extended the holding from Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937
(Edwards) beyond the employment context to a provision in the parties' 2003 BNP Assay
Agreement (the Agreement). We are called upon to determine whether the trial court's
per se application of section 16600 to section 5.2.3 of the Agreement between Quidel and
Beckman was correct. We conclude it was not, and we grant the petition and issue a writ
instructing the trial court to vacate the December 7, 2018 order granting summary
adjudication on the first cause of action.
FACTUAL BACKGROUND
In 1996, Biosite Inc. (Biosite)2 licensed patent rights and know-how related to a
B-type natriuretic peptide (BNP), which can be measured in a person's blood. The semi-
1 Future section references are to the Business and Professions Code unless otherwise specified.
2 As a result of acquisitions, Quidel is the successor in interest to Biosite, and Quidel is the current counter-party to Beckman under the BNP Assay Agreement. 2
exclusive licensing agreement allowed Biosite to develop an immunoassay to determine
the level of BNP in a person's blood sample, to help diagnose congestive heart failure.
After acquiring the intellectual property rights and know-how, Biosite developed and
created a BNP assay for use with its point-of-care analyzer device, and it obtained
regulatory approval. BNP assays only work on the analyzer for which they are designed.
By 2003, Beckman had developed a laboratory analyzer, but it did not have a
license for a BNP assay compatible with its analyzer. Around this same time, other
companies were also pursuing BNP assays for use with their larger analyzers, which
could run multiple, different immunoassays at higher volumes than the point-of-care
analyzer Biosite had. One company was also developing an assay to detect NT-proBNP,
a closely-related assay that is a potential direct substitute for the BNP assay and is also
based on B-protein.
If Biosite were to correlate a new BNP assay for use with the Beckman lab
analyzer to its Federal Drug Administration-approved BNP assay, it could avoid the need
to establish the new assay's efficacy through extensive clinical trials. Collaborating
would mean Biosite could expand its customer base to those who wanted to use the larger
capacity laboratory analyzers and Beckman could include the BNP assay in its menu of
immunoassay offerings.
Biosite and Beckman, each represented by legal counsel, negotiated the
Agreement over several months, and they exchanged numerous drafts before executing it
on June 24, 2003. Under the terms of the Agreement, Beckman manufactured the BNP
assay for Biosite using proprietary materials that Biosite provided, including the
3
antibodies Biosite had developed. In exchange, Biosite purchased its requirements of the
BNP assay from Beckman. The Agreement prohibited Biosite from engaging other
manufacturers to provide the BNP assay for their competing lab analyzers. The term of
the Agreement was negotiated to coincide with the term of a related licensing agreement
Biosite had with Scios.
Section 5.2.1 of the Agreement requires Beckman to offer for sale and to sell the
BNP assay exclusively to Biosite. Section 5.2.2 prohibits Biosite from engaging third
parties other than Beckman to manufacture for Biosite a diagnostic BNP assay for use.
Section 5.2.3 of the Agreement prohibits Beckman from researching or developing an
assay that detects the presence or absence of the BNP or NT-proBNP proteins or markers
for use in diagnosing cardiac disease until two years before the Agreement's expiration.
It does not prohibit the research or development of assays that detect the presence or
absence of other proteins or markers, including the biomarkers ST2 or Galectin 3.
Although Beckman did not dispute that BNP and NT-proBNP assays were seen as
and have become potential substitutes for purposes of the motion for summary
adjudication, the parties' characterization of the BNP assays and NT-proBNP assays are
slightly different. Quidel characterizes the two as closely-related, with the NT-proBNP
assay serving as a potential direct substitute for the BNP assay because it detects a
peptide that is secreted alongside the BNP. Beckman has alleged the NT-proBNP assay
measures a different protein and uses different antibodies and proteins than the BNP
assay, suggesting they are distinctly different.
4
PROCEDURAL HISTORY
On November 27, 2017, Beckman sued Quidel for declaratory relief for violation
of section 16600 and violation of the Cartwright Act (§ 16720 et seq.). Beckman asked
the court to issue a declaratory judgment that section 5.2.3 of the Agreement was void
and unenforceable as a violation of Business and Professions Code section 16600 and to
issue a permanent injunction preventing the enforcement of section 5.2.3 of the
Agreement.
In August 2018, Beckman filed a motion for partial summary adjudication on the
declaratory judgment cause of action. In its papers, Beckman stated it was developing
and planning to launch a new laboratory analyzer platform and wanted to develop a
competing assay product for the new platform. It argued section 5.2.3 of the Agreement
was a non-compete clause that was void under Business and Professions Code
section 16600.
On November 7, 2018, Quidel moved ex parte for a continuance of the motion. In
the hearing, Quidel argued additional discovery was necessary to determine if there were
material issues of fact in dispute. Beckman contended there was no need for additional
discovery to determine the impact of section 16600 on the parties' Agreement. The court
denied the ex parte request.
The trial court ultimately granted Beckman's motion for summary adjudication. It
noted none of the statutory exceptions to the restraint on trade outlined in section 16600
apply and explained it was unpersuaded by the legal authority cited by Quidel because it
predated Edwards or discussed exclusive dealing contracts in the context of franchise
5
relationships. Relying on Edwards, the trial court concluded section 16600 voids every
contract that restrains anyone from " 'engaging in a lawful profession, trade, or business
of any kind . . . .' [Citation.]" Accordingly, it concluded section 5.2.3 of the Agreement
was void because it "restrains [Beckman] from developing, marketing, or assisting others
in the development and marketing of an assay that measures or detects the presence or
absence of BNP or NT-proBNP."
Quidel moved to stay the order pending final appeal or pending resolution of a
writ petition seeking a stay and sought an extension of time to file a writ. The court
granted the request.
On January 18, 2019, Quidel filed a petition for writ of mandate and/or prohibition
and sought a stay pending a determination of the writ on its merits. Beckman filed a
preliminary opposition to the petition, to which Quidel replied. We issued an order to
show cause why a peremptory writ should not issue and stayed the order granting
Beckman's motion for summary adjudication pending further order. We deemed the
preliminary opposition filed by Beckman to be its return to the order to show cause. We
now turn to the merits of the petition.
DISCUSSION
A
Review on Petition for Writ Appropriate
As a preliminary matter, this case is appropriately before us as a petition for writ
of mandate. Although appellate courts "seldom use extraordinary writs to review
interlocutory summary adjudication orders (grants or denials)" (Int'l Ins. Co. v. Superior
6
Court (1998) 62 Cal.App.4th 784, 788), writ review of such orders is statutorily
authorized (Code Civ. Proc., § 437c, subd. (m)(1)) and may be appropriate when the
petitioner raises a significant legal question of statewide interest (City of Oakland v.
Superior Court (1996) 45 Cal.App.4th 740, 750-751) or when the order disposes of a
large and important portion of the case and intervention by writ will substantially
simplify future proceedings (Fisherman's Wharf Bay Cruise Corp. v. Superior Court of
San Francisco (2003) 114 Cal.App.4th 309, 319 (Fisherman's Wharf); Exxon Corp. v.
Superior Court (1997) 51 Cal.App.4th 1672, 1679-1680).
In the present case, the petitioner has raised a significant legal question of broad
public interest: Does section 16600 invalidate all contractual noncompete provisions,
even outside the employment context, without regard to the reasonableness of the
restraint imposed or whether the terms actually advance, rather than restrain,
competition? (See California Highway Patrol v. Superior Court (2006) 135 Cal.App.4th
488, 496; see also City of Oakland v. Superior Court, supra, 45 Cal.App.4th at pp. 750-
751.) Additionally, our review helps to substantially advance the underlying case toward
final resolution because the section 16600 claim addresses the primary area of dispute
between the parties. (See Fisherman's Wharf, supra, 114 Cal.App.4th at p. 319.)
B
Standard of Review
A grant of summary adjudication is appropriate if there are no triable issues of
material fact and the moving party is entitled to judgment as a matter of law. (Code of
Quidel separately contends Edwards is distinguishable from the case at hand
because it evaluated a postterm covenant not to compete, while in-term noncompetition
clauses have been held valid. To support its position, Quidel cites Dayton Time Lock
Service, Inc. v. Silent Watchman Corp. (1975) 52 Cal.App.3d 1 (Dayton Time Lock). The
agreement there contained a noncompete provision that prohibited the franchisee from
competing with the franchisor for the duration of the contract and for ten years thereafter.
(Id. at p. 5.) The court held anticompetition limitations in place during the term of the
franchisor-franchisee contract were valid, but the postterm limitations were not. (Id. at
p. 6.) It explained that "[e]xclusive-dealing contracts are not necessarily invalid," and
15
that "[a] determination of illegality requires knowledge and analysis of the line of
commerce, the market area, and the affected share of the relevant market." (Id. at pp. 6-
7.) Because the plaintiff had not developed material evidence on those issues, the court
could not determine as a matter of law that the challenged provision was invalid. (Id. at
p. 7.)
Beckman contends Dayton Time Lock is inapplicable, and it cites Kelton v.
Stravinski (2006) 138 Cal.App.4th 941, 947-948 (Kelton) to support its contention that
in-term covenants not to compete are invalid. In Kelton, the parties entered a partnership
to develop warehouses, but it required the parties to identify the specific projects that fell
within the partnership and permitted the parties to participate in other warehouse
development activities outside their arrangement. (Id. at p. 944.) They separately
executed a covenant not to compete, one party agreeing to abstain from operating a
warehouse and the other abstaining from designing or building any warehouses. (Id. at
p. 945.) Kelton eventually sued Stravinski claiming an interest in a variety of projects
under the terms of the covenant not to compete. (Id. at p. 945.) The court concluded the
covenant not to compete contravened the public policy of open competition in violation
of section 16600. (Kelton, at pp. 946-947.)
Although Kelton distinguished its facts from those in Dayton Time Lock because
Dayton Time Lock regarded a franchise agreement instead of an equal partnership, the
Ninth Circuit noted that "Dayton Time Lock and Kelton make evident that under
[section] 16600 an in-term covenant not to compete in a franchise-like agreement will be
16
void if it 'foreclose[s] competition in a substantial share' of business trade or market."4
(Comedy Club, Inc. v. Improv West Associates (9th Cir. 2009) 553 F.3d 1277, 1292,
quoting Dayton Time Lock, supra, 52 Cal.App.3d at p. 6.) Thus, in-term covenants not to
compete in exclusive dealing agreements are not per se invalid.
4. Comparing Section 16600 to the Cartwright Act
Finally, Beckman argues section 16600 cannot require evaluation of the
reasonableness of the terms of a noncompetition provision because such an approach
would make the Cartwright Act, which already requires a similar evaluation, superfluous.
Beckman explains that under a test of reasonableness, a litigant deciding whether to
allege a violation of section 16600 would have the burden of proving the
unreasonableness of the restraint on trade, but would recover only declaratory relief,
while a litigant alleging a violation of the Cartwright Act would carry the same burden,
but success could be rewarded with treble damages in addition to a declaration of
invalidity. Thus, there would be "no reason to ever invoke section 16600 to challenge an
'in-term' business restraint." We disagree.
First, the statutes can apply to different courses of action. While section 16600
prohibits restraints of "lawful profession, trade, or business of any kind," the Cartwright
4 Beckman contends franchise agreements are different from other exclusive dealing contracts because they are heavily regulated and necessarily contain exclusivity provisions to protect the franchisor's intellectual property due to the franchisee's substantial association with the franchisor's trademark or other mark. (See Kelton, supra, 138 Cal.App.4th at pp. 947-948.) We decline to draw any conclusion as to the appropriateness of comparing a franchise agreement to other types of exclusive dealing arrangements, as the comparison is not necessary to reach our conclusion here. 17
Act also prohibits trusts, a "combination of capital, skill or acts by two or more persons"
for any of a number of enumerated purposes.5 (§ 16720.) Second, even though a similar
standard applies to agreements outside the employment context, the post-Edwards
application of section 16600 as a per se ban on covenants not to compete identifies a
different standard for employment agreements. Applying a similar standard in some
5 Section 16720 provides: "A trust is a combination of capital, skill or acts by two or more persons for any of the following purposes: [¶] (a) [t]o create or carry out restrictions in trade or commerce[;] [¶] (b) [t]o limit or reduce the production, or increase the price of merchandise or of any commodity[;] [¶] (c) [t]o prevent competition in manufacturing, making, transportation, sale or purchase of merchandise, produce or any commodity[;] [¶] (d) [t]o fix at any standard or figure, whereby its price to the public or consumer shall be in any manner controlled or established, any article or commodity of merchandise, produce or commerce intended for sale, barter, use or consumption in this State[;] [¶] (e) [t]o make or enter into or execute or carry out any contracts, obligations or agreements of any kind or description, by which they do all or any or any combination of any of the following: [¶] (1) [b]ind themselves not to sell, dispose of or transport any article or any commodity or any article of trade, use, merchandise, commerce or consumption below a common standard figure, or fixed value[;] [¶] (2) [a]gree in any manner to keep the price of such article, commodity or transportation at a fixed or graduated figure[;] [¶] (3) [e]stablish or settle the price of any article, commodity or transportation between them or themselves and others, so as directly or indirectly to preclude a free and unrestricted competition among themselves, or any purchasers or consumers in the sale or transportation of any such article or commodity[;] [¶] (4) [a]gree to pool, combine or directly or indirectly unite any interests that they may have connected with the sale or transportation of any such article or commodity, that its price might in any manner be affected."
18
contexts under both laws while providing additional bases for action means the statutes
are not redundant.6
D
Application of Section 16600 to the Agreement
To prevail on its motion for summary adjudication, Beckman must demonstrate
there are no triable issues of material fact that section 5.2.3 of the Agreement (1) tends to
restrain trade more than promote it (Great Western, supra, 10 Cal.2d at p. 446;
Martikian v. Hong (1985) 164 Cal.App.3d 1130, 1133; Keating, supra, 42 Cal.App.2d at
p. 123); (2) is not necessary "to protect the respective parties in dealing with each other"
(Great Western, at pp. 449-450; Associated Oil, supra, 217 Cal. at p. 306; Martikian, at
p. 1133); or (3) forecloses a substantial share of the line of commerce. (Kelton, supra,
138 Cal.App.4th at pp. 947-948.)
There is no dispute that section 5.2.3 of the Agreement limits Beckman's ability to
develop a competing assay to diagnose cardiac disease. Section 5.2.3 prohibits Beckman
from researching or developing an assay that detects the presence or absence of the BNP
or NT-proBNP proteins or markers. Quidel maintains that the BNP and NT-proBNP
6 Civil Code section 1673, the predecessor statute to Business and Professions Code section 16600, was enacted in 1872. (Cianci v. Superior Court (1985) 40 Cal.3d 903, 922.) The Cartwright Act was enacted in 1907. (Ibid.) Section 16600 and the Cartwright Act were placed in the Business and Professions Code as part of a statutory consolidation in 1941. (Cianci, at p. 922.) Business and Professions Code section 16700, which opens the chapter containing the Cartwright Act, states: "The provisions of this chapter are cumulative of each other and of any other provision of law relating to the same subject in effect May 22, 1907." 19
assays are interchangeable and that Beckman can research and develop the presence or
absence of other biomarkers, like ST2 or Galectin 3, suggesting the restraint is reasonably
narrow. However, whether these limitations tend to restrain trade more than promote it
remains unclear and requires a factual analysis.
Additionally, whether section 5.2.3 of the Agreement is necessary to protect the
parties in their dealings similarly requires a factual analysis, and the record on this issue
is incomplete. Quidel argues that because the NT-proBNP assay is a direct substitute for
the BNP assay, the prohibition on researching and developing an NT-proBNP assay until
two years before the Agreement's conclusion is necessary to protect Quidel's interests in
dealing with Beckman. However, whether prohibiting development of NT-proBNP assay
is necessary to protect parties in their dealings is disputed. Beckman opted not to present
evidence regarding the purpose or effect of the Agreement, instead contending such facts
and evidence were immaterial to the dispute regarding application of section 16600.
Finally, whether the Agreement forecloses a substantial share of the line of commerce has
likewise not been factually developed.
In the November 7, 2018 hearing, Beckman's attorneys repeatedly conceded that
the purpose of their motion for summary adjudication was to avoid engaging in detailed
discovery on anti-trust issues, stating that if "full-blown anti-trust analysis" was required,
the motion should be denied. Because we have concluded that the rule announced in
Edwards does not extend beyond the employment context, we conclude such factual
development is relevant and necessary here.
20
DISPOSITION
The petition for writ of mandate and/or prohibition is granted. Let a writ issue
directing the trial court to vacate its December 7, 2018 order granting the motion for
summary adjudication, and to enter a new order denying the motion. The stay issued by
this court on March 14, 2019, is vacated.
Petitioner to recover costs.
HUFFMAN, Acting P. J.
WE CONCUR:
IRION, J.
GUERRERO, J.
21
AI Brief
AI-generated · verify before citing
Holding. The court held that the per se rule against noncompetition agreements established in Edwards v. Arthur Andersen LLP is limited to the employment context and does not apply to in-term exclusive dealing agreements between business entities. Such commercial agreements are instead subject to a rule of reason analysis to determine if they unreasonably restrain trade.
Issues
Does Business and Professions Code section 16600 invalidate all contractual noncompete provisions outside the employment context without regard to reasonableness?
Is the per se rule against noncompetition agreements in Edwards v. Arthur Andersen LLP applicable to in-term exclusive dealing agreements between corporate entities?
Disposition. reversed
Quotations verified verbatim against the opinion
“the per se ban on noncompetition clauses outlined in Edwards is limited to employment agreements.”
“this matter falls outside the confines of Edwards because it does not address an individual's ability to engage in a profession, trade, or business.”
“in-term covenants not to compete in exclusive dealing agreements are not per se invalid.”