COMPETITION • FRENCH LAW • RESTRICTIVE AGREEMENTS
In horizontal relationships, non-compete clauses may constitute a form of market sharing agreement. Sometimes referred to as non-aggression pacts, in which competitors mutually agree not to compete with each other or commit not to solicit their respective clienteles, non-compete clauses must be limited in time and space and remain proportionate to the function they perform. Otherwise, as market-sharing agreements, which are considered particularly harmful by the Competition Authority, such clauses may be considered as restrictions by object.
In vertical relationships, post-contractual non-compete clauses can be found in exclusive distribution agreements, but also, and more commonly, in franchise agreements. Non-compete clauses are inherent to franchising insofar as they ensure the protection of know-how, which should only benefit the members of the network, and give the franchisor time to reintegrate a franchisee in the area concerned. However, such clauses must remain proportionate to the objective pursued: the protection of the network’s know-how, identity and reputation. To be valid, they must be limited in time and space. While French law authorizes clauses with a duration of two years and covering relatively wide geographical areas, when EU law is deemed applicable, their duration must be limited to one year and their scope to the premises where the activity was carried out.
Although the issue has given rise to considerable controversy, the French case law upholds non-reaffiliation clauses prohibiting the former franchisee from directly or indirectly joining a franchise network or a similar distribution network for a period of two to three years in the franchise territory. However, the legitimacy of such clauses would appear to be highly questionable in light of the Vertical Restraints Regulation.
