In this commercial dispute between two companies, the California Supreme Court determined the bounds of a claim for tortious interference of an at-will contract – a holding that has application in the employment context as well. Plaintiff Ixchel Pharma, a biotechnology company, entered into an agreement with Forward Pharma to jointly develop a drug for the treatment of a disorder called Friedreich’s ataxia. Forward subsequently decided to withdraw from the agreement with Ixchel as a result of a settlement Forward had entered into with another biotechnology company (defendant Biogen, Inc.)
The first legal question posed to the California Supreme Court by the Ninth Circuit was whether Ixchel could sue Biogen for tortiously interfering with the at-will contract that existed between Ixchel and Forward in the absence of an independently wrongful act; the second question was whether Cal. Bus. & Prof. Code § 16600 voids a contract by which a business is restrained from engaging in a lawful trade or business with another business. The Supreme Court answered the first question “No”: To state a claim for interference with an at-will contract by a third-party, the plaintiff must allege the defendant engaged in an independently wrongful act. With respect to the second question, the Court held that Section 16600 (“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void”) does apply to business contracts and that violation of Section 16600 could constitute an independently wrongful act. The Court further held that in the commercial context (as distinguished from the employment context), a “rule of reason” applies to determine the enforceability of a restrictive covenant such as the one at issue in this case.