General Court confirms illegality of non-compete clause in telecoms transaction

On 28 June 2016, the General Court ("GC") ruled on appeals by Telefónica and Portugal Telecom ("PT") against the decision of the European Commission to impose  fines of EUR 67 million and EUR 12 million respectively. The judgments confirm the findings of the Commission that the non-compete clause agreed upon between the parties amounted to a market sharing agreement with the object of restricting  competition. The GC, however, referred the case back to the Commission as it found that the Commission had erred in calculating the amount of the fine.

Telefónica and PT together held the shares in the Brazilian telecom company Vivo Participações through a joint venture company. In 2010, Telefónica and PT concluded a stock purchase agreement by which Telefónica acquired sole control over Vivo. That agreement included a non-compete clause prohibiting the companies from conducting business in the telecommunications sector that "can be deemed to be in competition with the other in the Iberian market", excluding economic activities already performed by the companies.

In its judgements, the GC ruled that the Commission had rightfully concluded that the non-compete clause amounted to a market-sharing agreement with the object of restricting competition. The GC clarified that the non-compete clause did not qualify as an ancillary restraint as the parties were not able to prove that the restriction was necessary for the implementation of the Vivo transaction.

The GC, however, ruled that the Commission had erred in law in calculating the amount of the fine as it had failed to conduct a detailed legal and economic assessment of the sales directly or indirectly relating to the infringement. As the non-compete clause only covered activities in which the parties were actual or potential competitors, the Commission should have excluded sales which were not covered by the clause.

The judgments show that non-compete clauses in the context of a transaction require careful review and confirms that such clauses have to be necessary to the implementation of the transaction to qualify as an ancillary restraint. The judgments also show that once the Commission decides to calculate the fine on the basis of the sales relating to the infringement, it should conduct a detailed analysis before calculating  the correct amount of sales.