Irish Competition Authority Decisions

1. Notification was made by Irish Distillers Group plc (IDG) on 30 September 1992 with a request for certificates under Section 4(4) of the Competition Act, 1991 or in the event of a refusal by the Competition Authority to issue certificates, a request for licences under Section 4(2) in respect of 6 trade mark/design usership agreements between companies within the IDG group and 4 other parties.

2. The notification concerns trade mark/design usership agreements, whereby companies within the IDG Group, the owners of the trade marks and designs relating to their whiskey brands, have granted non-exclusive licences to a number of companies to use the trade marks or designs in connection with the manufacture and marketing of other products within the State.

3. Irish Distillers Group plc is a wholly owned subsidiary of Groupe Pernod SA and is comprised of companies engaged in the distilling of whiskey and other spirits and in the distribution of spirits, wines and other beverages. Other businesses include grocery wholesale. IDG's annual turnover in 1992 was £302m, of which turnover within the State was £200m. Its wholly owned subsidiary Irish Distillers Ltd (IDL), which is party to 5 of the Usership agreements, is engaged in the distilling, blending and distribution of whiskey including its main brands, Jameson, Powers and Paddy and at the time the agreements were made, Tullamore Dew. Another IDG subsidiary, Old Bushmills Distillery Co. Ltd (OBD), Bushmills, Co. Antrim which distils the Bushmills and Black Bush brands of whiskey in Northern Ireland and markets them within the State, is party to the other usership agreement.

4. The user parties to each of the 6 notified agreements are as follows:

(i) Celtic Glass Ltd, Stillorgan, Co Dublin which is engaged in the design, production and sale of glassware products. Three of the six notified agreements are between IDL/OBD and Celtic Glass Ltd.

(ii) Lough Derg Handcrafts Ltd, Sandymount, Dublin which is engaged in the production and sale of wooden finish polyester resin models.

(iii) LLEDO plc, Middlesex, England which is engaged in the design, production and sale of miniature models of vintage motor vehicles.

(iv) Tobler Suchard Ltd, Bedfordshire, England which is engaged in the manufacture, production and sale of chocolate products, including liqueur chocolates.

5. The Usership Agreement made on 19 August 1991 provides for the grant of a non-exclusive licence by IDL, the owner, to Celtic Glass Ltd, the user, to use certain trademarks and designs relating to the Jameson, Powers, Paddy and Crested Ten brands in connection with the manufacture in Ireland and sale within Ireland, UK, Germany, France, Italy and USA (The Territory) of glassware products viz. tumblers, tankards etc (the Products). The main provisions of the agreement are as follows:-

(a) Under Clause 1 the user recognises that all right, title and interest in and the exclusive right to use the Designs and Trade Marks is vested in IDL and under clause 2 the user agrees "not to challenge the validity of, or IDL's ownership of the Designs, Trade Mark or any copyright in the representation thereof."

(b) Under clause 3 the user agrees "It shall not claim or acquire the ownership of, a licence to, or any right itself to licence the Designs, Trade Marks or any brand name, trade mark, trade name, patent, emblem, design, copyright, device, label, model or other industrial or intellectual property right of IDL, or any company related to it ....."

(c) Under clause 4 IDL grants to User a non-exclusive licence to reproduce and use the Designs for the sole purpose of the manufacture of the Products in Ireland and sale of the Products in the Territory, under the supervision and control of IDL and in a manner and form which shall be approved in writing by IDL and such a grant of licence shall be subject to the conditions that:-

(i) the Products shall conform to such standard of quality, design, workmanship and materials (hereinafter called the "Standard of Quality") as IDL may from time to time prescribe .....

(ii) the Designs will include in the main line of vision ..... an acknowledgement that ownership of the copyright is vested in IDL, such acknowledgement to be in the following form ...."

(d) Clause 10 provides that "In the event that any Products shall at any time fail to meet the Standard of Quality, User shall immediately withdraw same from distribution and sale ...... In the event that IDL determines that the Products or any part thereof fails to meet the Standard of Quality it may terminate this agreement by written notice to user and User shall cease any use of and to use the Designs within 30 days of such notice.

(e) Under clause 13 the agreement ".... shall continue in full force and effect until terminated by either party by three months' notice in writing to the other, with or without cause."

(f) Clause 15 provides that IDL shall have the right to terminate the Agreement forthwith by giving written notice to the user if the user commits a material breach of the agreement, or if there is a change in control of user or if user enters into liquidation, receivership etc.

(g) Clause 5 provides for certain purchases of the Products each year by IDL in such quantities as may be mutually agreed and also provides for payment of royalties by Celtic Glass to IDL.

6. The Usership Agreement dated 23 July 1992 involved the grant of a non exclusive licence to Celtic Glass to reproduce and use the designs relating to the "Tullamore Dew" brand for the sole purpose of the manufacture of its glassware products in Ireland and sale in the Territory. The agreement is in similar terms to that dated 19 August 1991 at para. 5 above.

7. The Usership Agreement made on 26 August 1991 between The Old Bushmills Distillery Company Ltd, Bushmills, Co Antrim and Celtic Glass and involves the grant of a non exclusive licence to Celtic Glass and to use the trade marks and designs relating to the Black Bush and Bushmills Brands in the production and sale of glassware. The agreement is in similar terms to that dated 19 August 1991 at para. 5 above.

8. The Usership Agreement notified was made on 21 April 1986 and provides for the grant of a non-exclusive licence by IDL, the owner, to Lough Derg Handcrafts Ltd, to reproduce a particular IDL Design/Concept involving a model of a cooper using a hammer and a drive to position hoops around a cask. The original model is situated in the Irish Whiskey Corner, Bow Street, Dublin. Under the agreement Lough Derg Handcrafts are also allowed to use the "Jameson" Trade Mark in association with the models it produces for sale including models other than the IDL designed cooper. The agreement is in similar terms to that between IDL and Celtic Glass except that there are no provisions for the purchase of the product by IDL and no royalties are payable.

9. The Usership Agreement notified was made on 30 December 1991 and provides for the grant of a non-exclusive licence by IDL, the owner, to Lledo plc, the user, to use certain IDL Designs associated with "Jameson" Whiskey in the production of miniature model reproductions of the Model "T" Ford Van which it produces for sale. In addition the Agreement also allows LLEDO to use the Design in connection with the manufacture of that model van in England and in connection with the sale of the model van on a worldwide basis. The agreement is in similar terms to that between IDL and Celtic Glass at para. 5 above except that there are no provisions for the purchase of the product by IDL nor are royalties payable.

10. The Usership Agreement notified is dated 1 October 1987 and provides for the grant of a non-exclusive licence by IDL, the owner, to Tobler Suchard, the user, to use the "Jameson" Trade Marks to identify and promote the Goods (liqueur chocolates) that the user will manufacture and/or sell in the Territory (the UK, Channel Islands and the State). The agreement is in similar terms to the other agreements above except that 12 months notice in writing is required to enable either party to terminate it voluntarily and there is no provision for royalty payments.

11. The property that is the subject of the Usership Agreement is the property right attaching to IDL's or OBD's trade marks or designs. These are the only products being "handed over" under the agreements by the owners to another person to use.

12. Under the usership agreement a non exclusive licence to use designs/trade marks has been granted to 4 users. The users are not engaged in the marketing of Irish whiskey but in totally separate products of which only one, liqueur chocolates, may contain whiskey as an ingredient. The users are not therefore in competition with IDL or OBD or with one another. The usership agreements relate to the use of IDL/OBD designs and trade marks in the manufacture and marketing of glasses, models or liqueur chocolates. By the use of the designs and trademarks the users seek to enhance the marketability and range of their own products through familiar whiskey brand names but the markets in which they operate are the separate markets for glasses, model figures/cars and chocolates. In essence therefore the Authority considers that, while the licensing of IDL/OBD designs or trade marks are the subject of the agreements, the relevant markets, where competition issues might arise, are the separate markets for the particular products manufactured by the users. Since the Competition Act 1991 only relates to competition within the State or part of the State, the Authority is therefore only concerned with the market for these products within the State.

13. Irish Distillers Group plc maintain that the 6 notified agreements do not have as their object or effect the prevention, restriction or distortion of competition in the State or in any part of the State for the following reasons:-

(a) the agreements are not with competing manufacturers and the parties involved are not connected in any respect.

(b) the agreements relate solely to the use of IDL/OBD property and do not restrict the users involved from normal commercial conduct or activity other than in the use of IDL/OBD property.

(c) the users derive economic benefits from identifying their products with the high quality standards associated by consumers with the IDL/OBD brand names and images. The requirement in the agreements to indicate that the Trade Marks/Designs are used under licence further reinforces this association in the minds of consumers.

(d) the association of the products of small producers such as the users involved in the notifications with international brand names such as IDL/OBD products, enables the users to build up market share more quickly and to compete more effectively in the market place than might otherwise be the case without the association.

(e) there is no direct economic advantage to IDL accruing from the notified agreements (with the exception of the 3 agreements with Celtic Glass where IDL/OBD derive royalties)

(f) the use of IDL/OBD brand names on the products of the users is complimentary to the product's image and secures its attractiveness to consumers.

(g) the notified agreements are indispensable if the users involved wish to associate their particular products with IDL/OBD trade marks and designs.

14. Very few cases involving trade mark licences have been the subject of an EU Commission decision and the decisions recorded related to cases which also involved the manufacture and sale by the licensees of products similar to those produced by the original owners of the trade marks. Restrictions in the Campari [1] licencing agreement which were found not to come within the prohibition of Article 85(1) included requirements relating to the suitability of plant, the quality of the product and the purchase of certain secret raw materials for incorporation in the final product. In the Moosehead/Whitbread [2] decision, which related to an exclusive licence to Whitbread to produce and market Moosehead beer within the UK, the EU Commission decided that certain obligations on the licensee to maintain certain qualitative standards and the trade mark no challenge clause did not fall within Article 85(1). The aspects of these Agreements deemed by the Commission to fall within Article 85(1) - but capable of exemption under Article 85(3) - were the exclusivity of the trade mark licence and the prohibition on the licensee both in relation to active sales outside the UK and on the production and marketing of other Canadian beers.

15. Section 4(1) of the Competition Act, 1991 prohibits and renders void 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.

16. 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." Irish Distillers Group and its subsidiaries, Irish Distillers Ltd and Old Bushmills Distillery Ltd, and the four user companies, Celtic Glass Ltd, Lough Derg Handcrafts Ltd, Lledo plc and Tobler Suchard are all engaged for gain in the production, supply and distribution of goods and are therefore undertakings. The notified agreements are agreements between undertakings. The agreements have effect within the State.

17. Designs and trade marks are property rights which are normally used by the owner for ready market recognition, as a guarantee of quality and for publicity/advertising purposes in relation to the marketing of the product. The design/trade mark is often synonymous with the product itself and can represent a very considerable investment by its promoter in the development of the brand image and of its recognition and acceptance by the general consumer public. In the case of many branded consumer products, including beverages such as whiskey, the promotion of the brand name can be one of the main marketing tools in the promotion of the product. In effect a trade mark, particularly one related to a widely sold consumer product, can represent a very valuable asset with the rights to it strongly preserved by its owner.

18. The owner of a trade mark is normally under no obligation to permit its use by another trader. He may allow its use by another trader whether by way of a patent licensing agreement which would involve the production of a product similar or identical to his branded product or by way of a usership agreement to a manufacturer of a product which need not bear a particular relationship to the branded product. The latter situation applies to the usership agreements in this instance. The usership agreements state that IDL's (or OBD's) primary benefit from the users' use of the designs or trade marks will be an indirect benefit from the advertisement of IDL's products and that it is of the utmost importance to IDL that the quality image of its products be protected.

19. The Trade Mark/Design usership agreement between Irish Distillers Ltd or Old Bushmills Distillery Ltd and the 4 users are not exclusive licences nor do they contain any prohibition on the production or marketing by the licensees of other products similar to those covered by the licences. The obligations on the licensees from the usership agreements only apply to the products of the licensees which carry the IDL/OBD trade marks. Since the basic products involved i.e. glasses, models or liqueur chocolates are basically non whiskey products, the licensee is free to produce and market them without any licence restrictions as long as it does not carry or is not marketed under the IDL/OBD trade marks or designs.

20. Clause 2 in 5 of the notified agreements (excepting the agreement with Tobler Suchard) requires the Trade Mark user not to challenge the validity of IDL/OBD's ownership of the Trade Mark/Design or the copyright in any representation thereof. The notifying party has explained that IDL/OBD are the exclusive owners of the Trade Marks/Designs set out in the relevant Usership Agreements and that expenditure is incurred in promoting the quality and image associated with its products. In this regard IDG has a policy which is aimed at protecting its Trade Marks and it does not permit the use of its Trade Marks or Designs without written agreement. In entering into such Trade Mark Usership Agreements the users are required to conform with certain criteria and also to preserve the integrity of the relevant Trade Mark. IDL/OBD, in entering into such Trademark Usership Agreement provides an opportunity for the user to derive economic benefit from the use of the relevant Mark in association with a particular product. In consideration of IDL entering into such arrangements IDL/OBD requires its Marks to be protected and the validity to be preserved. In this respect IDL/OBD requires the relevant user to acknowledge its ownership of the relevant Mark and not to undermine or challenge the Mark.

21. In relation to a trade mark non-challenge clause the EU Commission in the Moosehead/Whitbread case stated

"A clause in an exclusive trademark licence agreement obliging the licensee not to challenge the ownership of a trademark .......does not constitute a restriction on competition within the meaning of Article 85(1). Whether or not the licensor or licensee has the ownership of the trademark, the use of it by any other party is prevented in any event, and competition would thus not be affected.

- The validity of a trademark may be contested on any ground under national law, and in particular, on the grounds that it is generic or descriptive in nature. In such an event, should the challenge be upheld, the trade mark may fall (in) the public domain and may thereafter be used without restriction by the licensee and any other party.

Such a (non-challenge) clause may constitute a restriction of competition within the meaning of Article 85(1), because it may contribute to the maintenance of a trademark that would be an unjustified barrier to entry into a given market.

Moreover in order for any restriction to fall under Article 85(1) it must be appreciable. The ownership of a trademark only gives the holder the exclusive right to sell products under that name. Other parties are free to sell the product in question under a different trademark or treatment. Only where the use of a well-known trademark would be an important advantage to any company entering or competing in any given market and the absence of which therefore constitutes a significant barrier to entry, would this clause which impedes the licensee to challenge the validity of the trademark, constitute an appreciable restriction of competition within the meaning of Article 85(1)."

22. As indicated in paragraph 12 the relevant markets affected by the usership agreement are those for the particular products of the licensees, i.e. glasses, model figures and cars and liqueur chocolates. All these products are being freely marketed without IDL/OBD designs and brand names and the Authority therefore takes the view that the IDL/OBD designs or trade marks could not provide any significant barrier to entry to those markets. In these circumstances the Authority does not consider the "no challenge" clauses in the agreements as offending against Section 4(1) of the Competition Act.

23. Each of the usership agreements also provide, that in the event that IDL (or OBD) determines that the product fails to meet a particular standard of quality it may terminate the agreement by written notice to the user and that the user shall cease its use of the designs or trade marks within 30 days of such notice. In view of the importance to IDL/OBD of the quality image of their products associated with the promotion of their trade marks at very considerable cost to IDL/OBD the Authority could accept that IDL/OBD are entitled to protect the value of their trade marks by measures to ensure that they are not associated with an inferior product. The Authority does not regard the withdrawal of a licence in such circumstances as offending against Section 4(1).

24. In the Authority's opinion, Irish Distillers Group plc, Irish Distillers Ltd and Old Bushmills Distillery Co Ltd and the users, Celtic Glass Ltd, Lough Derg Handcrafts Ltd, Lledo plc and Tobler Suchard Ltd are undertakings and the notified usership agreements between these parties are agreements between undertakings.

25. The Authority considers that the notified agreements do not have the object or effect of preventing, restricting or distorting competition in trade in any goods or services in the State or any part of the State. The Authority therefore considers that the notified agreements between Irish Distillers Ltd and Celtic Glass Ltd, Lough Derg Handcrafts Ltd, Lledo plc and Tobler Suchard, and between Old Bushmills Distillery Co Ltd and Celtic Glass Ltd do not offend against Section 4(1) of the Competition Act, 1991.

26. 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 agreements set out below in relation to design/trade mark usership notified under section 7 on 30 September 1992 do not offend against section 4(1) of the Competition Act 1991:

(i) CA/972/92E - Irish Distillers Ltd/Celtic Glass Ltd

(ii) CA/973/92E - Irish Distillers Ltd/Celtic Glass Ltd

(iii) CA/974/92E - Old Bushmills Distillery Ltd/Celtic Glass Ltd

(iv) CA/979/92E - Irish Distillers Ltd/Lough Derg Handcrafts Ltd

(v) CA/981/92E - Irish Distillers Ltd/Lledo plc

(vi) CA/978/92E - Irish Distillers Ltd/Tobler Suchard Ltd

For the Competition Authority

Des Wall

Member

7 February 1994