I am hard-pressed, therefore, to credit defendant's contention that by undertaking these same activities it would not be competing with the business it sold to plaintiff, except in the most formalistic sense. Plaintiff's fortunes today, like WSSI's in 1979, depend upon the success which its "product" -- as a package of security system and services -- meets in the consumer market.
Corbin cites, as one paradigm case of a restrictive covenant that is too broad in the extent of activities it restrains, the instance where a buyer has abandoned a terrain of business activity occupied by the seller at the time of sale and then sought, by enforcement of a restrictive covenant, to prevent the seller from re-entering that terrain. 6A Corbin, Contracts § 1387 (2d ed. 1962). This is not such a case. Here, plaintiff has continued (1) nationally to advertise and promote "Westinghouse/Westec" security systems and services in the consumer market; and (2) to provide training, counselling and back-up services to its distributors respecting the sale, installation, maintenance and monitoring of "Westinghouse/Westec" systems.
Plaintiff, then is undertaking to exploit the chief assets of the business sold. Were defendant, through Teleprompter, to resume marketing home security systems and services to the public, such activities would plainly compete with plaintiff's undertaking;
they would leave plaintiff holding the "empty poke" to which the Pennsylvania Supreme Court alluded in Morgan's Home Equipment, supra. Defendant made no showing to dispute Mr. Newlin's testimony that plaintiff would suffer severely in its sales efforts were there to be "two Westinghouses" in the marketplace for home security systems and services.
Nor did defendant dispute Mr. Newlin's and Mr. Kenworthy's testimony that several of WSSI's key employees during its period of ownership by Westinghouse remain as employees of defendant, potentially available to lend their experience and expertise in the residential security field to Teleprompter's planned endeavors in the field.
I conclude, therefore, that insofar as it embraces the activities of selling home security systems directly to the public and installing, servicing and monitoring such systems, the covenant not to compete is no broader than is reasonably necessary to protect plaintiff's legitimate interests.
2. The Covenant's Geographical Area
The covenant contains no express limit on the geographical extent of its operation. However, it is undisputed that the parties intended the covenant not to compete to cover the entire United States. Defendant does not specifically contest the reasonableness of this dimension of the covenant. Defendant has chosen to take the high road, contending simply that the rule of reason demands that I adopt its interpretation of the covenant's scope,
and that any other interpretation would render the covenant void as unreasonable.
I have decided that following defendant's high road is not warranted. Therefore, while I recognize that the various factors which enter into a determination of whether a restrictive covenant is reasonable are, in some measure, interdependent, I have undertaken to give each such factor a degree of particularized attention.
The touchstone of "reasonableness" in scrutinizing the geographical reach of covenants not to compete ancillary to sales of businesses is this: The extent of such covenants must be "limited to the area of potential competition with the purchaser." Morgan's Home Equipment v. Martucci, supra, 136 A.2d at 846.
At the time of sale WSSI had distributorships scattered across the nation, conducted nationwide advertising and promotion, and envisioned expanding its distribution network. The covenant was made in the context of both parties' expectation that plaintiff would continue to advertise and promote Westinghouse/Westec security systems and services nationwide and would take steps to expand the then existing network of distributors throughout the United States. Plaintiff has persevered in these endeavors, to the point where it now has twenty-seven distributorships. But these distributorships only serve nineteen states, or portions thereof. While the record reveals that plaintiff plans to add one hundred distributors over the next five years, the record says nothing about where these distributorships might be located, nor does it disclose how concrete and far advanced plaintiff's plans for these distributorships are.
Pennsylvania courts are strict in their insistence that restrictive covenants not be enforced over geographical areas broader than is actually necessary to provide the bargained-for protection from competition. Indeed, Pennsylvania law leaves "no doubt that a court can properly reduce the geographical scope of a covenant" such as the one at bar. Jacobson & Co. v. International Environment Corp., 427 Pa. 439, 235 A.2d 612, 620 (Pa.1967); Barb-Lee Mobile Frame Co. v. Hoot, 416 Pa. 222, 206 A.2d 59, 60 (Pa.1965); Alexander & Alexander, Inc. v. Drayton, supra, at 830 (citing cases); see also 6A Corbin, Contracts § 1390 (2d ed. 1962); 14 Williston, Contracts § 1660.
Identifying a reasonably circumscribed geographical area within which this covenant may properly be enforced is a matter of some difficulty. I find two points of reference to be certain: (1) The "area of potential competition" in this case clearly embraces those localities or market areas in which Westec and its distributors currently operate; and (2) in light of the relatively limited number of markets in which plaintiff operates, the entire United States is far too broad an area in which to require defendant and Teleprompter to conform to the covenant's restraints. Such a requirement would impose hardship on defendant beyond the countervailing justification of being necessary to protect plaintiff's legitimate interests. However, it would be neither equitable nor a reasonable construction of the covenant to limit the covenant's geographical breadth to the markets currently served by plaintiff; for, as I have noted, the business sold was one which both parties reasonably anticipated would expand into new markets during the lifetime of the covenant. Therefore, I conclude that plaintiff is entitled to the protection of the covenant, as I have construed it, not only in its present markets but also in those market locales which it enters, via new distributors or otherwise, during the life of the covenant.
3. The Covenant's Twenty-Year Time Span
Again, defendant does not specifically contest the reasonableness of this dimension of the covenant. However, upon independent consideration in light of the contours of the covenant's restraints as I have construed them, I find the twenty-year extent contemplated by the covenant to be unreasonable.
In support of the twenty-year provision, plaintiff contends that it needs ten years in which to recoup a return on its investment and an additional ten year period in which to make a profit. In a similar vein, plaintiff points to "the amount of investment required to be made by a Westec Distributor, and the time required to recapture that investment." Plaintiff's Trial Memorandum at 20. Plaintiff's contentions ignore the limited purpose which animates the common law's tolerance of covenants not to compete. That purpose is to protect the buyer's interest in the good will purchased; it is not to permit one to purchase freedom from competition. Thus, the measure of reasonableness in this context has been articulated by the Pennsylvania Supreme Court as being "the period required for the purchaser to establish his own customer following." Morgan's Home Equipment, supra, 136 A.2d at 846. Similarly, Corbin writes,
no restraint is ever necessary or reasonable for a longer period of time than the good will built up by the seller and sold to the buyer can reasonably be expected to continue... The seller's promise should never bind him after his re-entry into the business would affect the buyer's business no more than would his entry as a stranger. 6A Corbin, Contracts § 1391 (2d ed. 1962).