Are ancillary restraints covered by the authority’s clearance decision?
Merger Control (2nd Edition)
The CMA follows the approach of the European Commission towards ancillary restraints (see the European Union chapter of this guide).
Parties are expected to self-assess their compliance with the Commission's notice on restrictions directly related and necessary to concentrations, although the CMA may provide guidance where a novel or unresolved issue arises.
Parties are required to include in the notification a description of the ancillary restraints. Unlike the EU Commission, in the clearance decision, the ICA expressly indicates if such restrictions qualify as “ancillary” to the concentration and, thus, if they are covered by the clearance decision. In its assessment, the ICA fully applies the criteria laid down in the relating EU Commission Notice.
If the restraints do not qualify as “ancillary”, they fall outside the scope of the clearance decision and need to be self-assessed according to Art. 101 TFEU or the relating national provisions (Artt. 2 and 4 of the Law).
The parties are required to submit ancillary non-competition agreements that are exhibits to the main agreement in their respective HSR filings. The agencies consider the effects of such agreements when reviewing the competitive effects of the transaction.
Ancillary restraints may be considered necessary for a certain merger (“Immanenztheorie”). The European Commission Notice on restrictions directly related and necessary to concentrations can provide guidance for German merger control as well. However, the formal clearance of the merger does not necessarily cover ancillary restraints. In most cases, they need to be included in the self-assessment, which is the sole responsibility of every undertaking. A thorough examination of ancillary restraints is usually advisable as in most cases the FCO explicitly reserves the right to re-examine any agreements made that are not covered by the formal clearance of the merger.
The JFTC’s primary focus in merger review is whether a notified transaction would substantially restrain any relevant market after its implementation, but the JFTC also examines any related ancillary restraints in its substantive review. However, the JFTC’s clearance decision on a notified transaction does not guarantee that ancillary restraints involved in or derived from the transaction are immune from the future investigation.
Regarding ancillary restraints, there are no clear rules in Austria. In practice, the European Commission’s Ancillary Restraints Notice is used as guidance.
It should be noted that, according to jurisprudence, a parallel examination of facts under antitrust (prohibition of cartels) and merger aspects (creation of a dominant position) does not take place in Austrian merger control proceedings. Outside the scope of merger control, the behaviour in question must comply with the prohibition on cartels (which is to be evaluated by the undertakings concerned in a self-assessment).
The Bureau’s review will look at the competitive impact of the transaction as a whole, including any restrictions on competition that may result from the transaction agreement. There are no express provisions of the Act that govern ancillary restraints related to a merger (as there are in relation to the conspiracy provisions of the Act) and the parties must self-assess. Non-competes and other restraints that are reasonable in the circumstances and do not result in a substantial lessening of competition are generally acceptable.
Although the Competition Act is silent on this, it can be assumed that a decision clearing an operation of concentration automatically covers ancillary restrictions, without the FNE or TDLC having to assess such restrictions in individual cases. By contrast, for restrictions that cannot be regarded as directly related and necessary for the operation, the general prohibition on restrictive acts and agreements remains potentially applicable. The FNE’s Notification Form also requires the notifying parties to specify whether there are agreements “related” to the operation that may proportionally restrict competition, like non-competition clauses, exclusivity clauses, etc.
There is almost no doctrine or decision practice in Chile regarding ancillary restraints. It is therefore likely that the FNE will seek guidance from especially the practice of the European Commission, as provided for in the Commission’s decisions and its Notice on Ancillary Restraints.
Ancillary restraints can be covered by the CPC’s clearance decision. Ancillary restraints are notified to the CPC within the context of a Phase II investigation in the manner and within the timeframe prescribed by the Law. Any such restraints should evidence the removal of any significant impediment of effective competition, as identified by the CPC in the context of a Phase I assessment.
Ancillary restraints are covered by the DCCA’s clearance decisions, but the DCCA is not obliged to carry out an assessment of such restraints. Consequently, the parties themselves must assess whether the individual terms of the merger agreement can be categorized as ancillary restraints. Practice in Danish and EU merger decisions as well as the Commission’s Notice on ancillary restraints serve as guidance.
The Council may, upon request from the parties, carry out an assessment of ancillary restraints when assessing the merger itself if the merger involves restraints giving rise to actual uncertainty, and such restraints have not been dealt with either in practice or by the Commission’s Notice. If the Council carries out an assessment of the ancillary restraints, the merger notification cannot be processed under the simplified procedure.
Depending on the circumstances, permissible ancillary restraints may include certain non-competition clauses, licence agreements, and purchase and supply obligations.
The treatment of ancillary restraints (such as non-compete obligations or transitional supply agreements) is set out in the EUMR and the Commission’s notice on restrictions directly related and necessary to concentrations (the “Ancillary Restraints Notice”). The EUMR provides that any Commission decision approving a concentration will automatically cover restrictions that are directly related and necessary to the implementation of the merger. The Ancillary Restraints Notice introduces the principle of “self-assessment”, according to which merging parties will need to assess for themselves whether or not the restrictions in their contracts are permissible. In cases, however, where the parties request the Commission to assess certain ancillary restraints as the case presents novel or unresolved questions giving rise to genuine uncertainties, the Commission has to expressly assess such restrictions.
Typical examples of ancillary restrictions that are generally permissible:
- non-competition clauses, as long as their duration, their geographical field of application, their subject matter and the persons subject to them do not exceed what is reasonably necessary to achieve the legitimate objective of implementing the concentration
- territorial restrictions in license agreements (e.g. license of patents, of similar rights, or of know-how) in the context of a sale of a business
- purchase and supply obligations providing for fixed quantities (possibly with a variation clause)
Restrictions which are presented as necessary and directly related to the transaction by the notifying party may be considered as ancillary restraints by the FCA and covered by the decision. However, the notifying party is required to conduct a self-assessment and file it in the filing form. In certain cases, the FCA may require a modification of such agreements or provisions (exclusivities, non-compete or licensing) to grant clearance.
While ancillary restraints are not directly contemplated in the Regulations or the Act, the Concentration Notification Form (CN Form) which is filed with the OFC does mention that if the parties to the concentration, and/or other involved parties (including the seller and minority shareholders), enter into ancillary restrictions directly related and necessary to the implementation of the concentration, these restrictions may be assessed in conjunction with the concentration itself. Moreover the notifying entity is requested to identify each ancillary restriction as found in the agreements submitted together with the notification, and to explain why these are directly related and necessary to the implementation of the concentration.
No. There is no material assessment of ancillary restraints under the Norwegian regime. However, the EU notice on ancillary restraints provides guidance also for Norwegian purposes.
The Competition Council’s clearance decision also covers the restraints which are directly related and necessary for the implementation of the concentration. Ancillary restraints are to be self-assessed by the concerned parties, in accordance with the guidelines adopted by the Competition Council in this respect. Non-competition, non-solicitation or confidentiality obligations, as well as licence agreements or purchase or supply obligations may be found to be ancillary restraints.
KN: The Competition Law and relevant by-laws in Serbia do not specifically regulate ancillary restraints in mergers. However, the Competition Commission has in its practice consistently followed the approach of the European Competition Commission and, in particular, guidelines contained in the European Commission’s Notice on restrictions directly related and necessary to concentrations. In line with that, in order to qualify as ancillary, the restraint needs to be directly related to and necessary for the implementation of the concentration, as well as reasonable in geographical scope, subject matter and duration.
Please note that Serbia still has in place an individual exemption regime and a restraint that amounts a restrictive provision (going beyond what is ancillary) would formally have to go through an administrative procedure before the Competition Commission (i.e. there is no self-assessment). However, in order to be exempt from prohibition, such a restraint would have to meet the criteria for individual exemption which are modelled after Article 101(3) criteria of the Treaty on the Functioning of the European Union. Individual exemption is time limited to a period of maximum eight years (with a possibility to apply for another exemption before the expiry of the initially granted term).
The competition authorities have approved a number of transactions by imposing behavioural conditions on the parties. Many of these conditions have related to ancillary restrictions such as access to customers, continued supply and confidential information. The Tribunal has also ordered the Commission to investigate certain ancillary restrictions that have come to light during the course of merger hearings.
Article 13(5) of the Communique provides that the approval granted by the Board concerning the transaction shall also cover those restraints which are directly related and necessary to the implementation of the transaction. The parties may engage in self-assessment as to whether a particular restriction could be deemed as ancillary. In case the transaction involves restraints with a novel aspect which have not been addressed in the Guideline on Undertakings Concerned and the Board’s previous decisions, upon the parties’ request, the Board may assess the restraints in question. In the event the ancillary restrictions are not compliant, the parties may face an Article 4 investigation.
A merger control clearance does not cover any ancillary restraints (such as non-competition agreements within the framework of the proposed transaction), which are usually considered as concerted actions (practices) and may require obtaining a separate AMC concerted actions (practices) clearance.
CADE will take into account some ancillary restraints, but it must be noted that those restraints will be accepted or not depending on the case. For instance, Non-compete clauses are considered a burden to free market, however they are welcome if their intention is to secure a commercial fund or enable a joint-venture, provided that the party presents documented proof that it is facing financial crisis, for example going through a bankruptcy procedure, and that the clause is valid for up to 5 years and limited to the market of operation.
Also, if the General Superintendence of CADE votes against the merger, the companies can present an agreement on control of concentration acts within 30 days, in which the parties suggest a remedy to secure a merger in aspects that could be a potential cause for CADE’s Tribunal not to clear the merger. This institute is used with a certain frequency and CADE is open to that possibility.