According to this story at CNet News, last week a federal district judge in San Francisco said that a private antitrust claim against Amazon and Borders, for allegedly divvying up portions of the on-line book market between them, could proceed to trial. (The judge dismissed a companion price-fixing claim as “ludicrous on its face.”) The claim related to a teaming agreement that Amazon and Borders signed in 2001. The CNet story reports that:
[Judge] Patel said one section of the contract, which is similar to one Amazon inked for the online store of Toys “R” Us, is “troubling.” A restriction prohibiting Borders from competing with Amazon means that “Borders could not even provide overstock books to another online marketer, even if there were no mention online that these books came from Borders,” Patel said.
This story illustrates a basic principle of contract drafting: Any clause that even resembles a division of the market among competitors should be closely scrutinized. For even if Amazon and Borders emerge victorious, they still have to go through the hassle and expense of a full-blown antitrust trial. Presumably they have already gone through the hassle and expense of document production and depositions. And they must contend not only with the antitrust laws, but also with California’s notorious unfair competition law. All this for a contract clause that undoubtedly seemed like a good idea at the time.
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Signing a business contract: