The Court of Appeal of Den Bosch recently ruled on a long-standing conflict between radiologists affiliated in a medical specialists cooperative. The dispute seriously disrupted the working relationship between the radiologists within the cooperative. The cooperative had terminated the membership of one of its radiologists. One of the grounds for the termination was breach of a non-compete clause. The radiologist was not permitted to conduct competing activities elsewhere during his membership of the cooperative without prior consent.
The radiologist argued that the non-compete clause was contrary to the cartel prohibition (Article 6 of the Mededingingswet (Competition Act)). The prohibition means that agreements between businesses that have the restriction of competition as their object or effect are null and void. The Court of Appeal agreed, and ruled that alleged breach of the non-compete clause therefore does not constitute a valid ground for termination.
The Court of Appeal found in its ruling that the non-compete clause had the restriction of competition as its object (known as an “object restriction”). The radiologist was therefore not required to further substantiate the concrete effects of the non-compete clause on the market. That requirement does apply in the case of an “effect restriction”. An effect restriction does not have the restriction of competition as its object, but only as its effect.
The Court of Appeal applied an interesting two-step approach in assessing the existence of an object restriction. The first step involves assessing the content and object of the clause, the question being whether the clause must be deemed to restrict competition in light of existing general knowledge and experience. The second step relates to the legal and factual context: can the alleged anti-competitive agreement (step 1) still be deemed to restrict competition in light of that context (step 2)?
The Court of Appeal then assessed on the basis of EU case law whether the non-compete clause goes beyond what is necessary to safeguard the proper functioning of the cooperative (the “necessity criterion”). In this respect the clause serves to ensure that the cooperative has a sufficiently broad commercial basis and to safeguard a certain longevity of the membership of the association (for instance to prevent cherry-picking). The Court of Appeal noted that, despite the alleged breach, the non-compete clause had not been enforced for a certain period. It did not become apparent during that period that the proper functioning and negotiating position of the cooperative had been impeded. For that reason the non-compete clause was unnecessary and therefore null and void.
It is also remarkable that the cartel prohibition was not relied on in the first instance. That did not prevent the Court of Appeal from extensively testing the non-compete clause against the cartel prohibition on appeal. Generally speaking, non-compete clauses are increasingly being invalidated in legal proceedings on the grounds of the cartel prohibition. I have written about this before. This judgment is in keeping with that trend and also demonstrates that it need not be too late to rely on the cartel prohibition on appeal.