On 3 March 2015, the FCO issued a decision against the operator of the factory outlet centre Wertheim Village, VR Franconia GmbH. The operator of the outlet centre included a non-compete radius clause in its lease agreements, prohibiting most of the 100 tenants (branded goods manufacturers) from opening shops in other factory outlet centres or in individual outlets within a radius of 150 km of Wertheim. The FCO found that this clause mostly affected a fashion outlet centre located 147 km away from Wertheim, making it difficult to find tenants.
In its decision, the FCO confirmed its preliminary view (its 2013 Annual Report) that radius clauses generally violate competition law, with the clause in issue restricting competition between existing factory outlet centres and foreclosing new entry. The FCO’s market investigation revealed that most of the Wertheim’s factory outlet’s customers either live within 100 km of Wertheim centre or shop there when passing through. As a result, the 150 km radius went beyond the relevant geographic market, and was neither proportionate nor necessary to implement the leases. The FCO restricted the scope of the radius clauses to 50 km and shortened the duration to five years.
The FCO’s approach is similar to the approach of the Austrian Supreme Cartel Court in 2011. The court held that radius clauses could restrict competition as they could be viewed as exclusive sourcing obligations. However, in that case (the Europark shopping centre imposed on its tenants a 50 km radius clause), the Supreme Court found that the radius clause did not foreclose the market, given that:
- the effects of the clauses were limited, since some retailers had not agreed to them;
- the restriction was limited by the duration of the leases;
- competition for new tenants was not affected by the existing clauses; and
- Europark’s market share was only 15.5%.
The FCO’s decision and the Austrian judgment suggest that radius clauses in leases that do not exceed 50 km in scope or a 5-year term do not generally raise competition concerns. More extensive clauses require additional justification, and would have to be proportionate.