Non-compete agreements restrict business participation under certain circumstances to protect business knowledge. They must be reasonable in prohibited activities, territory, and duration. Competition authorities scrutinize non-competes and often require modifications like reducing duration to avoid limiting competition. Jurisdictions differ in allowed non-compete terms and whether violations are treated as anti-competitive agreements or abuse of dominance. Non-competes remain an area of focus for competition law globally.

1. NON-COMPETE
AGREEMENT/CLAUSE AND ITS
SCRUTINY BY THE COMPETITION
AUTHORITIES

2. A Non-compete agreement has been defined as a
contract which restricts participation in a
certain market by a business or individual under
specific circumstances. Non-competes clauses
are generally aimed at protecting the business
knowhow which gives an enterprise a
competitive edge.

3. They perform several functions:
Protects sensitive information;
Defines what is considered confidential;
Limits the use of confidential information;
Protect the market dominance by competitors;
Forms a record in case of a later dispute.

4. Must be reasonable in terms of:
Nature of the Prohibited Activities
“what can’t I do?”
Territory(geographical area)
“where can’t I do it?
Duration of the restraint
“how long can’t I do it?”

5. of the Competition Act states that “no enterprise shall
abuse its dominant position”. It provides that any condition which
limits or restricts production of goods or services or which
restricts technical or scientific development would be tantamount
to abuse of dominant position. Further, the provision also
stipulates that any practice which results in denial of market
access or culminates into manifest abuse of position to enter into
new markets would also come into the ambit of non-compete
clauses.
of the Act essentially stipulates the procedure
employed by the Competition Commission to enquire into the
cases of non-compete clauses. However, the Act also stipulates
that the non-compete clauses can be incorporated into agreements
after suitable modifications have been made such that it does not
result in an adverse impact on competition in the market.

6. , the customer company
might seek to restrict the supplier company from providing
goods and services of the same or similar type to
competitors of the customer. In reverse, the supplier might
seek to restrict the customer from using competing
suppliers
, the purchasing
company might seek to prevent the vendor company from
continuing any business similar to the business which is
being sold, and might also seek to restrict key staff from
setting up in opposition also. Again, something similar
might be seen in a joint venture agreement

7.  Risk of Investigation by
competition law regulators.
Financial penalty for illegal
non-compete agreement.
The Proposed combination can
be declared void, pursuant to
such agreement(s).

8. The CCI opined that non-compete
obligations if necessary to be incorporated
should be reasonable, particularly in respect
of:
The duration over which such restraint is
enforceable; and
The business activities, geographical areas
and person(s) subject to such restraint in
order to ensure that such non-compete
obligations do not result in an appreciable
adverse effect on competition.
(C- 2012/11/92)
Orchid
Chemicals/Hospira
Pharmaceuticals
Order Dated: 29.02.2012

9. The CCI observed that the “non-
compete covenant” should have covered
only those products which are either
being made or sold or are under
development by Agila and Onco. The
firms have now reduced the duration of
the non-compete obligation to four
years besides reworking the scope of
the agreement to the products
manufactured by Agila and Onco.
(C-2013/04/116)
Mylan/
Strides Acrolab
Dated: 20.06.2013

10. The Commission accepted the
modifications offered by the parties
(reduction of duration from 5 years to 3
years) and approved the proposed
combination under sub-section (1) of section
31 of the Act. The Commission also directed
the parties to make necessary amendment(s)
in the agreements so as to incorporate the
said modifications and submit a copy of
such amended agreements along with the
relevant documents to the Commission by
5.06.2014.
(C-2014/01/148)
Torrent
Pharmaceuticals
Limited/ Elder
Pharmaceuticals
Limited
Dated: 26.03.2014

11. The CCI raised objections over the non-
compete clause present in the Share
Purchase Agreement between Advent
International Corporation and
MacRitchie Investments Pte. Ltd.
The Acquirers offered modifications
regarding reduction in the duration of
non-compete obligation on Avantha and
its affiliates from five years to three
years. The Commission considered and
accepted the modification.
(C-2015/05/270)
Advent International
Corporation and
MacRitchie
Investments Pte. Ltd.
Dated: 12.06.2015

12. It was observed that the Proposed Combination imposes
certain non-compete restrictions for a period of five
years. Accordingly, the parties were required to provide
necessary clarification and justification in this regard.
The parties, vide their response submitted on 23rd July
2015, have made voluntary submission under Regulation
19 of the Combination Regulations, whereby they have
stated that the duration of the Non-Compete would be
reduced from a period of 5 years to 3 years through
modification in the existing agreement. The Commission
accepts the said modification offered by the parties
under the provisions of sub-regulation (2) of Regulation
19 of the Combination Regulations and directs the
parties to make necessary amendment(s) so as to
incorporate the said modifications.
(C-2015/06/286)
TVS Logistics Services
Limited, Omega TC
Holdings Pte. Ltd. and
Tata Capital Financial
Services Limited
Dated: 29.07.15

13. The German Federal Cartel Office or Bundeskartellamt held that a non-
compete clause with a 150km radius in the leases for a German factory outlet
centre as anti-competitive.
The German Competition Authority prohibits the operator of factory outlet
center to use radius clauses, equivalent to non-compete clauses, in its lease
contracts if these extend beyond a 50 km air radius and a term of five years (VR
Franconia)
The Turkish Competition Authority clears a merger in the GSM market subject
to remedies, including limitation of the duration of the non-compete and
confidentiality clauses (Alfa Telecom Turkey - Cukurova)
The Turkish Competition Authority clears a merger in the of financial services
subject to limitation of the duration of the non-compete clause (Dogan-Deutsche
Bank) & (Dogan-TBIH)


14. A Dutch Court holds that a 5 years non-compete clause is disproportional in
view of its goal and constitutes a restriction by object (Heijmans
beton/Nederveen)
The Brussels Court of Appeal rules that a non-compete clause does not qualify
as an anticompetitive agreement under Art. 81 EC but constitutes an abuse of a
dominant position on the basis of Art. 82 EC(WEX/FEBIAC)
The Competition Commission of Singapore ceases investigations into a non-
compete clause following a voluntary agreement not to enforce the clause (F&N /
Heineken)
The Swedish Competition Authority brings proceedings against companies in
the removal business for non-compete agreements (Alfa Quality Moving / NFB
Transport Systems / ICM Kungsholms).

15. The non-competition clause must be in writing and must be
explicitly approved by the employee.
Non-competes Must Be Limited in Time, Area or Region.
The change of position of the employee does not affect the non-
competition clause.
The non-compete clause takes effect as soon as the employment
agreement has come to an end.
The law requires for the validity of the agreement to fix a suitable
compensation, otherwise the agreement would be invalid.
Once the clause has been agreed none of the parties can
unilaterally resign from it.

16. As the above developments demonstrate, non-
compete arrangements are firmly on the agenda of
competition authorities both in India and in EU.
This serves as a reminder to parties to joint
ventures or other M&A transactions to consider
both the application of multi-jurisdictional merger
control obligations to their deal, and the
application of the competition rules worldwide to
the related transaction agreements.