Irish Competition Authority Decisions

1. An agreement between Reflex Investments plc (Reflex) and Paul Murphy, Thomas Moynagh, Arthur Fitzpatrick and Alphonsus Waters, (the vendors) for the purchase and sale of the entire issued share capital of Parity Maintenance 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 vendors whereby the vendors 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 vendors were the joint beneficial owners of Parity.

4. The notification relates to an agreement, dated 23 January 1989, for the sale by the vendors of the entire share capital of Parity to Reflex. As part of the agreement, the vendors 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. However, the duration of the post-employment restrictions could be reduced in a number of circumstances. These differed in the case of each of the individual vendors. This clause also prevented the vendors from soliciting staff or customers of Parity for the same period.

5. Following discussions with the Authority, the notifying parties indicated their intention to amend the non-compete clause to delete the section preventing the vendors from competing with Reflex following cessation of employment. In a letter dated 6 October 1993 Reflex indicated that they would write to the vendors informing them of its intention 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 vendors 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 arrangement therefore constitutes 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 restriction on the vendors competing with the business for a maximum of two years after cessation of employment offended against section 4(1) and did not satisfy the requirements for a licence. As Reflex have indicated their intention to waive this restriction, the agreement no longer offends against section 4(1).

9. In the Authority's opinion, Reflex and the vendors 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 vendors for the purchase and sale of the entire issued share capital of Parity, as amended by the undertaking given by Reflex in its 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 Murphy, Thomas Moynagh, Arthur Fitzpatrick and Alphonsus Waters, (the vendors) for the purchase and sale of the entire issued share capital of Parity Maintenance Limited (CA/747/92E), notified to the Competition Authority on 30 September 1992 under Section 7, and amended by the undertaking given in the 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