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 4 Trade Mark Usership agreements between Irish Distillers Ltd and 4 other parties.

2. The notification concerns trade mark usership agreements, whereby Irish Distillers Ltd, the owner of the trade marks relating to its whiskey brands, has granted non-exclusive licences to 4 parties to use the trade marks in connection with the manufacture and marketing of certain food products within the State.

3. Irish Distillers Ltd (IDL) is a wholly owned subsidiary of Irish Distillers Group plc (IDG) which in turn is a wholly owned subsidiary of Groupe Pernod SA. IDG 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. IDL is engaged in the distilling, blending and distribution of whiskey including its main brands, Jameson, Powers and Paddy.

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

(i) Mr Peadar O'Lionaird, Macroom, Co Cork who is a producer of preserves and is engaged in the manufacture, promotion and sale of Irish Whiskey Marmalade.

(ii) Mr Phil Thompson, Carrigaline, Co Cork who is also a producer of preserves and like Mr O'Lionaird is engaged in the manufacture, promotion and sale of Irish Whiskey Marmalade.

(iii) Mileeven Ltd, Piltown, Co Kilkenny which is a producer of preserves and honey products and is engaged in the manufacture, promotion and sale of Irish Whiskey Honey.

(iv) Lakeshore Foods Ltd, Nenagh, Co Tipperary, which is engaged in the manufacture, production and sale of prepared mustards.

5. The Usership Agreement notified was made on 18 May 1990 and provides for the grant of a non-exclusive licence by IDL, the owner, to Peadar O'Lionaird, the user, to use the Jameson trademarks in connection with the manufacture and marketing of Irish Whiskey marmalade in Ireland. 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 trademark is vested in IDL and under clause 2 the user agrees "not to challenge the validity of, or IDL's ownership of the Trade Mark or copyright in the presentation 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 Trade Mark 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 the user a non-exclusive licence to reproduce and use the trade marks in the Territory (Ireland) for the sole purpose of the manufacture and sale of the Product in a manner and form which shall be approved in writing by IDL subject to the following conditions

(i) User shall use Jameson Whiskey exclusively for production of the product

(ii) The product will conform to such standard of quality, design etc as IDL may prescribe (the Standard of Quality)

(iii) The labelling of the product shall contain an acknowledgement that the Jameson mark of IDL is used under licence

(d) Clause 9 provides that "In the event that any Product shall at any time fail to meet the Standard of Quality, User shall immediately withdraw same. In the event that IDL determines that the product fails to meet the Standard of Quality it may terminate this agreement by written notice to user and User shall cease its use of the Trade Mark and the designation Irish Whiskey within 30 days of such notice".

(e) Clause 14 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.

(f) Under Clause 12 the agreement ".... shall continue in effect until terminated by either party by three months' notice in writing expiring on any date."

There is no provision in the agreement for the payment of royalties.

6. The Usership Agreement notified is dated 26 April 1989 and provides for the grant of a non-exclusive licence by IDL, the owner, to Phil Thompson, the user, to use "Paddy" Trade Marks in connection with the manufacture and marketing of Irish Whiskey marmalade within Ireland. The agreement is similar to that between IDL and Peadar O'Lionaird except for a requirement on Phil Thompson to use Paddy Whiskey exclusively in the product.

7. The Usership Agreement notified is dated 13 September 1990 and provides for the grant of a non-exclusive licence by IDL, the owner, to Mileeven Ltd, the User, to use the "Jameson" Trade Marks in connection with the manufacture and marketing of Irish Whiskey Honey in Ireland and elsewhere. The agreement is in similar terms to that made between IDL and Peadar O'Lionaird.

8. The Usership Agreement notified is dated 18 December 1990 and provides for the grant of a non-exclusive licence by IDL, the owner, to Lakeshore Foods Ltd, the user, to use the "Jameson" Trade Mark in connection with the manufacture of mustards in the State and marketing mustards in Ireland, UK, Canada and USA. The Agreement is in similar terms to that between IDL and Peadar O'Lionaird.

9. The property that is the subject of the Usership Agreements is the property right attaching to IDL's Jameson and Paddy trade marks. These are the only products being "handed over" under the agreements by the owners to other persons to use.

10. Under the usership agreement a non-exclusive licence to use trade marks has been granted to 4 users. The users are not engaged in the marketing of Irish whiskey but in products which contain whiskey as a minor ingredient. The users are not therefore in competition with IDL. The usership agreements relate to the use of IDL trade marks in the manufacture and marketing of food products containing Irish whiskey. By the use of the trademarks the users seek to enhance the marketability and range of their own products by the use of familiar whiskey brand names but the markets in which they operate could be regarded as small specialist sub sectors of overall markets for preserves or mustard aimed primarily at the tourism trade. In essence therefore the Authority considers that, while the licensing of Jameson and Paddy trade marks is the subject of the agreement, the relevant markets, where competition issues might arise, are the tourism related specialist segments of the markets for preserves and mustard.

11. Irish Distillers Group plc maintain that the 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 property and do not restrict the users involved from normal commercial conduct or activity other than in the use of IDL property.

(c) the users derive economic benefits from identifying their products with the high quality standards associated by consumers with the IDL brand names and images. The requirement in the agreements to indicate that the Trade Marks 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 notification with international brand names such as IDL products, enables the user 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.

(f) the use of the IDL 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 trade marks and designs.

12. 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] licensing 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.

13. 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.

14. 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 subsidiary Irish Distillers Ltd and the four user parties, Peadar O'Lionaird, Phil Thompson, Mileeven Ltd and Lakeshore Foods Ltd are all engaged for gain in the production, supply and distribution of goods within the State and are therefore undertakings. The notified agreements are therefore agreements between undertakings. The agreements have effect within the State.

15. Design 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.

16. 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 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.

17. The Trade Mark/Design usership agreements between Irish Distillers Ltd and the 4 users are not exclusive licences nor do they contain, while in force, 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 trade marks. Since the basic products involved i.e. marmalade, honey or mustard are basically non whiskey products, the licensee is free to produce and market them, even if whiskey is an added ingredient, without any licence restrictions as long as it does not carry or is not marketed under the IDL trade marks or designs.

18. Under Clause 2 in the agreement with Peadar O'Lionaird an obligation is imposed on the user not to challenge the validity of IDL's ownership of the Trade Mark. A similar obligation appears in the other 3 agreements notified. The notifying party has explained that IDL is the exclusive owner 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 IDL 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, 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 requires its Marks to be protected and the validity to be preserved. In this respect IDL requires the relevant user to acknowledge its ownership of the relevant Mark and not to undermine or challenge the Mark.

19. In relation to a trademark 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)."

20. As indicated in paragraph 10 the relevant markets affected by the usership agreements are those for the particular products of the licensees, i.e. small specialised tourism related segments of the markets for marmalade, honey or mustard, all containing whiskey as a minor ingredient. These products, whether or not they contain Irish whiskey as an ingredient, may be freely marketed without an IDL brand name and the Authority therefore takes the view that the IDL trade marks could not provide any significant barrier to entry to those markets.

21. Under clause 4(i) of the Usership agreement involving O'Lionaird there is an obligation on the licensee to use a particular brand of Irish Whiskey, Jameson Irish Whiskey, as an ingredient in the product. Since the product is being marketed under this trade mark and brand name the Authority would not regard such an obligation as anti competitive. In fact since the particular brand is shown in the labelling of the product as an ingredient it would be a breach of consumer legislation not to use the brand. The same position applies to each of the other 3 agreements which all contain similar clauses although in the agreement relating to Phil Thompson the obligation relates to the use of Paddy Whiskey.

22. Clause 9 of the Usership agreement involving Peadar O'Lionaird provides, that in the event that IDL determines that the product fails to meet the standard of quality it may terminate the agreement by written notice to the user and that the user shall cease its use of the trade mark and the designation Irish Whiskey within 30 days of such notice. A similar provision is inserted in the other 3 user agreements. In view of the importance to IDL of the quality image of their products associated with the promotion of their trade marks at very considerable cost to IDL, the Authority could accept that IDL are entitled to protect the value of their trade marks by measures to ensure that they are not associated with an inferior product. In these circumstances the Authority does not regard the withdrawal of a licence and a requirement to cease the use of the trade mark as offending against Section 4(1).

23. In the event of IDL terminating the agreement with Peadar O'Lionaird in accordance with clause 9, there would also be a requirement on O'Lionaird to cease use of the designation "Irish Whiskey" on its products. A similar requirement is in the other 3 agreements. However the designation "Irish Whiskey" is a generic term defined in the Irish Whiskey Acts and is not the property of IDL. The exercise of the prohibition under clause 9 would therefore require the users to cease using a designation on their products which they would otherwise have been able to use if they had not entered into the usership agreements. In considering this aspect the Authority had regard to the fact that by use of the IDL trade marks the users gain substantial benefit in the promotion and marketing of their products while the benefit to IDL is at best very marginal. There is the real risk that an inferior non whiskey product bearing an IDL trade mark could impact unfavourably on the value and image of the trade mark and, because of a past association of the product with the trade mark, there is some risk that this would continue even if the IDL trade mark was removed but the designation of Irish Whiskey retained. In any event the restriction on the use of the designation would only arise if the product failed to meet the quality standards prescribed by IDL. The Authority does not therefore believe that the object of this provision is to prevent, restrict or distort competition. The Authority is also of the view that the restriction on the use of the designation in the circumstances is unlikely to have any perceptible effect on competition and does not offend against section 4(1).

24. In the Authority's opinion, Irish Distillers Group plc, Irish Distillers Ltd and the users, Peadar O'Lionaird, Phil Thompson, Mileeven Ltd and Lakeshore Foods 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 Peadar O'Lionaird, Phil Thompson, Mileeven Ltd and Lakeshore Foods 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 trade mark usership notified under section 7 on 30 September 1992 do not offend against section 4(1) of the Competition Act 1991:

(i) Irish Distillers Ltd/Peadar O'Lionaird - CA/970/92E

(ii) Irish Distillers Ltd/Phil Thompson - CA/975/92E

(iii) Irish Distillers Ltd/Mileeven Ltd - CA/980/92E

(iv) Irish Distillers Ltd/Lakeshore Foods Ltd - CA/971/92E

For the Competition Authority

Des Wall

Member

25 February 1994