Validity of Restrictive Covenants Turns on Facts of Each Case

Virginia courts will not necessarily rule on the enforceability of a restrictive covenant in an employment agreement without first examining the facts. In a recent federal-court decision from Roanoke, Judge Wilson denied a defendant’s motion for judgment on the pleadings in a case involving an alleged assignment of patent rights in violation of various contractual restrictions, finding that the factual record wasn’t sufficiently developed to permit a ruling.

Travis Mickle, President of KemPharm, Inc., a small early-phase biopharmaceutical company, was working as a senior research scientist for Lotus Biochemical Corporation (which became New River Pharmaceuticals (“NRP”)) in 2001. At that time, he entered into an employment agreement with Lotus. In 2005, he left the company and entered into a settlement agreement governing various post-employment responsibilities.

Shire LLC, a subsidiary of NRP, sued Mickle for breach of both the original employment agreement and the settlement agreement. Shire pointed to paragraphs in the employment agreement that make all discoveries or inventions made by MickleGavel.jpg the property of the company; that prohibit Mickle from disclosing company confidential information for his own benefit; and that require that all patents and other intellectual property developed by Mickle be assigned to the company.

Shire asserted that Mickle breached all these provisions by developing new intellectual property based on the assigned patents after he left NRP and by assigning his interests in those new patents to KemPharm, his new company, rather than to NRP.

Mickle and KemPharm, which was also a defendant, moved for judgment on the pleadings, contending that the contract provisions in question were restrictive covenants which, on their face, were unenforceable under Virginia law. Their lawyers argued that restrictive covenants will be enforced in Virginia only if they are narrowly drawn to protect the employer’s legitimate business interest, if they are not unduly burdensome on the employee’s ability to earn a living, and if they are not against public policy.

Judge Wilson held, however, that ruling on the case at this early stage would be premature. He found that the determination of whether such an agreement should be enforced in equity depends on the specific facts of the case. He also noted that while courts have found broadly worded noncompete agreements without express geographic limitations facially invalid, the Virginia Supreme Court has not held that the absence of those express limitations renders confidentiality clauses or assignment agreements invalid per se.

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