Agreements Under Competition Law: Understanding the Dos and Don`ts
Competition law is an essential aspect of business and commerce. It aims to promote healthy competition and prevent anti-competitive practices that may hinder market growth. Amongst the various tools utilized under competition law are agreements, which can be subject to scrutiny by competition authorities if they breach the law. As such, it is essential to understand the dos and don`ts when drafting an agreement compliant with competition law.
What are Agreements?
Agreements can come in various forms, such as contracts, memorandums of understanding, or even verbal agreements. They are usually entered into between two or more parties to regulate their commercial relationships. Under competition law, they may be considered anti-competitive if they significantly restrict competition in a particular market.
Dos: Pro-competitive Agreements
Agreements that promote or enhance competition in a market are considered pro-competitive. Such agreements can lead to lower prices, better quality products, and increased consumer choice. Examples of pro-competitive agreements include:
1. Distribution agreements: These agreements regulate the relationship between manufacturers and distributors and ensure a wider distribution network for products.
2. Licensing agreements: Licensing gives a company the right to use another company`s intellectual property in exchange for payment, leading to business growth and innovation.
3. Research and development agreements: These agreements establish collaboration between companies in a particular industry to promote innovation and development.
Don’ts: Anti-competitive Agreements
Anti-competitive agreements limit competition in a market, and they infringe upon competition law. Such agreements can include:
1. Price-fixing agreements: These agreements are illegal and involve competitors agreeing to set a fixed price for a particular product or service, leading to higher prices and reduced consumer choice.
2. Market-sharing agreements: This agreement involves competitors dividing the market amongst themselves, eliminating competition and leading to higher prices.
3. Exclusive dealing agreements: These agreements prevent customers from purchasing products or services from competitors, leading to reduced consumer choice.
Conclusion
Agreements can be a useful tool for regulating commercial relationships between companies. However, it is essential to draft agreements that are compliant with competition law. Pro-competitive agreements promote market growth and increased consumer choice, while anti-competitive agreements limit competition and result in higher prices and reduced consumer choice. As a professional, it is essential to ensure that any agreements related to your clients` businesses adhere to the dos and don`ts outlined above, to avoid any legal infringements and penalties.