Delaware Court of Chancery Enforces Covenant Not to Compete

Delaware Court of Chancery Enforces Covenant Not to Compete

 The Chancery opinion in Revolution Retail Systems, LLC v. Sentinel Technologies, Inc., C.A. No. 10605-VCP (Del. Ch. Oct. 30, 2015), discusses many issues in connection with the breach of contract for the sale of a business [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. The sale involved an ongoing collaborative relationship. Although Texas law applied to many aspects of the case, the court cited to applicable Delaware case law on the enforceability of covenants not to compete. See, e.g., footnote 182 (citing Merrill Lynch, Pierce Fenner & Smith, Inc. v. Price, 1989 Del. Ch. LEXIS 115 at *13 (Del. Ch. Sept. 13, 1989) (this case enforced a covenant not to compete against a former broker who had competed against his former firm with a customer list he took with him).

In connection with enforcing the covenant not to compete, the court also reviewed the prerequisites for a permanent injunction which was also granted in this case. The court also reviewed claims for loss profits and observed that when measuring money damages for an unproven technology, it is nearly impossible not to be speculative, which does not satisfy the basis for awarding lost profits. See footnote 193 (citing Amaysing Techs. Corp. v. CyberAir Commc’ns, Inc., 2004 Del. Ch. LEXIS 72, at *18 (Del. Ch. May 28, 2004)(case involving product with unproven technology).

A permanent injunction was also issued to remedy a breach of a confidentiality provision, in addition to the enforcement of the covenant.

There are many other substantive parts of this 73-page decision, but for purposes of highlighting the most practical aspects with the widest application, I have focused on the enforcement of a covenant not to compete and the grant of an injunction as a remedy.

 Read more Delaware business litigation case summaries and commentary on Delaware Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X. Pileggi, of Eckert Seamans.

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