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Published online by Cambridge University Press: 02 January 2018
The common law restraint of trade doctrine continues to provide valuable protection in a variety of business contexts. This paper analyses an incompatibility problem that has arisen between that doctrine and EU competition rules (in particular Art 101 Treaty on the Functioning of the EU [TFEU]) as implemented by EU Regulation 1/2003, which, amongst other matters, delineates the interface between national law and EU competition law. According to the High Court, once a court has applied Art 101 TFEU, Art 3 of the Regulation prevents a court from reaching a contrary finding under the restraint of trade doctrine. Thus, the court cannot find a clause is void under the doctrine if the clause comes within the scope of, but is not prohibited by, Art 101 TFEU. In effect, this conclusion displaces the restraint of trade doctrine for parties who are subject to unreasonable restraints that fall foul of the doctrine but are not prohibited by Art 101 TFEU. The interface problem and the possible solution are presented as issues of Europeanisation. The negative impact on national law deriving from an EU measure is portrayed as a ‘top down’ Europeanisation scenario. A contrary ‘uploading’ perspective reveals how and why Art 3 and associated Recitals in Regulation 1/2003 were ‘constructed’. These findings on the intended scope of Art 3 are used to challenge the High Court's view on the negative implications of the Regulation for the restraint of trade doctrine. Finally, this paper offers specific proposals as to how courts in the United Kingdom and Ireland could ensure that the restraint of trade doctrine is not an inevitable casualty of Europeanisation. It argues that when looking for a solution to the ‘top-down’ Europeanisation problem faced by the restraint of trade doctrine, the ‘uploading’ perspective of Europeanisation suggests a solution.
1. Vendo v Adams [2002] NI Ch 3.
2. Dawnay, Day & Co v D'Alphen [1988] ICR 1068, [1997] IRLR 42.
3. Dranez Anstalt v Hayek [2003] FSR 32 involved the transfer of patent rights and an Investment Agreement and contained a non-competition clause in a ‘Side Letter’ signed by the covenantor inventor and addressed to the investors.
4. Office Overload v Gunn [1977] FSR 39 (CA).
5. Watson v Praeger [1991] 3 All ER 487, [1991] 3 All ER 487.
6. Winnipeg Livestock Sales Ltd v Plewman 192 DLR (4th) 525 Court of Appeal in Manitoba.
7. John Michael Lapthorne v Eurofi [2001] EWCA Civ 993.
8. Council Reg 1/2003 [2003] OJ L 1 at 1. Art 3 provides: ‘(1) Where the competition authorities of the Member States or national courts apply national competition law to agreements, decisions of associations of undertakings or concerted practices within the meaning of Article [101](1) which may affect trade between the Member States within the meaning of that provision, they shall also apply Article [101] to such agreements, decisions or concerted practices. (2) The application of national competition law may not lead to the prohibition of agreements, decisions of associations of undertakings or concerted practices which may affect trade between Member States but which do not restrict competition within the meaning of Article [101](1) of the Treaty, or which fulfil the conditions of Article [101](3) of the Treaty or which are covered by a Regulation for the application of Article [101](3) of the Treaty. Member States shall not under this Regulation be precluded from adopting and applying on their territory stricter national laws which prohibit or sanction unilateral conduct engaged in by undertakings. (3) Without prejudice to general principles and other provisions of Community law, paragraphs 1 and 2 do not apply when the competition authorities and the courts of the Member States apply national merger control laws nor do they preclude the application of provisions of national law that predominantly pursue an objective different from that pursued by Article [101] and [102] of the Treaty.’
9. The High Court, having considered Art 3, stated that once EU competition law ‘applies and either strikes down or permits a restriction to trade between EU Member States, the court cannot reach a different result under the restraint of trade doctrine (Jones v Ricoh UK Ltd [2010] EWHC 1743 (Ch) Roth J. para 49 citing Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWHC 44 (Comm), [2004] UKCLR 384).
10. The classic test was stated as follows: ‘The public have an interest in every person's carrying on his trade freely; so has an individual. All interference with individual liberty of action in trading; and all restraints of trade themselves, if there is nothing more, are contrary to public policy and, therefore void. That is the general rule. But there are exceptions. Restraints of trade may be justified by the special circumstances of the case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable – reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public’ (Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 at 565 HL Lord MacNaghten affirming [1983] 1 Ch 630 (CA)). The High Court of Australia stated: ‘At least since Nordenfelt, the common law has fixed the appropriate balance between the competing claims and policies generally in favour of striking down restraints unless they can be justified’ (Peters(WA) Ltd v Petersville Ltd (2001) 205 CLR 126, para 36 Gleeson CJ, Gummow, Kirby and Hayne JJ). On the doctrine, see Kamerling, A and Osman, C Restrictive Covenants under Common and Competition Law (London: Thomson Sweet & Maxwell 2004)Google Scholar; Heydon, J D The Restraint of Trade (Sydney: Butterworths, 3rd edn, 2008)Google Scholar.
11. Esso Petroleum Co Ltd v Harpers Garage (Stourport) Ltd [1968] AC 269 at 300 per Lord Reid.
12. Jones, A and Sufrin, B EU Competition Law: Text, Cases and Materials (Oxford: Oxford University Press 4th edn, 2011)Google Scholar.
13. [2004] EWHC 44 (Comm) Langley J.
14. Radaelli, C ‘Whither Europeanisation? Concept stretching and substantive change’ (2000) European Integration Online Papers 4 Google Scholar; Dyson, K ‘Introduction: EMU as integration, Europeanization and convergence’ in European States and the Euro (Oxford: Oxford University Press, 2002)CrossRefGoogle Scholar p 3.
15. Mc Gowan, L ‘Europeanization unleashed and rebounding: assessing the modernization of Eu cartel policy’ (2005) 12 J European Public Policy 986 CrossRefGoogle Scholar at 997.
16. ‘[I]ncremental process reorienting the direction and shape of politics to the degree that EC political and economic dynamics become part of the organisational logic of national logic of national politics and policy-making’ ( Ladrech, R, ‘Europeanisation of domestic politics and institutions: the case of France’ (1994) 32 JCMS 69 Google Scholar at 70). According to S Buller, and A Gamble, ‘it is a situation where distinct modes of European governance have transformed aspects of domestic politics (in ‘Conceptualising Europeanization’ (2002) 17 Public Policy and Administration 4 at 17).
17. Bomberg, E and Petersen, J ‘Policy transfer and Europeanization: passing the Heineken test?’ (2000) Queen's University Belfast Europeanisation Online Papers 2/2000 Google Scholar 3.
18. L McGowan, above n 15, at 996. ‘To dissect Europeanisation as reception and projection highlights our view of the relationship between the EU and member-government institutions as iterative and interactive’ ( Bulmer, S and Burch, M ‘The Europeanization of central government; the UK and Germany in historical institutionalist perspective’ in Schneider, G and Aspinall, M. (eds) The Rules of Integration: Institutional Approaches to the Study of Europe (Manchester: Manchester University Press, 2001)Google Scholar p 73.
19. Bache, I and Marshall, A ‘Europeanisation and domestic change: a governance approach to institutional adaptation in Britain’ (2004) Queen's University Belfast Europeanisation Online Papers 5/2004 Google Scholar 5.
20. ‘[M]ost authors regard Europeanisation from a top-down perspective and emphasise the consequences for national structures, policy making and outcomes that result from the development of institutions and policies at the EU level’ (McGowan, above n 15, at 997).
21. Jones v Ricoh UK Ltd [2010] EWHC 1743 (Ch) Roth J para 49 citing Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWHC 44 (Comm), [2004] UKCLR 384.
22. Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWHC 44 (Comm), [2004] UKCLR 384.
23. Case 161/86 Pronuptia de Paris GmbH v Irmgard Schillgallis [1986] ECR 353. An American commentator commented that this judgment applied the ‘ancillary restraint’ doctrine in the sense of ‘identifying the legitimate purpose of the contractual arrangements and then excluding from the prohibition on restrictive agreements all contractual provisions that are reasonably related to the successful realisation of these legitimate purposes’ ( Venit, J ‘Competition and industrial property: Pronuptia – ancillary restraints or unholy alliance?’ (1986) 11 EL Rev 213 Google Scholar at 222.
24. In Case 161/86 Pronuptia de Paris GmbH v Irmgard Schillgallis [1986] ECR 353, the ECJ accepted that it may sometimes be ‘impractical’ to set down objective quality specifications and too expensive to ensure their observance and thereby permitted the imposition of exclusive purchase obligations on the franchisee (para 21).
25. Case 161/86 Pronuptia de Paris GmbH v Irmgard Schillgallis [1986] ECR 353.
26. Art 101(3) TFEU provides that Art 101(1) TFEU may be declared inapplicable to an arrangement ‘which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives and; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question’.
27. Art 5(3).
28. Jones and Sufrin, above n 12, at 675.
29. Case 161/86 Pronuptia de Paris GmbH v Irmgard Schillgallis [1986] ECR 353 para 15.
30. Ibid.
31. [2002] NI Ch 3.
32. Ibid, at 8.
33. Eg, both the restraint of trade doctrine and competition law were pleaded by songwriter/singer in Panaytiotou v Sony Music Entertainment (UK) Ltd [1994] ECC 395. Other examples of restrained persons whose contracts may come within both the restraint of trade doctrine and Art 101(1) include licensees and various independent contractors.
34. Another difference is the temporal framework. The doctrine examines the reasonableness at the time the restriction was agreed (Proactive Sports Management Ltd v Wayne Rooney, Colleen Rooney et al [2010] EWHC 1807 (QB) Judge Hegarty QC 651 para 715). Under competition law the relevant point of time for assessment is when it is sought to enforce the clause.
35. The ‘onus of showing that a restraint is reasonable as between the parties rests on the person alleging it is so’ (Herbert Morris Ltd v Saxelby [1916] 1 AC 688, at 700 HL Atkinson).
36. [2002] EWHC 1066.
37. ‘[I]in interlocutory proceedings it will be considerably easier to show that a clause on its construction is unreasonable, rather than to try and argue that the object or effect of an agreement on competition means that it is void under Article [101](1) and should not benefit from an exemption under Art [101](3) – an economic assessment which national judges post May 2004 will increasingly be called upon to do, but are unlikely to relish’ (Kammerling and Osman, above n 10, p xvi).
38. Case 56/65 Societe Technique Miniere v Maschinenbau Ulm GmbH [1966] ECR 234.
39. A Scott ‘The evolution of competition law and policy in the United Kingdom’ LSE Working Paper 9/2009 p 5.
40. [2010] EWHC 1743 (Ch) Roth J para 49. He found that the clause was prohibited by Art 101(1) TFEU and did not come under Block Exemption 2790/99.
41. The competition legislation was expressly rendered not applicable to vertical agreements (including distribution agreements) pursuant to Verticals Exclusion Order SI 2000 No 310. See further Lucey, M C ‘Unforeseen consequences of Article 3 of Eu Regulation 1/2003’ (2006) 27 European Competition L Review 557 Google Scholar.
42. Para 265.
43. Para 109.
44. WWF v World Wrestling Foundation [2002] EWCA CIU 196 para 66.
45. WWF v World Wrestling Foundation [2001] EWHC Ch 482.
46. Ibid, para 47
47. These are: (a) Principles for Summary Judgment, (b) Breach of Contract, (c) Public Policy, (d) Injurious Association, (e) Other Issues and (f) Conclusion.
48. Chiefly, Case 14/64 Walt Wilhelm v Bundeskartellamt [1969] ECR 1, [1969] CMLR 1000; Case 106/77 Amministrazione delle Finanze dello Stato v Simmenthal SpA [1978] ECR 629, [1978] 3 CMLR 263 para 24; Case C-198/01 Consorzio Industrie Fiammiferi (CIF) v Autorita Garante della Concorrenza e del Mercato [2003] 5 CMLR 16.
49. ‘The question on the interrelationship between EC and Member State antitrust laws has never been answered in full. The Court has provided important guidelines but these guidelines did not settle the matter.…Generally, it is…considered that national antitrust law which is stricter than Community antitrust law may be applied to agreements which are considered not to restrict competition in the sense of Art [101](1)’ ( Wesseling, R ‘the Commission white paper on modernisation of Ec antitrust law: unspoken consequences and incomplete treatment of alternative options’ (1999) ECLR 426 Google Scholar at 427). Also see Kerse, C S Antitrust Procedure (London: Sweet & Maxwell, 4th edn, 1998)Google Scholar para 10.33 and Jones, A and Sufrin, B EC Competition Law: Text, Cases and Materials (Oxford: Oxford University Press, 1st edn, 2001)Google Scholar p 1013.
50. Proposal for Council Regulation on the implementation of the rules on competition laid down in Articles 81 and 82 and amending Regulations (EEC) No 1017/68, (EEC) No 2988/74, (EEC) No 4056/86 and (EEC) No 3975/87. COM (2000) 582 final.
51. These included Germany, Austria, France and Finland.
52. The Working Party on Competition had meetings on 19 June, 1 July, 22–23 July, 4 September, 21–22 October and 5 November. On reservations about Art 3, see Interinstitutional file 2000/0243(CNS) 11791/02, p 12.
53. 13563/01 20 November 2001 p 20, from the Presidency to COREPER. This report also noted that Germany and Austria had expressed reservations.
54. Interinstitutional file 2000/0243(CNS) 8383/02 Report from Presidency to Permanent Representatives Committee/Council.
55. Ibid.
56. Ibid, p 12 (emphasis added).
57. Interinstitutional file 2000/0243(CNS) 11791/02 pp 6–7and 12.The Report also sets out Member States' positions on Art 3 generally. These positions included the reiteration by Finland that Art 3 must not put into question the application of specific national law dealing with specific national problems, the general reservation of Germany (supported by Spain and Finland) on Art 3 bestowing absolute priority on EU competition law and the view that application of stricter national law should be possible (p 12 n 30).
58. See Oduku, O ‘the wider concerns of competition law’ (2010) 30 OJLS 599 Google Scholar at 600 and n 4, for lengthy citation of bibliographical sources on competition valued variously for efficiency, for integration and for freedoms.
59. Eg, Monti, M ‘European competition policy for 21st century’ (2000) Fordham Corp L Inst 15 Google Scholar.
60. The meaning of ‘consumer welfare’ has attracted debate, especially as it is not commonly found in ECJ judgments. See further Akman, P ‘Consumer welfare and Art 82Ec: practice and rhetoric’ (2009) 32 World Competition 71 Google Scholar. In joined cases C501/06P, C513/06P, C515/06 P and C 519/06P GlaxoSmith KlineServices Unlimited formerly GlaxoWellcome plc v Commission [2009] ECR I-9291, the ECJ stated that Art 101 ‘aims to protect not only the interests of competitors or of consumers but also the structure of the market and, in so doing, competition as such’ (at 63).
61. A hierarchy of objectives was set out by the Commission Annual Report on Competition Policy 2000. The first objective was the ‘maintenance of competitive markets’, while the second is the ‘single market objective’. The 2004 Guidelines on the Application of Art 81(3) provide that: ‘[T]he objective of Art [101] is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources. Competition and market integration serve these ends since the creation and preservation of an open single market promotes an efficient allocation of resources throughout the Community for the benefit of consumers’ (para 13).
62. See Gerber, D Law and Competition in Twentieth Century Europe: Protecting Prometheus (Oxford: Clarendon Press, 1998)Google Scholar for an argument that Austrian and German traditions of Ordo-liberalism influenced the drafters of EU competition law. For a different view, see Akman, P ‘Searching for the long-lost soul of Article 82’ (2009) OJLS 267 CrossRefGoogle Scholar.
63. See further Amato, G Antitrust and the Bounds of Power (Oxford: Hart, 1997)Google Scholar; Monti, G ‘Art 81 Ec and Public Policy (2002) 39 CML Rev 1057 Google Scholar; and Townley, C Article 81 EC and Public Policy (Oxford: Hart, 2009)Google Scholar.
64. The first Gesetz Gegen den Unlauteren Wettbewerb (UWG) was adopted in 1896 and replaced in 1909 and in 2004. The 1909 Act provided a template for countries including Austria, Belgium, Spain and Poland. See further Henning-Bodewig, F Unfair Competition Law (London: Kluwer, 2006)Google Scholar.
65. Henning-Bodewig, F ‘a new act against unfair competition in Germany’ (2005) Int Rev Intellectual Property and Competition L 421 Google Scholar at 425.
66. S 4, Nos 1 and 2.
67. S 4, No 12. S 4 also deal with practices such as advertising, disparaging rivals, passing off and interfering with contractual relationships. See further Willimsky, S ‘Aspects of unfair competition law in Germany’ (1996) ECLR 315 Google Scholar; and H Ullrich ‘Anti-unfair competition law and antitrust law: a continental conundrum?’ EUI Working Paper in Law 2005/01, available at http://cadmus.iue.it
68. Commission Staff Working Paper accompanying the Communication from the Commission to the European Parliament and Council, Report on the functioning of Regulation 1/2003 [COM(2009) 206 final] para 181, citing de Smijter, E and Kjoelbye, L ‘The enforcement system under Regulation 1/2003’ in Faull, J and Nikpay, A (eds) The EC Law of Competition (Oxford: Oxford University Press, 2007)Google Scholar part 2.59.
69. Recital 9.
70. ‘[C]onsiderations of public policy…underlie the whole doctrine’ (Amoco Australian Pty v Rocca Bros Motor Engineering Co Pty [1973] 133 CLR 288 at 307 HC (Aus)).
71. Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 298 per Lord Reid (emphasis in original).
72. There is a long tradition of the doctrine protecting employees' interests in the face of unreasonable restrictions. In Nordenfelt, Lord Macnaghten stated that courts should subject ‘apprenticeship and cases of that sort’ to closer scrutiny than agreements for ‘the sale of a business or dissolution of partnership (Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 at 566). A similar statement is found in Irish judgment Murgatroyd and Co v Barry Purdy [2005] IEHC 159 Clarke J.
73. It has been argued that judicial hostility to clauses, on the grounds of unfairness to a perceived weaker party, is manifest. See Trebilcock, MJ The Common Law Restraint of Trade: A Legal and Economic Analysis (Toronto: Carswell, 1986)Google Scholar.
74. A six-mile radius from a small solicitor's office was excessive because it included a large number of businesses which had not been clients of the employing firm (Allan Janes v Johal [2006] EWHC 286 (Ch), [2006] ICR 742).
75. John Michael Lapthorne v Eurofi [2001] EWCA Civ 993.
76. Ibid, para 28.
77. Ibid.
78. Ibid, para 29.
79. Ibid, para 28.
80. M&S Drapers v Reynolds [1957] 1 WLR 9 at 12 Hodson LJ.
81. [1964] Ch 413. Wilberforce J treated the rules of Football Association and League establishing a restrictive registration, transfer/retention system as an agreement amongst employers not to employ one another's employees.
82. Ibid, at 442.
83. In a similar vein, the Australian High Court spoke of the need to protect the rights of ‘captives’ when assessing restrictions on rugby players (Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 para 31 Gummow J).
84. Humphries J, in Silvertone Records v Mountfield [1993] EMLR 152 High Court 160.
85. ‘[A] man who enters freely into a bargain will, normally, expect to be held bound to it’ (Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [ 1968] AC 269 at 319 Lord Hodson).
86. Ibid, at 305 Lord Morris.
87. The restrained party was granted a declaration that the contract was contrary to public policy and void. The decision was affirmed by Court of Appeal and appealed to the House of Lords (A Schroeder Music Publishing Co Ltd v Macauley (formerly Instone) sub nom. Macauley (formerly Instone) v A Schroeder Music Publishing Co Ltd [1974] 1 WLR 1308 at 1315 HL affirming [1974] 1 All ER 171 CA).
88. Ibid, at 1314.
89. Ibid, at 1312.
90. Ibid, at 1315.
91. Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 332–333.
92. A Schroeder Music Publishing Co Ltd v Macauley (formerly Instone) sub nom. Macauley (formerly Instone) v A Schroeder Music Publishing Co Ltd [1974] 1 WLR 1308.
93. Ibid, at 1314.The importance of negotiation was expressly noted by the High Court when assessing the reasonableness of a restraint on a specialised warhead designer in Societa Esplosivi Industriali Spa v Ordnance Technologies (UK) Ltd [2004] EWHC 48 (Ch) para 120.
94. A Schroeder Music Publishing Co Ltd v Macauley (formerly Instone) sub nom. Macauley (formerly Instone) v A Schroeder Music Publishing Co Ltd [1974] 1 WLR 1308 at 1314, referring to Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 323 Lord Pearce. An exclusive services contract in the standard form prescribed by a regulatory association (eg, British Boxing Board of Control) did not receive the ‘dispensation’ (Watson v Praeger [1991] 3 All ER 487 Scott J).
95. Ibid, at 1315.
96. Ibid, at 1316.
97. Ibid, at 1315. This test was cited in Proactive Sports Management Ltd v Wayne Rooney, Colleen Rooney et al [2010] EWHC 1807 (QB) Manchester District Registry Mercantile Court Judge Hegarty QC at para 640.
98. A Schroeder Music Publishing Co Ltd v Macauley (formerly Instone) sub nom. Macauley (formerly Instone) v A Schroeder Music Publishing Co Ltd [1974] 1 WLR 1308 at 1316.
99. Ibid, at 1315.
100. Proactive Sports Management Ltd v Wayne Rooney, Colleen Rooney et al [2010] EWHC 1807 (QB) Manchester District Registry Mercantile Court Judge Hegarty QC.
101. Ibid, at 633.
102. Ibid, at 649.
103. Ibid, at 650.
104. Ibid, at 647.
105. Ibid, at 651.
106. Ibid, at 640.
