Thanks to reader Steven Sholk, I learned about the recent Ninth Circuit opinion in Richey v. Metaxpert LLC. (Click here to go to a PDF copy.)
Before Richey started working for the appellants, in 2007 he signed an employment contract in which he agreed that he wouldn’t compete with the appellant company “in the computer gaming business” for two years after leaving the company. The contract didn’t elaborate on what “computer gaming business” meant. After Richey left the company, he started designing software for smartphone games. The appellants sought a preliminary injunction stopping Richey from designing smartphone gaming software; the district court denied the request on the grounds that the term “computer gaming business” was ambiguous.
In affirming the district court’s decision, the Ninth Circuit affirmed:
Here, we agree with the district court that the term “computer gaming business”—without any further definition by the parties in their 2007 agreement—is “capable of being understood as having more than one meaning.” Mayer, 909 P.2d at 1326. Indeed, the term “computer” itself is ambiguous in light of the objectively blurry line between personal computers and devices like smart phones which can perform many of the same functions—including the capability to support games—but remain popularly understood as distinct devices. Because these terms are ambiguous and their meaning must be decided by the trier of fact, the district court did not abuse its discretion when it denied Manning preliminary injunctive relief on the ground that he failed to meet his burden to demonstrate a likelihood of success on the merits.
It may well be that in this case, a contract that wasn’t ambiguous at signing became ambiguous over time. The year Richey signed his contract was also the year the iPhone was launched, so I can’t fault the drafter of that contract for not having anticipated the smartphone boom.
This case is a salutary reminder that you’re not just drafting for now, you’re drafting for the future.
4 thoughts on “Some Lexical Ambiguity to Start the New Year”
Is this really an “ambiguity?” I mean, this case says that a term is ambiguous if the term is uncertain or subject to more than one meaning. But the analysis doesn’t really seem to show that “computer” is either “uncertain” or subject to more than one meaning. Rather, the question seems to be whether a “smart phone” is a computer. The lower court said, “no,” at least for the purposes of a preliminary injunction.
And a bit off topic, as a point of policy, California has pretty dim view of non-compete clauses. So, in this case, the contract didn’t anticipate future events (emergence of smart phones as a gaming platform), but could one reasonably say that the employee should not compete with the employer who is not even in that market because that market didn’t even exist at the time signing the contract?
Mike: To ask whether a smartphone is a computer is to acknowledge that it might not be entirely clear what “computer” means.
But I agree that expecting to exclude an employee from a market that doesn’t yet exist seems a bit much. Unless, of course, a smartphone is just a computer!
Even in 2007, there were a number of game developers for mobile devices (Blackberry and Palm at the time rather than today’s dominance by Apple and Android). How does the existence of the ‘prior art’ apply to help us define the term? Even platform gaming systems like the Playstation 3 and Xbox 360 are based on ‘computers’ but market participants would distinguish ‘computer gaming business’ from ‘platform gaming business’ from ‘mobile app business’ in their business communication. Their Lawyers need to understand the business terms sufficiently to make the non-participating judge understand the distinctions, if any.
Use of jargon reminds me of the movie post a while back: https://www.adamsdrafting.com/2010/07/06/lexical-ambiguity-what-does-spinoff-mean/
I’m not a great fan of non-competes, but if the purpose of a non-compete is to stop you taking your knowledge to a direct competitor who sells similar products in the same market, then I think it is poor contract drafting not to define what a competitor company is, the services they provide and to specify in detail the type of work and roles that are covered by the non-compete. By doing this you avoid the need to anticipate the future. To me just defining a non-compete as all the world’s “computer gaming business” is poor contract drafting.