Case Study Scenario: Vertical Net

Vertical Net is a public company that operates content specific websites and business-to-business procurement portals. Vertical Nets business model is to generate revenue by providing the interested organizations advertising platform for its products and services where the interested organization can advertise its services or products over many related websites. Currently, Vertical Net has 43 of these industry-specific content websites and business-to-business procurement portals.

For example, Vertical Net owns the rights to the following websites: Water-on-line, Public-Utility-on-Line, and Hydroelectric-Power-on-Line. All of these websites are related to water usage. Vertical Nets business model is to reach out to organizations interested in water and water usage and (a) sell advertising space to them, and (b) provide a readily accessible way for their customers to buy their products and services.

At this time, Vertical Net is the only company that provides this service to these organizations. However, it has recently become known to the management team of Vertical Net that a former employee of the company, Michael Smith, has decided to compete with Vertical Net in the electricity power production space. Currently, Vertical Net has two websites specific to electricity: Electricity-on-Line and Public-Utility-on-Line. Smith has a strong scientific background and vast experience in the combining of electricity and atoms. Based on this experience, he has decided to create a content specific website and business-to-business procurement portal for organizations that are involved in researching the advantages of combining electricity with atoms.

While employed by Vertical Net, Smith was involved in writing content on the latest developments in the electricity power production industry and offering his professional opinion on these developments. Smith did not write any content for Vertical Net on the combining of electricity and atoms.

Smith signed a covenant not to compete agreement with Vertical Net that specifically covered the latest developments in the electricity power production industry.

On January 4, 2018, the Chief Executive Officer of Vertical Net, Nathen Lenz, traveled to Smiths office and offered $800,000 for Smiths business. Smith countered Lenzs offer by suggesting that Vertical Net could obtain his company and his expertise for $5,000,000 plus substantial stock ownership in Vertical Net. Lenz told Smith he though his counteroffer was rejected. Afterward, Vertical Net created a website named combining electricity and atoms and introduced it as their 44th website.

Smith believes that in creating this website Vertical Net is trying to monopolize the industry content specific industry and essentially curtail competition.

Write a 1-page paper discussing the following items.

• Discuss the legal aspects of a covenant not to compete.
• Discuss the key legal aspects of the Sherman Act.