Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Validity of non-compete agreement questioned in metal roof attachment dispute, (Sep 28, 2015)

By Linda O’Brien, J.D., LL.M.

A non-competition agreement executed between a designer of metal roof attachments and a building products manufacturer is an unlawful restraint of trade that violates public policy and is therefore unenforceable, according to a complaint filed by the manufacturer in the federal district court in Alexandria, Louisiana (AFCO Industries, Inc. v. Metal Roof Innovations, Ltd., September 25, 2015).

Metal Roof Innovations, Ltd. (MRIL) is in the business of designing, producing, manufacturing, and marketing metal roof accessories. AFCO Industries manufactures building products and provides fabricated aluminum components to other manufacturers with services such as extruding, machining, welding, precision cutting, punching, and powder coating.

The complaint states that, in September 2006, MRIL contracted with AFCO to manufacture and produce metal roof snow guards or roof attachment parts, which are components and/or completed assemblies that MRIL then sells to its customers. As part of the agreement, MRIL required that AFCO execute a confidentiality/non-competition provision that prohibited ARCO from directly or indirectly owning, managing, operating, or controlling any business that directly competed with products being manufactured by AFCO for MRIL, for a period of five years after the termination of the agreement.

According to the complaint, in 2010, after AFCO participated in the Solar Power International trade show, MRIL attempted to enforce the non-competition provision by prohibiting AFCO from producing metal roof attachment parts for the solar power industry and threatening litigation. AFCO asserts that it has not employed proprietary knowledge, skill, or expertise from MRIL in the setup for or manufacture of any products. The information provided by MRIL to AFCO was used exclusively in the setup and manufacture of products for MRIL and comprises of individual product dimensions and configurations which are readily determined from the finished products sold to customers by MRIL. AFCO has not and does not intend to use any of the information provided by MRIL to setup or manufacture any products.

The non-competition provision is an agreement between competing businesses to not compete for customers. Such an agreement to allocate customers or otherwise minimize competition is a horizontal restraint in violation of the Sherman Act, AFCO claimed. Moreover, the provision has no purpose but to limit competition and deprives customers of the ability to choose between AFCO and MRIL for the supply of products for metal roof snow guards or attachment parts, the complaint alleges.

Additionally, AFCO asserts that the non-competition provision is invalid and unenforceable. The object of the declaration sought by AFCO is the ability to manufacture and sell custom shop and custom produced parts to customer specifications in the metal roof attachment industry without exposure to liability for breach of the non-competition of the agreement, the complaint states.

The plaintiff asserts claims for intentional interference with contractual relations and illegal restraint of trade in violation of Section 1 of the Sherman Act and Louisiana Deceptive Trade Practices Act. The action seeks declaratory and injunctive relief, damages, interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-02423.

Attorneys: Stephen A. LaFleur, Gregory B. Upton, and Jonathan D. Stokes (Gold, Weems, Bruser, Sues & Rundell) for AFCO Industries, Inc.

Companies: AFCO Industries, Inc.; Metal Roof Innovations, Ltd.

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