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Non-Compete Clauses in International Contracts

Author: Filip DE LY

Type: Article

ref: 42006441-494

N0:4 of 2006

Pages: 441-494

The Groupe de Travail Contrats Internationaux (GTCI) chaired by professor DeLy has made public its report about non-compete clauses in international contracts from the perspective of international contract draftsmen.
The main advices and suggestions may be summarized as follows:
Although each type of contract and every transaction will need appropriate drafting of the non-compete clause to take into account the requirement of the contract and the transaction, non-compete clauses all deal with identical issues, primarily regarding the term, the geographical area and the business activities contemplated by the clause, its effects towards third parties and its remedies.
There is a lot of uncertainty as to whether and to what extent jurisdictions accept implied obligations not to compete. Accordingly express non-compete clauses are vital to cope with these uncertainties.
Except for Finland and Italy, there is no general statutory contract law provisions for assessing non-compete clauses, but for certain contracts such as commercial agency, many jurisdictions have special rules on them.
The analysis of international commercial arbitration has not shown that transnational principles on non-compete clauses (lex mercatoria) have developed or are developing.
As jurisdictions use different standards clauses and the remedies vary widely and as there is no internationally acceptable boiler plate clause, local legal counsels should be involved in the drafting process.
Any non-compete clauses should carefully be scrutinised against applicable antitrust rules.
Contract drafters may consider mechanisms to pass on non-compete clauses to third parties and to provide such as liquidated damages or penalty clauses.