called "trade secret exception."
This exception has its genesis in dicta in Muggill v. Reuben H
Donnelley Corp., where this Court observed that Section 16600
"invalidates provisions in employment contracts prohibiting an employee
from working for a competitor after completion of his employment or
imposing a penalty if he does so ... unless they are necessary to protect the
employer's trade secrets." (62 Cal.2d at p. 242 [emphasis added, citations
omitted].) The dicta in Muggill, in tum, is predicated on a series of "trade-
route" cases, which culminated in this Court's decision in Gordon v.
Landau (1958) 49 Cal.2d 690.
In Gordon, this Court upheld a restraint in the employment contract
of a "house-to-house installment sa1es[person]" that prohibited him from
calling on his fanner customers upon termination. (See 49 Cal.2d at pp.
691- 692.) Central to the Gordon Court's conclusion was its finding that
the employer's customer list "is a valuable trade secret and that plaintiffs

18
were damaged by defendant's unlawful use thereof." (Id. at 694 [emphasis

added].) As one court recently observed, the "core" reasoning of the trade-

route cases is that "information about the customer could be protected

because it was confidential, proprietary, and/or a trade secret." (Thompson

v. Impaxx, Inc (2003) 113 Cal.AppAth 1425, 1429; accord Moss, Adams &

Co. v. Shilling (1986) 179 Cal.App.3d 124, 130.)

Building on these cases, California courts have sometimes

recognized an exception to Section 16600 for restraints that are both

"narrowly tailored,,16 to a proprietary or property right 17 and "necessary,,18

to prevent unfair competition. 19 This formulation of the law, however,

simply results in unnecessary litigation. As the Amicus Curiae explain

below, contractual restraints are never "necessary" to protect the

employer's legal rights. Moreover, such restraints simply cannot be

16 See Kolani v. Gluska (1998) 64 Cal.AppAth 402,406 [only "narrowly

tailored" restrictions are lawful]; Metro Traffic Control, Inc. v. Shadow Traffic
Network, supra, supra, 22 CaLAppAth at p. 861 [contractual restrictions must
be "carefully limited" to be valid); Latona v. Aetna U.S. Healthcare, Inc. (C.D.
CaL 1999) 82 F.Supp.2d 1089, 1095 [only "carefully limited" contracts are
valid].
17 E.g., Gordon v. Landau, supra, 49 Cal.2d at p. 694 [trade secrets];
Boughton, supra, 231 CaLApp.2d at p. 192 [real property]; King v. Gerold
(1964) 231 Cal.App.3d 316,317 [intellectual property].
18 See Muggill v. Reuben H Donnelley Corp. supra, 62 Cal.2d at p. 242
[restraints are void "unless they are necessary to protect the employer's trade
secrets"]; Great Western etc. v. J.A. WathenD. Co. (1937) 10 Cal.2d442, 448-
49 [to be valid restriction cannot be "greater than protection to the other
requires"]; Grogan v. Shajfee, supra, 156 Cal. at p. 615 [same].
19 See Metro Traffic Control, h1C. v. Shadow Traffic Network, supra, 22
th
Cal.AppA at p. 861 [restrictions are void unless they merely protect against
unfair competition]; Hollingsworth Solderless Terminal Co. v. Turley, supra,
622 F.2d at p. 1338 [same]; Latona v. Aetna U.s. Healthcare, Inc., supra, 82
F.Supp. 2d at p. 1096 [same].

19
"narrowly tailored" to the point that they eliminate the threat of litigation

and the accompanying in terrorem effect that secures compliance with

contractual restraints - even plainly illegal ones - in the majority of cases.

(a) Contractual Restraints are Never "Necessary"

to Protect an Employers Rights.
It is beyond cavil that California law is duly solicitous of an employer's
right to protect its property and to be free from unfair and unlawful

competition. "That equity will always protect against the unwarranted

disclosure of trade secrets and confidential communications and the like is, of

course, settled beyond peradventure." (Empire Steam Laundry v. Lozier (1913)

165 Cal. 95, 100-102; Continental Car-Na-Var Corp. v. Moseley, supra, 24

CaL2d at p. 110.) Today, these rights are secured through a variety of different

laws, including California's Unfair Competition Law ("UeL," Bus. & Prof

Code §§ 17200 et seq.), the Uniform Trade Secrets Act ("UTSA," Civ. Code

§§ 3426 et seq.), and other laws prohibiting breach of fiduciary duty, tortious

interference with contractual relations, and the like.

Section 16600 does absolutely nothing to undermine those rights or to

prevent an employer from invoking the appropriate laws to protect itself against

unfair competition. Section 16600 no more permits a departing employee to

misappropriate his fonner employer's trade secrets than it permits him to steal

money, kidnap his fonner employer's salesmen, or burn down his former

employer's factory.

Accordingly, contractual restraints that purport to "protect" rights of

an employer that are already protected by other laws are entirely

superfluous. As the court observed in Metro Traffic Control, Inc. v.

Shadow Traffic Network, '" [1]t seems that [under § 16600] the employer
will be able to restrain by contract only that conduct of the fonner

20
employee that would have been subject to judicial restraint under the law of
unfair competition, absent the contract. '" (22 Ca1.App.4th at p. 861
[citation omitted].) With this perceptive observation in mind, it is apparent
that contractual restraints for the protection of trade secrets and the like are
never "necessary" because those rights are already protected by California
trade secret and unfair competition laws without the restraint.
A perfect example is found in Morlife, Inc. v. Perry (1997) 56
Ca1.App.4th 1514. There, former employees of a commercial roofmg repair

company started up a competing business and began calling on customers

of their former employer. The former employer sued them for
"misappropriating confidential customer information." (Id. at 1517.) There
is no mention anywhere in the court's opinion that the employees had

contractual agreements not to solicit former customers, or that the employer

was attempting to enforce any such restraints. To the contrary, traveling
exclusively under the UTSA, the fonner employer pleaded and proved that
its customer list was a trade secret and obtained an injunction against the
use of said list by its former employees. (Id. at 1519-1531.)20

Had this same approach been taken in Gordon v. Landau, the so-
called "trade secret exception" might never have been born. Given this

Court's express finding that the customer list in Gordon constituted "a
valuable trade secret," it is quite likely that the Court would have reached

20 Another example is Hollingsworth Solderless Terminal Co. v. Turley,

where the court held that it could not detennine if a restraint violated Section
16600, because the employer's separate, unfair competition claim had not yet
been detennined. (622 F.2d atpp. 1338-1339.) In other words, the contractual
restraint was entirely superfluous and redundant ofthe employer's rights under
California's unfair competition laws.

21
------------------------

the exact same result, and afforded the exact same relief, even if there had
been no contractual restraint.

(b) Pure Non-Competition Clauses Should Be

Declared Illegal Per Se Because They Are
Unnecessary and, By Definition, Not Narrowly
Tailored to Protect an Employer's Legal Rights.
The Amicus Curiae submit, as a fIrst step in eliminating the
uncertainty and controversy created by the "trade secret exception," this
Court should declare that pure non-competition clauses - i.e., provisions
that impose any type of restraint on an employee's ability to start a
competing business, work for a competitor, or sell competing goods and
services - are illegal per se. Such clauses cannot be justifIed to protect
trade secrets, or for any other reason.
Notwithstanding the so-called "trade-secret" exception, no
California court has ever upheld a true non-competition agreement, not to
protect trade secrets, not to prevent unfair competition, not for any reason
whatsoever. The explanation is simple. First, as pointed out above, such
broad restraints are never "necessary" to protect an employer's legal rights.
Second, pure restraints on competitive activity are obviously broader than
required to protect the former employer from unfair competition, including
the use or disclosure of trade secrets. 21
These observations are fully corroborated by recent decisions
construing both the scope of Section 16600 and the anti-competitive effect

21 As Professor Gilson colorfully observed, while employee non-competition

agreements might be effective in preventing the disclosure of trade secrets, they
"are effective in the same sense that burning down a house to eliminate tennites
is effective: the problem is efuninated but the collateral damage from the
solution is worse than the problem itself." (Gilson, supra, AInicus Curiae Brief
at pp. 10-11.)

22
of the "trade secret exception." For example, inD'Sa v. Playhut, Inc.
(2000) 85 Ca1.App.4th 927, the court reviewed a non-competition agreement
that prohibited the employee from working "directly or indirectly" on a
"Competing Product." (Id. at 930-931.) The court held that merely
requiring California employees to sign an agreement with this type of non-
compete provision violated the strong public policy expressed in Section
16600. (Id. at 933.) In reaching this conclusion, the court flatly rejected
the former employer's argument that the restraint could be narrowly
construed as "necessary" to protect trade secrets. (Id. at 935.)

(c) Restraints On Soliciting Customers Should Be

Declared Illegal Per Se Because They Are
Unnecessary to Protect an Employer's Legal
Rights and Cannot Be Narrowly Tailored to
Protect Those Rights.
To fulfill the Legislative mandate of Section 16600 and eliminate the
ongoing abuse of the so-called "trade secret exception," this Court should
also take the next logical step and reverse the timeworn "trade route" cases.
The Court should declare that customer non-solicitation provisions are
void, period. They are not necessary to protect trade secrets or confidential
infonnation, and cannot be "narrowly tailored" to protect the employer's
interests without violating California's interests embodied in Section
16600, either.
Existing California decisions lend strong support to the Amicus
Curiae's position. Initially, there can be no doubt that customer non-
solicitation clauses are anticompetitive. As one court rhetorically observed,
"[While such] clause[s] [are] less restrictive, and less anticompetitive than
the broad, traditional anticompetitive clauses .... [they are] nevertheless
anticompetitive - why else would [the employer] ask employees to sign it?"

23
(Thompson v. Impaxx, Inc., supra, 113 Ca1.App.4th at p. 1429.) Employers
use non-solicitation provisions to protect customer relations and goodwill,
not just customer information.
In addition, as explained above, non-solicitation clauses are never
"necessary" to protect the employer's legal rights because the employer
already enjoys such protections under other laws. Moreover, insofar as an
employer believes it necessary to have some type of contractual protection
against the misappropriation of its trade secrets, a simple non-disclosure
clause will do. (See Latona v. Aetna Us. Healthcare, Inc., supra, 82
F.Supp.2d at p. 1096 [employer's confidentially agreement provides "all of
the protection of its trade secrets and other confidential information that
[employer's needs and] the law allows."].)
Finally, it can never be determined that a non-solicitation clause is
"narrowly tailored" to protect trade secrets because the question whether a
customer list is a trade secret can never be answered solely with reference
to the contract. As one court correctly observed, "an agreement between
employer and employee defining a trade secret may not be decisive in
determining whether the court will so regard it." (Loral Corp. v. Moyes
(1985) 174 Ca1.App.3d 268,275.) Indeed, "[t]he issue of whether
infonnation constitutes a trade secret is a question of fact .... [and] recitals
[in the employment agreement] alone do not establish anything. Labeling
information as a trade secret or as confidential information does not
conclusively establish that the information fits this description."
(Thompson v. Impaxx, Inc., supra, 113 Ca1.App.4th at p. 1430.)
It follows that three likely outcomes result from the use of customer
non-solicitation clauses. The first outcome is litigation to detennine
whether the former employer's customer list is entitled to trade secret

24
protection. The most curious aspect of this alternative, however, is that the
litigation would have nothing to do with the contractual restraint. Rather,
the former employer would have to demonstrate trade secret status under
the pleading and proof requirements of the UTSA. (See Thompson v.
Impaxx, Inc., supra, 113 Ca1.AppAth at p. 430 [recognizing possibility that
former employer might prove that its customer information fit the definition
ofa trade secret under Civ. Code § 3426.1]; see also Hollingsworth
Solderless Terminal Co. v. Turley, supra, 622 F.2d at pp.1338-39 [question
whether contractual restraint was enforceable turned on whether employer
could prevail on its separate claim for unfair competition],)
A second and more likely outcome is that the employee and
prospective employers will simply adhere to the contractual restraint based
on what one court aptly described as the in terrorem effect:

Even if they strongly suspect that [the clause] is

unenforceable, . . . employees will be reluctant to challenge
the legality of the contractual terms and risk the deployment
of [the former employer]'s considerable legal resources
against them. Thus, the in terrorem effect of the [a]greement
will tend to secure employee compliance with its illegal terms
in the vast majority of cases. Prospective future employers,
too, may be reluctant to hire [the fonner employer]'s workers;
even if secure in the knowledge of the unenforceability of
[the] clause, these employers may well wish to avoid the
expense and energy of defending a lawsuit in which they are
likely to be joined.
(Latona v. Aetna u.s. Healthcare, Inc., supra, 82 F.Supp.2d at pp. 1097-
1098.)
The third and most likely outcome is that the employee, "having no
reason to familiarize [himself] with the specifics of California's
employment law, will tend to assume that the contractual tenns proposed
by their employer ... are legal, if draconian." (Id. at 1097.) Such
employees would likely "act on their interpretation rather than consult an

25
attorney to find out if their interpretation is correct." (D'Sa v. Playhut, Inc.,
supra, 85 Ca1.AppAth at p. 935.) As a result, they would "honor these
clauses ... , thus directly undermining the statutory policy favoring
competition." (Kolani v. Gluska, supra, 64 Ca1.AppAth at p. 407.)
If employers could be counted on to refrain from using non-
solicitation clauses except in cases where their customer lists and related
information qualified as trade secrets, perhaps none of this would matter.
But experience indicates otherwise. Recent decisions like Kolani and
Latona demonstrate the penchant of some California employers to use
broad and illegal non-solicitation clauses to restrain competition.
Moreover, a long line of California cases reveals that some employers will
always be willing to use such clauses, or otherwise try to prevent former
employees from calling on their customers, even where it is readily
apparent that their customer lists are not trade secrets. (E.g., Continental
Car-Na-Var v. Mosley, supra, 24 Ca1.2d 104; American Paper &
Packaging Products, Inc. v. Kirgan (1986) 183 Ca1.App.3d 1318; Fortna v.
Martin (1958) 158 Ca1.App.2d 634; Mathews Paint Co. v. Seaside Paint &
Lacquer Co. (1957) 148 Ca1.App.2d 168; Avocado Sales Co. v. Wyse
(1932) 122 Ca1.App. 627.)

(d) An "Exception" For Customer Non-Solicitation

Clauses to Protect Confidential Customer Lists
Invites Abuse and Creates an In Terrorem Effect
that Undermines the Important Public Policy and
Fundamental Rights Section 16600 Was Designed
to Protect.
By recognizing an "exception" for customer non-solicitation clauses
on the ground that they might be consistent with the protection of a trade
secret customer list, this Court in Gordon, and subsequently in Muggill,

26
inadvertently opened the door to abusive practices that undennine the
important public policy and fundamental rights Section 16600 was
designed to protect.
If we still lived in simpler times when milkmen, ice companies,
bakeries, launderers and all manner of salesmen plied their trades from door
to door, perhaps the thinking of Gordon and other "trade-route" cases
would retain some currency. But times have changed. Today, employers
use (or more accurately, misuse) contractual restraints, including pure non-
competition clauses and customer non-solicitation provisions for no other
reason than to protect themselves against competition from their former
employers. As more modern decisions have recognized, these employers
can rely on a combination of ignorance and fear to exact compliance with
such restraints in many if not most cases - even cases where the restraints
are patently illegal.
It is time for this Court to recognize that de facto compliance is
inherent in all restraints, and offends California's interest in preventing
anti-competitive conduct. Judicially created "exceptions" to the bright-line
rule established by the Legislature over a century ago make the problem
worse by encouraging or at least inviting litigation, thus creating an in
terrorem effect. This flies in the face of what Section 16600 was designed
to accomplish. (See City Carpet-Beating, etc, Works v. Jones, supra, 102
Cal. at p. 511; Application Group, supra, 61 Cal.App.4th at p. 901 [Section
16600 is intended to protect employers and employees "from
anticompetitive conduct ... including litigation based on a covenant not to
compete . . . ."].)

27
C. THE COURT SHOULD VINDICATE THE FUNDAMENTAL
RIGHT PROTECTED BY SECTION 16600 AND ENSURE AN
EVEN PLAYING FIELD IN CALIFORNIA
As demonstrated above, the rights afforded by Section 16600 are
important, fundamental and cherished, but they are also fragile. They can
be easily defeated by the use of unlawful restraints when there is
uncertainty in the law. Guidance is therefore necessary from this Court.
1. The Proposed Solution.
The Court should re-affmn its holding in Chamberlain and enforce
Section 16600's bright-line rule against all post-employment restraints on
competition. In doing so, the Court will necessarily reject the Ninth
Circuit's "partial restraint" doctrine. It will also rej ect or clarify dicta
suggesting that there is a "trade secret exception" to Section 16600, and
correct the current misperception in the law that employment contracts may
be used to restrain lawful competition. Eliminating the judicially created
exceptions and clarifying existing uncertainties and conflicts in the law is
the best and perhaps, the only way to effectuate the Legislature's policy of
free competition and employee mobility.
2. Benefits of the Proposed Solution.
Affirming the Legislature's bright-line rule against restraints on
competition would yield a number of significant benefits. It will restore the
balance intended by the Legislature in favor of free competition and
employee mobility, which has fueled California's economy for over a
century. It will substantially reduce needless litigation over the validity of
contractual restraints under Section 16600, and eliminate the incentive of
employers to "cheat" the system by declaring all post-employment
restraints on competition void per se. It will create a disincentive for
"cheating" by holding that the use of such restraints constitutes unlawful

28
~~~~~~~~~~~~~---------

competition. Finally, a bright-line rule would largely prevent "de facto"

restraints on competition by eliminating the "in terrorem" effect, and
restore a level playing field for California businesses that, in compliance
with California law, do not use restraints on competition in their
employment contracts.
At the same time, a bright-line rule would not prevent employers
from using and!or enforcing contracts that control the use of real, personal
or intellectual property (e.g., license agreements, patent rights, etc.).
Similarly, it would not prevent employers from using general contractual
provisions against the misuse or disclosure of trade secrets or confidential
information. Nor would it prevent them from bringing an action under
VTSA or VCL, subject only to the pleading and proof requirements of
those laws. And the employer would still be able to seek appropriate
remedies including, for example, an injunction against soliciting its
customers upon proof that its customer list is truly a trade secret.
In sum, a bright-line rule would restore the paramount nature of the
rights protected by Section 1'6600, and the "wise and salutary" policy of
"eliminate[ing] from the controversy ... the question as to what is a
reasonable [restraint] by specifically defming it." (City Carpet-Beating,
etc, Works v. Jones, supra, 102 Cal. at p. 511.)

29
 III. CONCLUSION
Based on the foregoing, the Amicus Curiae respectfully request that
the Supreme Court both affmn the decision of the Court of Appeal, Second
Appellate District, Division Three, and clarify that there are no judicially
created exceptions to Business and Professions Code section 16600.

Dated: May 14, 2007 Respectfully submitted,

FELDMAN GALE P.A.

JAMES A. GALE
TODD M. MALYNN
MICHAEL J. WEBER

BY:~-
Todd M. Malynn .
Attorneys for Amicus Curiae

30
 CERTIFICATE OF WORD COUNT
Pursuant to California Rules of Court, rule 8.204(c)(l), the Amicus
Curiae Briefwas produced using 13-point Times New Roman type style
and consists of 8,170 words not including the tables of contents and
authorities, caption page, signature block, or this Certification, as counted
by the Microsoft Word 2003 word processing program used to generate the
brief. The text of the Application to file the Amicus Curiae Brief consists
of 1,785 words as counted by the same word processing program.

Dated: May 14, 2007 Respectfully submitted,

FELDMAN GALE P.A.

JAMES A. GALE
TODD M. MALYNN
MICHAEL J. WEBER

By: ~'
:
ToddM. Malynn
Attorneys for Amicus Curiae

31