Are ancillary restraints covered by the authority’s clearance decision?
According to a footnote on the Notification form published by MOFCOM, the parties to a concentration must submit non-compete agreements or clauses concluded between/among them, if any. This shows that ancillary restraints will be also considered by MOFCOM during the merger review process. However, due to the lack of sufficient transparency during competition reviews and in publishing case decisions, we have little knowledge of whether there are any situations where a concentration transaction with ancillary restraints have been cleared or challenged by MOFCOM. Therefore, it is unclear what kind of ancillary restrictions are permissible and what kind of ancillary restrictions are forbidden by MOFCOM.
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 should serve as guidance for the parties.
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 re-straints, 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 CCPC notification form contains a specific section in relation to ancillary restraints and the CCPC will assess the impact of notified restraints in its determination. Ancillary restraints which are referred to in the notification, and which constitute restrictions that are directly related to the implementation of the transaction approved by the CCPC, will also benefit from the approval of the transaction.
The CCPC generally follows the approach of the European Commission to the assessment of ancillary restraints as set out in the European Commission’s Notice on Ancillary Restraints.
Ancillary restraints such as non-compete clauses may be considered "restrictive arrangements" and be subject to the general restrictive arrangements chapter of the Israeli Antitrust Law.
A restrictive arrangement is prohibited unless permitted by one of the mechanisms prescribed by the Israeli Antitrust Law: approval by the specialist Antitrust Tribunal; exemption from such approval by the Antitrust Commissioner or falling within the boundaries of one of the statutory exemptions set in the Israeli Antitrust Law itself or block exemptions issued by the Commissioner.
A non-compete commitment by a seller following the sale of a business in its entirety, inasmuch as it would constitute a "restrictive arrangement" is eligible for a statutory exemption when such commitment is "not contrary to reasonable and accepted practices".
In addition, a specific block exemption has been issued for restraints ancillary to mergers (Antitrust Rules (Block Exemption for Restraints Ancillary to Mergers), 2009), which exempts, under certain conditions, non-compete commitments (for up to four years starting from the decrease in the seller's holdings below 20% and the right to appoint one director); commitments to continued supply in the same terms (for up to three years); and other restraints reasonably required to preserve the value of the acquired business (for a reasonable time period). This block exemption has several conditions, and inter alia, it does not apply to monopolies (defined by the Israeli Antitrust Law as having over 50% market share).
Other block exemptions may also apply, such as Antitrust Rules (Block Exemption for Arrangements of Minor Importance), 2006, or Antitrust Rules (Block Exemption for Non-Horizontal Agreements Which Do Not Contain Certain Price Restrictions), 2013.
In case an ancillary restraint does not come within the boundaries of a block exemption, a specific exemption is required. Israeli merger notification forms include a specific chapter with an exemption request form for an ancillary restraint.
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 decision on a notified transaction does not guarantee that ancillary restraints that do meet thresholds by themselves are immune from the future investigation.
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.
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.
The agencies take into account noncompete agreements and similar ancillary restraints in the course of their review of a transaction, and require the parties to submit copies of any noncompetition agreements with their HSR filings. The effects of such agreements are factored into the agencies’ review of the competitive effects of the transaction.
The possibility of including ancillary restraints in the agreement is not officially provided by the Russian law, in practice, however, such restraints are admitted by the authority. Generally for consideration of ancillary restraints the FAS uses the approach adopted by the EC (Commission Notice on restrictions directly related and necessary to concentrations), which makes the procedure quite predictable for the parties.
Please note that since the clearance decision is Russia is quite short, it does not contain specific reference to ancillary restraints, however, if they were provided to the authority in the SPA or draft documents and the FAS issued a positive clearance decision this means that such restraints are in line with current antitrust legislation.
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.
Ancillary restrictions on competition, such as non-compete clauses, are covered by the Belgian Competition Authority’s clearance decision provided that they are directly related to the concentration and can be considered “necessary”.
Generally, the Belgian Competition Authority takes the same approach as the European Commission to assessing whether these criteria are satisfied. In particular, any restraint on competition should be limited in scope (in terms of the product and geographic markets, duration, and entities affected) to the minimum that is required in order to successfully implement the transaction and ensure that the buyer receives the full value of their acquisition.
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).
Ancillary restraints can be taken into account in assessing the impact of the transaction. Parties are not required to expressly disclose ancillary restraints, but copies of sale agreements and related merger agreements are required to be submitted as part of the filing obligations. Failure to disclose restraints that are relevant to the analysis may be seen as false and misleading.
Typically, a restraint on a seller from competing with the target business for a limited period (three years or less) and pertaining only to the business being sold is permitted in order to protect the goodwill of the target business. However, restraints of long duration or which cover business outside of the business being transferred may be treated as instances of prohibited market division.
The FCA’s clearance decisions cover ancillary restrictions provided that they are both necessary and directly related to the implementation of the transaction.
Companies are required to self-assess whether their ancillary restrictions are covered by the FCA’s decision. For this purpose, the Merger Control Guidelines expressly refers to the guidance contained in the European Commission’s notice on ancillary restraints (paras. 484 to 487). In this respect, restrictions such as non-compete clauses in favour of the purchaser, licence agreements as well as purchase and supply contracts may be found to be ancillary restraints.
Ancillary restraints such as non-compete or non-competition covenants or agreements have been subject to heavy scrutiny by the Mexican competition authorities. Current criteria from Cofece indicates that non-compete covenants could be approved when such agreements are limited in regard of (i) specific territories, (ii) specific coverage of products and/or services, (iii) specific individuals or companies and (iv) limited 3 years maximum duration, and only of the parties justify their need.
Likewise, in some cases where other ancillary restrains such as shareholders agreements, or non-solicitation clauses are present, competition authority would also analysed them and review that they are justified and comply with similar parameters.
In fact, Cofece is aiming to complement its non-binding merger control guidelines to provide further guidance in regard not just of non-competition covenants, but also regarding to shareholders agreements and non-solicitation clauses. Such portion of Cofece’s guidelines is still however under a public consultation period.
The FCO’s merger control decisions do not typically extend to ancillary restraints. These are to be assessment separately under German antitrust principles. At times, the FCO may make express reference to such ancillary restraints in its final decision or no action letter by expressly reserving its right to evaluate them separately under general antitrust rules. However, if it does not immediately initiate such proceedings, this would typically demonstrate that it does not see any need for intervention. In terms of distinguishing permissible from potentially objectionable ancillary restraints, the German antitrust practice is very much aligned with applicable EU principles. Thus, the European Commission’s Ancillary Restraints Notice and practice will be equally relevant when assessing the permissible scope of non-compete obligations or other ancillary restraints under German law.
The clearance decision issued by the ICA covers also ancillary restrictions, directly related and necessary to the concentration, such as non-competition obligations or purchase and supply obligations imposed on the vendor. Such restrictions are assessed by the ICA following the guidance of the European Commission Notice on restrictions directly related and necessary to concentrations of 5 March 2005.
The ACCC, at the request of the merger parties, may consider competition issues associated with ancillary restraints with the transaction. Any letter of comfort issued by the ACCC in such circumstances would then usually also apply to any relevant ancillary restrictions properly disclosed to the ACCC as part of the application.
The CCA exempts, in the context of a merger or acquisition, an ancillary restriction imposed by the purchaser on the vendor that is solely for the purposes of protecting the goodwill of the purchased business.
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.