Non-Compete Clauses In Cooperation Agreements – Caution Required

Non-compete clauses that require a party to an agreement (or both parties in case of a reciprocal non-compete obligation) not to enter a market where it is currently not present are most common in M&A contracts for the sale of a business, where the seller undertakes not to compete with the sold business for a specific period of time. These type of non-competes are generally accepted under EU competition law as long as their duration, their geographical field of application, their subject matter and the persons subject to them do not exceed what is reasonably necessary. Non-competes in employment contracts have recently attracted the attention of the US FTC and DoJ.

However, non-competes can also be found in cooperation or distribution agreements between businesses. Replying to a preliminary ruling request by the Court of Appeal in Lisbon, the Court of Justice of the EU (CJEU) was asked to clarify its stance on this matter (Case C-331/21). The case contains