470 16 Key Provisions of the Acquisition Agreement
16.3 Excursion: Non-Competition Clauses..................................................
The risk of competition by the vendor is likely to reduce the price that the acquirer
is willing to pay and future competition by the vendor is, in many cases, a deal-
breaker.^21 Depending on the acquisition, the vendor can have full information
about the target and its business including information about all its customers,
their contact persons, and their preferences. The acquirer will not have full infor-
mation about the target and its business immediately after closing. If the vendor
starts competing with the target immediately after closing, the acquirer may lose
not only customers but also key resources such as personnel to the vendor. Fur-
thermore, if the vendor intends to start competing with the target after the acquisi-
tion, the vendor has an incentive to disclose less before closing.
For such reasons, non-competition clauses and similar restrictive covenants are
frequently used in acquisition agreements.
However, such terms are constrained by: mandatory provisions of contract law
making unreasonable contract terms unenforceable or not binding (Volume II);^22
provisions of national competition laws;^23 and provisions of EU competition law.^24
Non-competition clauses under EU competition law. Non-competition clauses
are clearly agreements that can fall within the scope of Article 81(1) or Article 82
of the EC Treaty (for sanctions, see Volume II).
To understand the position of EU competition law, it is helpful to study US an-
titrust law first. Judge Taft’s decision in the Addyston Pipe case of 1898^25 recog-
nised that certain consensual restraints may ultimately promote competition and
introduced the ancillary restraints doctrine into antitrust law. According to the an-
cillary restraints doctrine, some agreements which restrain competition may be
valid if they are subordinate and collateral to another legitimate transaction and
necessary to make that transaction effective.^26
Under EU competition law, non-competition clauses can be permitted as ancil-
lary restrictions. The concept of an ancillary restriction covers any restriction
which is directly related and necessary to the implementation of a main operation
which is permitted.^27 Non-solicitation and confidentiality clauses have a compara-
ble effect and are therefore evaluated in a similar way to non-competition
clauses.^28
(^21) See, for example, Case T-112/99 Métropole télévision (M6) and others v Commission
[2001] ECR II-2459 paragraph 111.
(^22) For example, § 138 BGB (Sittenwidrigkeit).
(^23) For example, § 1 GWB.
(^24) Article 81 of the EC Treaty.
(^25) United States v Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), modified and af-
firmed, 175 U.S. 211 (1899).
(^26) See Bork RH, The Rule of Reason and the Per Se Concept: Price Fixing and Market Di-
vision, Yale L J 74 (1965) pp 775, 797–798.
(^27) See, for example, Case T-112/99 Métropole télévision (M6) and others v Commission
[2001] ECR II-2459, paragraph 104.
(^28) Commission Notice on restrictions directly related and necessary to concentrations, OJ
C 56, 5 March 2005 pp 24–31, paragraph 26.