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Draft Your Noncompete Agreements Carefully!

About a week ago, the North Carolina Court of Appeals issued a new Opinion (Copypro, Inc. v. Musgrove, No. COA13-297 (N.C. App. Feb. 4, 2014)) which centered on noncompetition agreements (also referred to as a “covenant not to compete”).

The case involved an employer (Copypro) suing its former employee (Musgrove) for violating a noncompete agreement that Musgrove had signed before beginning employment.  The agreement stated that, for a period of three years following termination of employment, Musgrove could not compete with Copypro in any of the thirty-three eastern North Carolina counties in which Copypro conducted business (sales).  Musgrove spent almost all of his time, on behalf of Copypro, in only two counties (and eventually resigned upon learning that he was not the only salesperson working for Copypro in those two counties).  Within a year after leaving Copypro, Musgrove found another sales job with a direct competitor of Copypro, but focused on three counties which were not the two counties in which Musgrove had previously worked.  Copypro learned that Musgrove was still working in Eastern North Carolina, and directly competing, and sued Musgrove for breach of the noncompetition agreement.

The court indicated a higher level of scrutiny for noncompetition agreements contained within employment agreements and that such agreements must be “(1) in writing; (2) reasonable as to time and territory; (3) made a part of the employment contract; (4) based on valuable consideration; and (5) designed to protect a legitimate business interest of the employer.”  However, the agreement “must not impose unreasonable hardship on the employee and should not, for that reason, be broader than necessary to protect [the employer’s] legitimate business interest.”  In this case, the court found that the noncompetition agreement fulfilled the first four requirements above, but did not fulfill the fifth.  The agreement was broader than was necessary to protect the Copypro’s legitimate business agreement and so the court found in favor of Musgrove.

This opinion illustrates the significance of hiring an experienced attorney to draft and review any covenants not to compete in a business’ employment agreement.  These noncompetition clauses must be drafted very carefully and narrowly, so as to be fully enforceable and valid in a court’s opinion.  Failure to do so may result in a former employee being able to compete with your business directly (and locally), which may ultimately cost more money, time, and headache to your business in the long run.

The full North Carolina Court of Appeals Opinion can be found here.

Trademarks and Beer Labels: Research First and Avoid a Lawsuit

Trademarks are one of the single most important legal issues your brewery might ever deal with.  Ideally, you should register for a trademark for your brewery’s name, logo, each individually named beer you create, and each beer’s unique logo.  But before you go forward with registering any of these, you should have an attorney conduct a full search for any prior existing names or logos that might be similar or identical to your proposed mark.  There are a number of different places to look and an experienced trademark attorney will be able to find anything similar (regardless of whether the prior existing mark is registered with the USPTO).

The craft beer industry is growing, countrywide and especially in North Carolina, so new beer names and logos are being created every day.  Therefore, your new imperial stout’s might require a little extra creativity.  Additionally, although beer, wine and spirits (liquor) are three separate classes of marks with the USPTO, the USPTO considers these “related products” and so a wine or liquor with a substantially similar name to your proposed beer name may be found to cause confusion (and therefore, be the basis for a lawsuit).

If you plan to create a new beer soon, and already have the name for your new beer, make sure to have a trademark search done immediately.  If the name is available, the law allows you the register for the mark without even having used the mark in commerce (stating that you have an intent to use the mark).  With the expanding craft beer industry, expedience in researching, and subsequently registering your trademark will serve two major purposes:  (1) researching ahead of time will help you to avoid being sued for infringing on a similar trademark (i.e., will save you a lot of time, suffering, and most importantly, money) and (2) registering ahead of time will ensure adequate protection of your beer name and logo from trademark infringement by another craft brewer (ensuring you the ability to be compensated if someone else steals your mark).