Referral agreements are contractual arrangements between two companies, where one company agrees to refer customers to the other company, in exchange for a commission or other form of compensation. While referral agreements can be effective marketing tools, they can also raise concerns under competition law.
Competition law is a set of laws and regulations that aim to promote competition in the marketplace and prevent anticompetitive practices. Referral agreements can be considered anticompetitive under competition law if they lead to price fixing, market allocation, or other arrangements that limit competition.
The most common concern with referral agreements is that they can create a monopoly or cartel, where the two companies agree to divide the market and limit competition. For example, if one company agrees to refer all of its customers to the other company, it could effectively exclude all other competitors from the market.
To avoid running afoul of competition law, companies should ensure that their referral agreements are transparent and do not contain any anticompetitive provisions. Specifically, companies should avoid the following practices:
1. Exclusive referrals: Referral agreements should not require one company to exclusively refer customers to the other company. This could exclude other competitors from the market and limit consumer choice.
2. Fixing prices: Referral agreements should not set prices or otherwise control pricing decisions. This could lead to price fixing, which is a violation of competition law.
3. Geographic market allocation: Referral agreements should not divide the market by geography. This could lead to geographic market allocation, which is also a violation of competition law.
4. Tying arrangements: Referral agreements should not require customers to purchase additional products or services from the referred company. This could lead to tying arrangements, where customers are compelled to purchase a package of products or services that they may not want or need.
Companies should also ensure that they do not engage in any other anticompetitive conduct outside of their referral agreements. For example, if the two companies agree to share confidential information or engage in price fixing outside of the referral agreement, this could also violate competition law.
In conclusion, referral agreements can be an effective marketing tool, but companies should take care to ensure that they comply with competition law. Companies should avoid exclusive referrals, price fixing, geographic market allocation, tying arrangements, and any other anticompetitive conduct. By doing so, companies can reap the benefits of referral agreements without running afoul of the law.