The enforceability of non-compete provisions between two consenting corporations will soon come into focus this year in the Michigan Supreme Court, along with the question of whether allowing the use of confidential information in manufacturing amounts to authorizing its disclosure to third parties, according to the court's order granting the application for leave to appeal in Innovation Ventures v. Liquid Manufacturing, LLC, No. 150591.
When plaintiff Innovation Ventures, the maker of 5-hour Energy, terminated its bottling contract with defendant Liquid Manufacturing, the two entered a new agreement that (a) formalized Liquid Manufacturing’s option to purchase the specialized bottling equipment after one year, (b) placed limited what products Liquid Manufacturing could bottle for three years, and (c) protected Innovation Ventures’ competitive advantage with certain non-disclosure and non-compete provisions. The non-compete provisions required Liquid Manufacturing to refrain from bottling any energy drink in packaging of four ounces or less without Innovation’s approval for three years. Innovation Ventures later sued Liquid Manufacturing under various contract and tort theories for violating the non-compete and non-disclosure provisions. The trial court granted summary disposition on Innovation’s breach-of-contract claims on the grounds that the non-compete and non-disclosure provisions were unenforceable.
The Court of Appeals, in an unpublished opinion, affirmed the lower court. As to the non-compete provision, the Court of Appeals reasoned that allowing Innovation Ventures to hand pick the competing products Liquid Manufacturing could bottle was an unreasonably broad restraint on trade, given that Innovation Ventures was only bottling others’ products and not producing its own. As to the non-disclosure provision, the court held that Innovation Ventures had inherently authorized the disclosures it was complaining about by authorizing the use of confidential information in the bottling of products.
On appeal, the Michigan Supreme Court will consider “whether the Nondisclosure Agreement and Equipment Manufacturing Agreement are void due to failure of consideration, and whether the non-compete provisions in the Termination Agreement and the Nondisclosure Agreement are enforceable.”
Disclosure: Warner prepared and filed the application on behalf of appellant, Innovation Ventures, in the Michigan Supreme Court.
