The California Supreme Court in Ixchel Pharma LLC v. Biogen, (Aug. 3, 2020, No. S256927), issued an important opinion with far-reaching application to litigation challenging business agreements.

California Business and Profession Code Section 16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The court, having previously held that employee noncompete agreements are void (subject to statutory exceptions), held that a rule of reason analysis applies in determining whether a business contract implicates Section 16600. In so holding, the court rejected an argument that any agreement that restrains trade is per se illegal under Section 16600. Instead, where an agreement, outside the employment context, limits other business transactions, the agreement is unlawful when the “agreement harms competition more than it helps” after considering various factors.