A Study On The Anti-monopoly Regulation Of Non-compete Clauses In Joint Venture Contracts

Establishing joint ventures has gradually been one of the major approachesadopted by enterprises to invest in domestic and outside market under the backgroundof economic globalization and the activeness of international trade. Joint venture(“JV”) parties reaching non-compete clauses or agreements (collectively“non-compete clauses”) is a common phenomenon in the process of JVestablishment. A non-compete clause is an act of contract that restricts the competitionbetween JV parties or between JV parties and the JV. The purposes for such clausesare sometimes for legal commercial ends like supporting the ongoing operation of theJV or maintaining the value of the transferred assets and businesses, etc. However,sometimes they are merely naked conspiracy between JV parties or between theparties and the venture. As a result, many countries regulate non-compete clauses inJV contracts under anti-monopoly laws and regulations.Anti-monopoly jurisdictions like United States and European Union started theregulation of non-compete clauses in JV contracts in the middle and late20th century,and currently have relatively mature mechanisms. While the regulation ofnon-compete clauses in the PRC Anti-monopoly regime is only in the initial step. On6June2012, the amended Notification Form for Concentrations of BusinessOperators issued by the Anti-monopoly Bureau of MOFCOM made it clear that JVparties shall disclose whether there are non-compete clauses between the parties orbetween the parties and the venture when making a notification to MOFCOM.However, a systematic regime on the regulation of non-compete clauses has not beenformulated in China. This paper is organized on such basis.This paper consists of four parts (as four sections) excepting the introduction andconclusion parts. Section I identified several issues in relation to non-compete clauses, including the definition of JV and JV establishment in perspective of anti-monopolylaw which directly effects the clarification of the nature of non-compete clauses, theexplanation of the purposes, nature and categories of non-compete clauses and theanalysis of its influences on market competition. It should be noted that discussing theabove issues is a basis for the further analysis of relevant regimes.Section II combed the history of non-compete clauses regulation in jurisdictionslike USA and EU that have relatively mature regimes in the method of historicalanalysis. The author then induced in this Section that there were two main theoreticaldebates in the development progress of non-compete clauses regulation: One is whichprincipal, per se illegal or rule of reason, shall be adopted when conductingcompetition assessment to non-compete clauses in JV contracts; another is whethersuch non-compete clauses are ancillary to the JV establishment, and to a further extent,shall such clauses being regulated under the merger control regime or under themonopolistic agreements regulation regime. Different understanding of the aforesaidissues directly affects the formulation of current regimes in jurisdictions like USA andEU.On the basis of Section II, Section III mainly discussed concrete principals andmeasures adopted by anti-monopoly law jurisdictions like USA and EU to regulatenon-compete clauses in the method of comparative analysis. On the ground ofcombing the current regulation frameworks in these jurisdictions, the author inducedthat the ancillary restraint doctrine is the essential standard for clarifying when andhow to apply the per se illegal or rule of reason, and when to adopt the regulationmode as of merger control or monopolistic agreements control regime. This Sectionfurther introduced that standards of term, relevant parties, geographic and productscope are the standards for comprehensively assessing the effect of non-competeclauses to competition.And on the basis of Section II and III, Section IV indicated the necessity ofestablishing and promoting the anti-monopoly regime on the regulation ofnon-compete clauses in JV contracts in China. To be specific, a dual-regulationregime on non-compete clauses shall be established in China, and step-by-steplegislation and law enforcement approaches shall be adopted for the realization ofsuch dual-regulation regime.