A No-Compete Agreement

In "Ninth Circuit Limits the Scope of In-Term Covenants Not to Compete," the Intellectual Property Blog tells how the comedy club Improv West made a contract with CCI that gave CCI exclusive use of the trademarked "Improv" name, but also prohibited CCI from opening comedy clubs under any other name:

Defendant Improv West ("Improv") is the founder and owner of the Improv Comedy Club trademark. It entered into an agreement with Comedy Club International ("CCI") providing that: 1) CCI had an exclusive right to use the "Improv" name to open comedy clubs in the United States, 2) CCI had to open four clubs a year for the first three years, and 3) CCI was prohibited from opening comedy clubs under any other name until the agreement expired in 2019.

CCI failed to open the requisite number of clubs. Improv immediately cancelled CCI's right to use the Improv name, began opening its own clubs, and sought to enforce the non-compete for the term of the agreement because CCI continued to run established Improv clubs.

The court ruled that the agreement did not violate anti-trust laws, because it didn't reduce the competitiveness of the comedy market substantially. The Court did say that it would enforce the no-compete agreement only in markets where new CCI clubs would directly hurt Improv profits, since California state law bans extreme no-compete contracts.

What the courts try to do in a case like this is to see whether the contract will end up destroying value (by reducing existing competition in the market) or increase it (by allowing two firms to help each other improve their product or reduce their costs.

California law, however, says the state will not enforce agreements not to compete that block competition in a substantial section of the market, so the Court ruled that CCI was only blocked from opening new clubs in counties where it already was operating an Improv club.

A Tax Software Merger

In "U.S. Sues to Stop H&R Block Deal for Rival,", the WSJ says:

The Department of Justice filed a civil antitrust lawsuit on Monday to stop the biggest U.S. tax preparer, H&R Block Inc. from buying the maker of a rival, do-it-yourself tax preparation product called TaxAct....
The top three companies in the field account for 90% of the sales of online tax programs and do-it-yourself tax-filing computer software.

The proposed purchase "would combine the second- and third-largest providers in that market and essentially create a duopoly," the department alleged in a complaint filed in a Washington, D.C., federal court. H&R Block had agreed to buy 2nd Story Software, or 2SS, in a transaction valued at $287.5 million in October.

TaxAct has served as "a maverick in the market," prompting its two rivals to lower prices by introducing such innovations as offering free filing of federal tax returns on the Internet in 2005, the Justice department said. The department's complaint cites internal H&R Block emails that it said show Block wanted to buy the TaxAct maker to "regain control of industry pricing and avoid further price erosion."
... The department cited an internal H&R Block email saying that "the other possible strategic consideration is that Intuit and HRB together would have 84% of the digital market and we both obviously have great incentive to keep this channel profitable."

Will blocking this merger encourage further entry into the industry?

One thing I wonder is why the US government does not itself give away or sell tax preparation software. Is there a good reason for it not to?