In practice it is common to see contracts that contain clauses establishing certain restrictions on the contracting parties. Such restrictions may be in the form of obligations not to compete with the counterparty, known as "non-compete clauses".

Such clauses may be contained in the following types of contracts:

  1. Agreements on joint activities, joint ventures (for example, the parties refuse to compete with each other and/or with a joint venture in certain product markets in relation to specific goods (services) or within certain geographical boundaries, etc.);
  2. Agreements concluded in the framework of M&A transactions (for example, the seller is obliged to refrain from subsequent competition with the target and with the acquirer in the market in which the target operates);
  3. Distribution agreements (for example, the distributor undertakes, during a certain period of time, not to enter into agreements with any other parties on the sale of similar or interchangeable goods (services) within a certain territory that directly or indirectly compete with the goods (services) of the manufacturer (supplier) - counterparty).

Despite the commercial rationale behind such agreements, implementation of such clauses is not risk free.

In particular, in accordance with the legislation of Kazakhstan, agreements containing "non-compete clauses" may be considered as:

  • anti-competitive agreements (if, for example, such clauses are contained in vertical agreements,  i.e. agreements between non-competing market entities, one of which acquires the goods and the other provides the goods or is a potential seller thereof);
  • cartel agreements (if such clauses are contained in horizontal agreements,  i.e. agreements between competing companies);
  • violation of the freedom of entrepreneurial activity (based on the general principle stipulated in the legislation of Kazakhstan according to which market entities have the right to conduct entrepreneurial activity without any restrictions).

According to the official statistics of the antimonopoly authority, for the second year in a row the above types of violations are the most frequent and under their scrutiny.

Notwithstanding the above, the legislation of Kazakhstan provides for certain cases when such restrictions may be acceptable, as a result of which the corresponding risks may be reduced or eliminated. Certain restrictions may be permissible, for example, depending on the share of the market entities in relevant product markets, the types of agreements, in cases of transfer of rights to the results of intellectual property and equivalent means of individualization.

In this regard, it is very important to carry out a comprehensive legal analysis of the circumstances of the case and relevant agreements, as well as to understand the issues of correct application of exceptions in each particular case, since some exceptions may not always be applicable.

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