The court concluded California law applied, and under Section 16600 of the Business and Professions Code, the non-compete was per se invalid.
However, the court took the unnecessary (though arguably wise) step of noting the importance of a sloppily drafted agreement on the court’s overall view of the case:
“…the court has its doubts concerning digEcor and e.Digital’s expectations about the continuing enforceability of the covenant not to compete. It is apparent that little care was taken in drafting and proofreading the 2002 NDA’s non-compete provision. Also, when the parties documented their business relationship in the October 22 Agreement, which expressly superceded all prior written and oral agreements on the same subject matter, they did not include a covenant not to compete. One would expect that, given the importance digEcor now attaches to e.Digital’s ability to compete, digEcor would have insisted that a non-compete provision be included in the October 22 Agreement, even if doing so seemed overly cautious or not technically necessary.”