The High Court has ruled that a non-competition clause in a former patent agent’s service agreement was unenforceable, after finding that its restriction on all competition was wider than necessary to protect his employer’s customer connections.
Mr Justice Clarke delivered the ruling on 1 June 2005 after a trial of a preliminary issue in proceedings brought by Murgitroyd and Company Limited against Barry Purdy. The issue concerned whether the clause applied and could be enforced. The judgment was final on that aspect of the company’s case.
The company had sought interlocutory injunctions earlier in the proceedings. In April 2005, the court declined to grant an interim injunction against competition on condition that the issue could be brought to trial quickly. The June ruling decided that preliminary issue; it did not grant an order enforcing the clause.
Purdy had worked from the company’s Dublin office under a service agreement that included a 12-month restriction on carrying on a competing business in Ireland after his employment ended. His employment ended on 19 January 2005, and he then began practising as Purdy and Associates at Mespil House, 37 Adelaide Road, Dublin. The judgment records that the parties did not dispute that this practice competed with the company and would breach the clause if it remained part of an enforceable agreement.
The court rejected Purdy’s argument that he had been released from the service agreement following a discussion with the company’s chief executive in February 2002. Clarke found, on the balance of probabilities, that any release was conditional on Purdy entering a standard form employment contract, but the terms of that contract were never agreed. The court also found that, although the service agreement was not formally renewed in September 2004, the parties’ employment arrangements continued on the same terms, except that the fixed term had ended. The non-compete clause therefore remained applicable when Purdy left.
The court accepted that a 12-month restriction and an Ireland-wide geographical limit were reasonable in light of the specialised business and the small number of patent attorneys operating in Ireland. But it found the ban on all competition excessive. A restriction on soliciting or dealing with the company’s identifiable customers could have protected its legitimate interests; the clause also barred competition for business involving people who were not existing customers. The court held that the clause was an unreasonable restraint of trade and determined the preliminary issue on the basis that it was applicable but unenforceable.