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Plain agreements among competitors to divide sales territories or assign customers are almost always illegal. Similarly, plain agreement among competing employers to not solicit or hire each other’s employees are an unlawful allocation of employees in a labor market. These arrangements are essentially agreements not to compete: "I won't sell in your market if you don't sell in mine," or “I won’t poach your employees if you don’t poach mine.” Individuals and companies that knowingly enter unlawful market-allocation agreements are routinely investigated by the FBI and other federal law enforcement agencies and can be criminally prosecuted. Potential penalties include lengthy terms of imprisonment (up to ten years) and large fines (up to $1 million for individuals, $100 million for companies, or twice the gain or loss from the offense). Where appropriate, the FTC may also bring a civil enforcement action. 

The FTC uncovered such an agreement when two chemical companies agreed that one would not sell in North America if the other would not sell in Japan. Illegal market sharing may involve allocating a specific percentage of available business to each producer, dividing sales territories on a geographic basis, assigning certain customers to each seller, or agreeing not to solicit one another’s customers or employees.

Q: I want to sell my business, and the buyer insists that I sign a non-compete clause? Isn't this illegal?

A: A limited non-compete clause is a common feature of deals in which a business is sold, and courts have generally permitted such agreements when they were ancillary to the main transaction, reasonably necessary to protect the value of the assets being sold, and appropriately limited in time and area covered. There are other situations, however, in which non-compete clauses may be anticompetitive. For instance, the FTC stopped the operator of dialysis clinics from buying five clinics and paying its competitor to close three more. The purchase agreement also contained a non-compete clause that prevented the seller from opening a new clinic in the same local area for five years, and required the seller to enforce non-compete clauses in its contracts with the medical directors of the closed facilities. In this situation, the non-compete clause prevented those doctors from serving as medical directors for any new clinic in the area and reduced the chance that a new clinic would open for five years. The FTC concluded that the agreement to close the clinics, reinforced by the agreement not to compete for five years, was an illegal agreement to eliminate competition between rivals.