An Eighth Circuit decision of yesterday reminds us of a harsh reality of business: Absent an enforceable non-competition covenant, one of your suppliers might decide to cut out the middleman, i.e., you, and begin selling directly to your customers.
That’s what happened to a vendor of specialty envelopes: The vendor’s supplier, a manufacturer of envelopes, terminated its relationship with the vendor and began selling directly to the vendor’s customers — and successfully poached two of the manufacturer’s large customers. See Tension Envelope Corp. v. JBM Envelope Co., No. 14-567 (W.D. Mo. Mar. 3, 2015), affirmed, No. 16-3728 (8th Cir. Dec. 8, 2017).
The vendor that lost its customers to its manufacturer seems to have been the trusting sort: The manufacturer: (i) had been founded by one of the vendor’s own former employees; and (ii) had leased two specialty machines from the vendor. Worse, the vendor seems never to have entered into any kind of written contract with the manufacturer.
Anyway: The vendor sued its former manufacturer for poaching its customers, but to no avail — in part because the vendor had never insisted that its former manufacturer sign a contract with an enforceable non-compete provision.