Non-Compete Clauses in Dutch Distribution Agreements: Where Is the Limit?

When drafting and negotiating distribution agreements under Dutch law, a non-compete clause (or exclusivity clause) is a commonly used element. Suppliers often wish to restrict their distributors’ ability to sell competing products, both during the term of the agreement and for a certain period thereafter. But how far can you go? And when does such an arrangement become legally untenable?

Contractual Validity: What Can You Agree Upon?

In Dutch civil law, the principle of freedom of contract applies: parties are, in principle, free to agree on whatever they wish. A non-compete clause in a distribution agreement is therefore generally valid. This also applies if the non-compete clause has a longer duration (for example, a distribution agreement with a term of five years or more) and continues after the termination of the distribution agreement.

However, there are limits to this contractual freedom. Under Dutch law, a non-compete clause may not go further than necessary to protect the legitimate interests of the supplier. If the clause is too broadly formulated or too long in duration, a Dutch court may moderate or even set it aside based on the principle of reasonableness and fairness, even if the distributor initially agreed to it. To determine this, a balancing of interests is necessary: the protection of know-how, goodwill, and investments is usually accepted in practice, but generic (often extensive) restrictions on competition are not. It is therefore important that parties not only consider the contractual wording of the non-compete clause but also clearly record the necessity for such a clause.

When Is a Non-Compete Clause Contrary to Dutch Competition Law?

In addition to civil law limits, a non-compete clause may also conflict with Dutch and EU competition law. The cartel prohibition, as set out in Article 6 of the Dutch Competition Act and Article 101 of the Treaty on the Functioning of the European Union, prohibits agreements between undertakings that restrict competition. By their nature, non-compete clauses restrict competition.

For competition-restricting agreements, exceptions are provided at the European level in Regulation (EU) 2022/720. Certain agreements – including a non-compete clause in a distribution agreement – may fall within these exemptions. The rationale is that the economic benefit of cooperation may sometimes outweigh the restriction of competition.

A non-compete clause can therefore also be permitted under competition law, but strict conditions apply. For example, the market share of both the supplier and the distributor must not exceed 30%. The clause may also not be agreed for an indefinite period; in principle, a maximum duration of five years applies.

A post-contractual non-compete clause (i.e., after termination of the distribution agreement) is only permitted if (i) the duration is limited to a maximum of one year, (ii) the clause only covers the product range and geographic area in which the distributor was active, and (iii) the clause is necessary to protect the supplier’s know-how.

In practice, distribution agreements are often tacitly renewed, including the non-compete clause. This is allowed, provided that after five years the distributor actually has the opportunity to terminate the agreement or renegotiate. There must be no contractual or factual pressure that prevents the distributor from exercising this freedom of choice.

It is therefore important that a distributor, at least every five years, can freely choose: to continue with the current supplier or switch to another. Tacit renewals that make this choice practically impossible may still violate the cartel prohibition.

Practical Tensions and Recent Dutch Case Law

In practice, this creates a tension: a non-compete clause with a term of more than five years may be valid between the parties under Dutch civil law, but void under competition law, which the distributor can invoke if the supplier seeks enforcement. In such cases, the Dutch court must assess whether the clause stands, applying both civil and competition law standards. This requires careful analysis of market shares, the effect on competition, and proportionality.

The European Court of Justice has repeatedly (including in Booking.com) emphasized that restrictions on competition are not per se prohibited. As long as a restriction is objectively necessary, proportionate, and market-neutral, it may be permissible under certain circumstances.

Dutch case law confirms this. Non-compete clauses (or exclusivity clauses) are not automatically considered contrary to the cartel prohibition. For example, in a case between a wholesaler and Hanos, the wholesaler argued that the exclusive purchasing obligation violated the cartel prohibition. However, the Arnhem-Leeuwarden Court of Appeals ruled that the clause was not intended to restrict competition and that insufficient evidence was provided to conclude that the clause had competition-restricting effects. Similar judgments have been rendered regarding long-term non-compete clauses in practice agreements and in the case between a café operator and Grolsch. Here too, the court held that there is room for reasonable contractual restrictions, provided they are proportionate and functionally justified.

Conclusion: Ensure Tailor-Made Solutions and Legal Balance

Non-compete clauses in distribution agreements are, in practice, a useful and widely used tool to protect commercial interests. At the same time, this subject requires sharp legal assessment. A clause may be perfectly tenable under civil law, but on shaky ground under competition law.

It is therefore important that parties not only consider the contractual wording but also the permissibility under Dutch and EU competition law. Take into account, among other things, the duration of the clause, the market share of the parties, the possibility of termination, and the practical freedom for the distributor to choose. Especially with long-term agreements, tacit renewals, and post-contractual clauses, it pays to critically assess these aspects and avoid the risk of nullity, loss of penalties, or enforcement problems.

More information?

Please contact Van Till at info@vantill.nl