Irish Competition Authority Decisions

1. Notifications were made with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2), by Energy Control Systems Ltd on 13 July 1993 in respect of two exclusive distribution agreements it had entered into with Erinova Ltd and Belton Engineering Works Ltd., respectively.

2. These notifications concern agreements whereby two Irish manufacturers of water turbines have each appointed another Irish firm as exclusive distributor of these products for territories outside the State.

3. Energy Control Systems Ltd. (ECS), of Newbridge, Co Kildare, is a six-person operation which has developed an expertise in producing control systems for hydroelectric schemes. Its main business has been in Ireland, where it has several agreements with landowners for the construction of hydroelectric facilities to generate electricity. It has no market share in Ireland in the distribution of water turbines. Erinova Ltd., of Pearse Street, Dublin, is a small engineering company with three employees. It has sold three water turbines in Ireland and none abroad. Belton Engineering Works Ltd. (Belton), of Ardagh, Co Longford, is a small family-run mechanical engineering company with six employees. It has sold about 50 small water turbines in Ireland over the last 15 years and none abroad.

4. The product is a water turbine, which is used for the generation of electricity in small-scale hydroelectric installations. In both agreements, ECS is appointed exclusive distributor for water turbines outside the State, and accordingly no analysis is required concerning the market for water turbines in the State.

5. The agreement between ECS and Erinova is dated 2 June 1993, and that between ECS and Belton is dated 21 January 1993. The two agreements are identical in their terms, except for the territory allocated to the exclusive distributor. The main clauses of the agreements are as follows:

'1. The manufacturer appoints the distributor and the distributor accepts the appointment as the sole and exclusive distributor for ten years from the date of this agreement of all water turbines produced by the manufacturer and any subsidiary, associated company, licensee or agent of the manufacturer ('the products')'.

'2. The distributor may not assign transfer or sublet its rights and responsibilities under this agreement to an exclusive sub-distributor without the written consent of the manufacturer'.

'3. The manufacturer and the distributor will negotiate the pricing and general terms and conditions for the supply of the products by the manufacturer to the distributor on an individual project basis'.

'4. The manufacturer may not appoint another distributor and may not itself supply products to users in the United Kingdom, Australia, New Zealand, Thailand, Indonesia, Malaysia, Philipines, Germany, Austria and Switzerland during the term of this agreement'.

'4. The manufacturer may not appoint another distributor and may not itself supply products to users in the world other than Ireland and Northern Ireland for the term of this agreement'.

6. 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'.

7. ECS, Erinova and Belton are all corporate bodies engaged in the supply and distribution of goods or the provision of services. They are all therefore undertakings within the meaning of Section 3 of the Competition Act, 1991. The agreements are agreements between undertakings.

8. Under the agreements, ECS has been appointed exclusive distributor of water turbines produced by the other parties for territories outside the State, in one case for ten other countries, and in another for the rest of the world excluding Northern Ireland. The object of the agreements is to provide for exclusive distribution outside the State and to regulate the relations between the manufacturers and the exclusive distributor. The agreements do not apply to the State and they do not have the object of affecting competition within the State or in any part of the State. The restrictions in the agreements only have effects in the territories concerned, which are outside the State. The agreements have no effects in the domestic market, and they do not effect competition within the State or in any part of the State. The fact that the manufacturers do not extend exclusive distribution rights in the State to ECS does not affect competition, since ECS has no entitlement to such rights and the manufacturers are free to determine how their products are to be distributed in the State. Since the agreements have neither the object nor the effect of preventing, restricting or distorting competition in the State or in any part of the State, they do not offend against Section 4(1) of the Competition Act, 1991.

9. The Authority has stated in the past that it is not necessary to notify an agreement which clearly does not offend against Section 4(1), since it is not necessary to obtain a certificate in order to implement such an agreement. Indeed it is questionable whether such an agreement can be notified under Section 7 of the Competition Act in the first place, since it is not an agreement 'of a kind described in Section 4(1)', that is an agreement which has as its object or effect the prevention, restriction or distortion of competition in the State. (See Decision No. 11 of 5 November 1992 - B. and D. Firestone/Grenfells Ltd and Thoroughbred Promotion and Development Company). In this case the notifying parties had some concern about whether any restriction on their selling outside the State could effect production, and thus come within the scope of the Competition Act. Agreements whose only effects on competition are in markets outside the State do not come within the scope of the Act, and, in the Authority's opinion, are not capable of being notified under Section 7.

10. ECS, Erinova and Belton are all undertakings and the notified agreements are agreements between undertakings. Since the agreements relate to exclusive distribution by ECS outside the State, they have neither the object nor the effect of preventing, restricting or distorting trade in the State or in any part of the State, and so they do not offend against Section 4(1) of the Competition Act, 1991 and certificates may be issued in respect of the agreements.

11. The Competition Authority has issued the following certificates:

(a) The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the exclusive distribution agreement of 2 June 1993 between Energy

Control Systems Ltd and Erinova Ltd, (notification no. CA/31/93) notified on 13 July, 1993 under Section 7, does not offend against Section 4(1) of the Competition Act,

1991.

For the Competition Authority

Patrick M. Lyons

Chairman.

9 September, 1993

(b) The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the exclusive distribution agreement of 21 January 1993 between

Energy Control Systems Ltd and Belton Engineering Works Ltd, (notification no. CA/32/93) notified on 13 July, 1993 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick M. Lyons

Chairman.

9 September, 1993.