Irish Competition Authority Decisions

1. An agreement between Reflex Investments plc (Reflex) and Paul and Ruth Murphy (the Murphys) for the purchase and sale of the entire issued share capital of Parity Modules Limited (Parity) containing a non-compete clause, was notified to the Competition Authority on 30 September 1992. The notification requested a certificate or, in the event of a certificate being refused, a licence.

2. The notification relates to an agreement dated 27 January 1989 between Reflex and the Murphys whereby the Murphys agreed to sell the entire issued share capital of Parity. The agreement also contained certain non-compete provisions.

3. Reflex is a limited company registered in the State. Parity is also a limited company incorporated in the State. Both companies are engaged in the sale and lease of computer systems and the provision of related technical advice. At the time of the agreement, the Murphys were the joint beneficial owners of Parity.

4. The notification relates to an agreement, dated 23 January 1989, for the sale by the Murphys of the entire share capital of Parity to Reflex. As part of the agreement, the Murphys became employees of Reflex and entered into employment contracts. Clause 4.03(a) of the agreement prevented the vendors from competing in the same business as that sold for a period of two years from the date of completion of the agreement or the date of termination of employment, whichever was the later. This clause also prevents the Murphys from soliciting staff of Parity for the same period.

(d) Subsequent Developments

5. Following discussions with the Authority, the notifying parties indicated their intention to amend the non-compete clause to delete the section preventing the Murphys from competing with Reflex following cessation of employment. In a letter dated 6 October 1993 Reflex informed the Authority that it would write to the Murphys informing them that of its decision to waive this restriction.

5. Section 4(1) of the Competition Act states that 'all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void'.

6. Section 3(1) of the Competition Act defines an undertaking as ´a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' Reflex is a corporate body engaged for gain and is, therefore, an undertaking. At the time of the agreement, the Murphys were joint beneficial owners of Parity, itself a corporate body engaged for gain, and were, therefore, also undertakings within the meaning of the Act. The arrangements therefore constitute an agreement between undertakings.

7. As the sale of business was completed prior to 1 October, 1991, the date on which the Competition Act came into force, this element of the agreement had been discharged by performance before the Act commenced. The property which was the subject of the agreement had been transferred. In the Authority's view, the prohibition in Section 4(1) only applies to a current or continuing contractual commitment or one entered into subsequent to the coming into force of the Act [1]. As the merger or sale element of the 1991 transaction was discharged prior to the commencement of the Act, that aspect of the arrangements does not come within the scope of Section 4(1).

8. The agreement contained a two-year non-compete clause from the date of completion which has now expired. In the Authority's opinion, this did not have the object or effect of preventing, restricting or distorting competition. The agreement also prevented the Murphys from competing with the business for two years from the date of cessation of employment. In the Authority's opinion such a provision would offend against section 4(1) and would not satisfy the requirements for a licence. As Reflex have stated that they will waive this provision, the agreement no longer offends against section 4(1).

9. In the Authority's opinion, Reflex and the Murphys are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition of Parity constitute an agreement between undertakings. In the Authority's opinion, the arrangements do not have, as their object or effect, the prevention, restriction or distortion of competition. The agreement of 27 January 1989 between Reflex and the Murphys for the purchase and sale of the entire issued share capital of Parity, as amended by the undertaking given by Reflex in their letter of 6 October 1993, does not, in the Authority's opinion, offend against Section 4(1) of the Competition Act, 1991.

11. The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement between Reflex Investments plc and Paul and Ruth Murphy for the purchase and sale of the entire issued share capital of Parity Modules Limited (CA/746/92E), notified to the Competition Authority on 30 September 1992 under Section 7, and amended by the undertaking given by Reflex in their letter of 6 October 1993, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

20 October 1993