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When the Deal Closes, the Trade Secrets Don't: Enforcing Sale-of-Business Covenants Under Judicial Scrutiny

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Why it matters

A Delaware Court of Chancery has invalidated restrictive covenants in a business sale, refusing to narrow overbroad language to save the deal's noncompete, nonsolicit, and confidentiality provisions. In BluSky Restoration Contractors, LLC v. Robbins & Popwell, decided March 4, 2026, the court found that BluSky's five-year, worldwide restrictions extended far beyond the acquired company's actual geographic footprint and improperly covered the buyer's affiliates, employee recruitment, and customer solicitation across an unreasonably broad scope.

The court declined to invoke the "blue pencil" doctrine—which would have allowed judicial reformation of the language to make it enforceable. This signals that Delaware will not rescue sale-of-business covenants that overreach, even when the parties are sophisticated actors in an M&A transaction. The decision aligns with recent precedent in Kodiak and Intertek, establishing a pattern of judicial skepticism toward restrictions that sweep beyond the actual competitive footprint of the acquired business.

Attorneys drafting purchase agreements should note that Delaware courts continue to police the nexus between restrictive covenants and the goodwill actually purchased. A five-year worldwide restriction tied to a regional business will not survive scrutiny simply because it appears in a sale agreement. Buyers relying on post-closing noncompete protections should ensure that temporal scope, geographic reach, and covered activities track the target company's genuine competitive space, not the buyer's broader enterprise.

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