Explore the legal intricacies of M&A transactions with our latest blog post. Delve into the case of Barranco v. 3D Systems Corporation, where a breach of noncompetition agreement in the 3D printing industry led to significant court-awarded damages. Gain insights into the importance of honoring contractual obligations in acquisitions and the potential repercussions for noncompliance.
M&A Stories
May 31, 2018
In a recent case, a court decision underscored the significance for business sellers to honor noncompetition agreements with buyers. Here’s a breakdown of the case:
The dispute revolved around 3D printing, a process for creating three-dimensional objects through additive manufacturing methods, as opposed to traditional subtractive manufacturing techniques.
In 1998, the seller established the domains stereolithography.com (“SLAC”) and lasersintering.com (“LSCOM” or “LS.com”) to facilitate consumer access to 3D printing services. These domains were pivotal in providing quotes and manufacturing objects through additive processes.
Fast forward to 2011 when the buyer acquired Quickparts, an additive manufacturing e-commerce system boasting cutting-edge technology for instant online price quoting. Recognizing Quickparts as a valuable asset, the buyer integrated it into its operations.
Upon purchasing the Primary Domains (SLAC and LSCOM) from the seller in April 2011, the buyer also secured entitlements to associated technology, customer lists, and a noncompetition covenant. This covenant barred the seller from engaging in competing activities for five years post-sale.
Despite initially working for the buyer after the acquisition, the seller later embarked on developing competing technology using the Primary Domains and the buyer’s proprietary technology, breaching the noncompetition agreement.
Following a trial, the court sided with the buyer, awarding damages totaling over $500,000, including salary payments, upfront payment, and buyout fees previously given to the seller. Notably, these sums far exceeded any compensation the seller received for his unauthorized endeavors.
This case, Barranco v. 3D Systems Corporation, underscores the serious repercussions sellers face for violating noncompetition agreements in M&A transactions.
By highlighting the importance of honoring such agreements, this ruling serves as a cautionary tale for entrepreneurs, business owners, and professionals navigating the complexities of acquisitions and contractual obligations.
Case Reference:
Barranco v. 3D Systems Corporation, Civil No. 13-00412 LEK-RLP, United States District Court, D. Hawaii (March 30, 2018).
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