It is customary to include a non-compete clause in a partnership contract in case one of the partners leaves. Such a clause is not always valid. The preliminary relief court of Overijssel recently ruled that such a clause is in breach of competition law.
The case involved a dispute between a number of dentists who had entered into an open-ended partnership contract. The contract provided that a dentist who left the partnership was prohibited from undertaking competing activities within a radius of 50 km for a period of ten years, subject to a penalty of €2000 per day. One of the dentists had lawfully terminated the partnership contract and had announced that he would be joining another dental practice. The remaining dentists then informed him that he was bound by the terms of the non-compete clause. The departing dentist subsequently instituted preliminary relief proceedings in which he requested the court to suspend the effect of the non-compete clause on the grounds of breach of competition law.
The court first of all noted that the cartel prohibition set out in Article 6 of the Mededingingswet (Competition Act) prohibits agreements that have the restriction of competition as their object or effect. The court then found that it was an established fact between the parties that the clause had the object of restricting competition and that that the non-compete clause lasted ten years. In the court’s opinion, that went beyond what could be deemed reasonably necessary. The court referred in that regard to the European Commission’s Notice on ancillary restraints in which a non‑compete clause for a maximum period of three years was considered justified. For that reason, the court found it sufficiently likely that a court ruling on the merits would set aside the non‑compete clause on the grounds of breach of the cartel prohibition. The partnership therefore had to allow the departing dentist to set up his new practice in the direct vicinity.
This judgment gives rise to a great many questions. First, why did the remaining dentists acknowledge that the non‑compete clause had as its object the restriction of competition? There is sufficient case law from which it is apparent that that does not go without saying. Secondly, why did the court simply disregard the burden of proof that follows from the notorious IATA judgment? In that judgment the Dutch Supreme Court found that a party that relies on competition law must provide sufficient information on the relevant market and the impact of the alleged breach on that market. Thirdly, why did the remaining dentists not dispute that the European Commission’s Notice on ancillary restraints did not apply in this case, because it involved a separate exemption for non‑compete clauses? Fourthly, why did the remaining dentists not rely on the de minimis provision of Article 7 of the Competition Act? Among other things, that article provides for an exemption for competitors with a market share of less than 10%. Precisely local service providers, such as dentists, may profit from that exemption.
The judgment underlines the importance of prudent litigation. Even non‑compete clauses between relatively small market parties otherwise run the risk of being set aside in court.
This blog was previously published on Mr-online.
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