Bundeskartellamt prohibits non-compete clauses imposed on tenants in factory outlet center

The Bundeskartellamt has prohibited the operator of Wertheim Village Factory Outlet Center, VR Franconia GmbH, from using so-called radius clauses in its lease contracts with brand product manufacturers if these extend beyond a 50 km air radius and a term of five years. Up to now Franconia has forbidden most of the 100 brand product manufacturers in its factory outlet center in Wertheim from opening up shops in another factory outlet center or individual outlets within a radius of 150 kilometres of Wertheim.

Andreas Mundt: "Restrictive radius clauses of this scale not only restrict competition between existing factory outlet centers. They significantly hinder companies wishing to enter the market with a new factory outlet center."

According to the Bundeskartellamt's investigations most of the customers who shop at the Wertheim factory outlet center live within a 100 km radius of the center or use this shopping facility when passing through the area. With a 150 km air radius the non-compete clause agreed in the lease agreements between Franconia and the brand product manufacturers extends beyond the relevant geographic market. The operators of a fashion outlet center 147 kilometres away from Wertheim have met with considerable problems in acquiring tenants because of this clause.

In the Bundeskartellamt's view the non-compete clause as applied so far is neither functionally necessary for implementing the lease contracts nor proportionate to achieving the purpose of the contracts as claimed by Franconia. Its chief aim, rather, is to restrict competition between Wertheim Factory Outlet Center and its current and potential competitors by curtailing the freedom of action of its tenants.

Factory outlet centers are sales outlets in which manufacurers offer their branded goods at a reduced price. They are centrally planned, realised and administrated by one operator and usually consist of several thousand square metres of sales floor space with 40 to 100 shops. The main range of products offered includes textiles, sports articles and shoes. Currently there are nine large factory outlet centers in Germany.

The decision is not yet final but immediately enforceable. Franconia can appeal the decision to the Düsseldorf Higher Regional Court and apply for suspension of the immediate enforceability of the decision.