Non-compete clause, is it necessary?

A non-compete is something you should insist on for purchases of over $45,000 in my opinion -- in general. However, it depends on the site, its workings, etc... Some have speculated that a site that can be easily replicated a non-compete is worthless because anyone -- not the seller alone -- can copy it devaluing the site your purchased but this is not the case. When looking at how easy a site is to replicate you must look at ALL factors. For example there are thousands of eBay clones and thousands of scripts to run an ebay-style site. However, I am sure eBay doesn't bat an eye when a new "clone" pops up. So, when concerning replication you need to factor in market awareness, popularity, establishment, reach, base, etc.

Back to the non-compete... Your non-compete needs to be specific, all-inclusive, and for a reasonable amount of time. It also needs to have a clear, agreed-upon jurisdiction. When crossing international lines this can be near impossible -- but domestically, for the US it should provide some level of protection.

Here are some general bullets:

* Non-Compete Should Not Exceed 36 Months
It is obvious what this means.

* Non-Compete Should Be Specific and All-Inclusive
Ex (Widget Selling Website): FOR A PERIOD OF 36 MONTHS FROM THE DATE OF EXECUTION ON THIS CONTRACT seller may not create, promote, market, develop or provide advice, services, or consulting to or for any website or business which sells widgets online. This includes any current assets of seller which directly compete with the website being purchased by buyer.

* All Disputes Should First Be Handled with Mediation
Any disputes are alleged breaches of this agreement during the period defined within should be handled first through third party mediation at the expense of the party requesting such mediation. If a mediated agreement cannot be reached or mediation cannot be agreed upon only then can legal remedy be sought.

* Legal Jurisdiction
All claims against a party (buyer or seller) to this agreement and in reference to the transaction outlined in this agreement shall be handled in the agreed upon jurisdiction of XYZ County, AZ. Both parties have agreed upon the location of any and all legal action pertaining to this website purchase agreement.

This is far from complete and only a reference to non-compete. A contract needs to be much more complete than this. The main focus is that it must be clearly defined what the seller cannot engage in and it also must be specific to competition to the website being purchased.

Hope this helps a little.

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