Newsletter Antitrust Law: Federal Cartel Office prohibits the use of wide-ranging “radius clauses” in the lease agreements of factory outlet centres
The German Federal Cartel Office [Bundeskartellamt, BKA] has classed non-compete obligations in the lease agreements of a factory outlet centre which exceed a radius of 50 km and term of five years as impermissible restraints of competition.
In the case decided by the Federal Cartel Office, branded goods manufacturers which had leased shop premises in the “Wertheim Village” factory outlet centre had undertaken vis-à-vis the operator of the outlet centre not to open any other shop premises – either individually run or inside other factory outlet centres - within a radius of 150 km. According to the findings of the Federal Cartel Office, the catchment area and thus the geographically relevant market of the “Wertheim Village” outlet centre lies within a radius of about 100 km and is therefore far less than the distance of 150 km envisaged in the radius clause. Because of this restraint, competing operators of another outlet centre located 147 km away from “Wertheim Village” had considerable difficulties in finding lessees for their project.
In the Federal Cartel Office’s opinion, the primary purpose of such radius clauses was to restrict competition between the Wertheim outlet centre and other outlet centres and to prevent the establishment of new outlet centres. Such a comprehensive geographic and temporal restraint of competition is neither functionally necessary for the operation of the lease agreements nor commensurate to avoid an excessive distribution of branded goods.
The decision has relevance for all contractually agreed non-competition clauses. The decision illustrates that the Federal Cartel Office will investigate individual non-competition clauses as to their reconcilability with antitrust law. Restraints of competition are invalid and can only conditionally preserve validity through a reduction to a reasonable scope. The decision is also in line with a chain of further decisions which have classed specific contractual clauses as anti-competitive because they have virtually barred (potential) competitors from entering the market (as with, for example, the use of so-called “best price clauses”, where operators of online platforms prohibit the providers that operate on such platform from offering their product or service to other online platforms at a better price).
Not least against the background of these intensified activities of the Federal Cartel Office, enterprises should check their standard non-competition clauses to ensure their admissibility under antitrust law.
Dr. Andrés Martin-Ehlers, LL.M.
Telephone: +49 69 707968 182
Telefax: +49 69 707968 111
Brazil, Central and South America, Mexico, Portugal, Spain
Dr. Daniel Dohrn
Telephone: +49 221 2091 441
Telefax: +49 221 2091 333
Dr. Simon Spangler, LL.M.
Telephone: +49 69 707968 183
Telefax: +49 69 707968 111