A client recently forwarded me an article about a lawsuit that Oakley brought against Nike and golf wonder-boy Rory McIlroy. In that suit, Oakley claims that as part of its endorsement agreement with McIlroy it had a right to match any new endorsement proposals made to McIlroy. Nevertheless, after Nike made a proposal to McIlroy, the golf star refused to consider Oakley’s tender of a match. While it appears that Oakley’s claims in that case will rise or fall based on whether McIlroy/Nike can prove that Oakley waived its right to match, the dispute reminded me that rights to match (sometimes denoted as “rights of first refusal”) can turn out to be extremely valuable assets in a host of contexts.
Perhaps the most common use of rights to match arises in the context of restrictions on the transfer of equity in a closely held business. Indeed, without such restrictions, a competitor might easily be able to buy out a minority equity holder and instantly gain access to key company data. Even if that is not a genuine concern, those involved in a closely held business generally do not want a stranger to suddenly be their business partner.
A less common, albeit perfectly legitimate, use of a right to match (assuming it is drafted properly and not barred by a statute) would be in the context of an employment agreement. Such a clause could prevent a company from losing a key employee to a competitor – as long as the company was willing to match the competitor’s offer. Further, if the employee refused to abide by a right to match, the company may well be able to get an injunction preventing the competitor from continuing to employ the employee. In other words, the company could end up in a similar or perhaps even better position than if a traditional non-compete were in effect because, unlike with a non-compete, the company would not have to show that the former employee would be using the company’s confidential information, goodwill or trade secrets in order to obtain injunctive relief.
Still another situation where a right to match can be effective and very important is where a company has a business partner who would be difficult or impossible to replace. Including a right to match in a contract with such a business partner may greatly decrease the possibility that finding a new partner ever will be necessary.
While parties sometimes try to make an end-run around rights to match by structuring their proposals so that the party with the right to match has no practical ability to match, if a court believes that an offer is collusive and not bona fide, it likely will find such conduct to be a breach of the covenant of good faith and fair dealing, and not let the parties get away with such a tactic. Further, even if the offer is not collusive, at least one case out of California ruled that the holder of a right to match could match by making a reasonably equivalent offer in light of the fact that an identical offer simply was not possible.
The bottom line is that business people and in-house counsel should keep in mind that a right to match can be employed in all sorts of situations and provide all sorts of benefits. So, the next time you are entering into a business contract, consider whether a right to match might allow you to obtain some business security (or at least peace of mind) that you may not be able to get any other way.