Irish Competition Authority Decisions

1. An exclusive distribution agreement between Reflex Investments plc and Storage Technology Ltd was notified by Reflex to the Competition Authority on 30 September 1992. The notification requested a certificate or, in the event of refusal by the Authority to issue a certificate, a licence.

2. The Authority issued a Statement of Objections to the parties concerned in respect of the notified agreement on 25 March 1994. No response was received from either of the parties.

3. The notification relates to an agreement dated 4 April 1991 between Reflex and Storage Technology whereby Reflex was appointed exclusive distributor in the State of certain computer products.

4. Reflex is an Irish-registered company which distributed certain STC computer products and is engaged in the sale and lease of other computer systems and the provision of related technical advice. Storage Technology is a UK company engaged in the sale and maintenance of computer equipment which is manufactured in the US by Storage Technology Corporation(STC).

5. The notification relates to an exclusive distribution agreement dated 4 April 1991. Reflex was appointed sole and exclusive dealer of the products in the State (and in Northern Ireland). The distributor was not to deal in competing goods, except where necessary to supply competing IBM goods in preference to the supplier's products. The distributor was not to seek end-users, or to supply or install the products, or to establish any branch or depot, or enter into third party maintenance agreements, outside the territory. Minimum purchase requirements were specified. The distributor was obliged to promote sales, engage in advertising, provide maintenance staff and undertake maintenance, to keep records, and was to sell under trademarks. The distributor was not to sell other products without permission, and was to sell the products as principal, not as agent. The supplier agreed to safeguard the distributor's rights, including preventing the infringement of those rights by other distributors and agents of the supplier. The distributor was to accept the supplier's orders for the products for onward sale to end users, and the supplier was entitled to accept or reject each order. The price payable by the distributor was in Schedule 1 of the agreement, and an invoice in respect of products sold was to be delivered to the distributor at the time the products were delivered. The distributor was to pay the supplier a percentage of its then current list maintenance price each month for each machine installed. In Schedule 2, it was specified that the distributor should pay the supplier 50% of the maintenance price each month. The agreement was deemed to take effect from 7 April 1991, for an initial period of three years, and thereafter from year to year, subject to six months' notice. By letter of 7 February 1994, Reflex informed the Authority that the agreement had been terminated on or about 31 May 1993.

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."

(b) The undertakings and the agreement.

7. 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 engaged in the distribution of goods for gain, and Storage Technology is engaged in the sale and maintenance of goods for gain, and they are therefore undertakings within the meaning of the Act. The arrangement was an agreement between undertakings.

8. The Authority considers that an exclusive distribution agreement such as that between Reflex and Storage Technology offends against Section 4(1) of the Act, for the reasons stated in its category licence for exclusive distribution agreements (Decision No. 144 of 5 November 1993, para. 14).

9. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which offends against Section 4(1) but which, "having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

(i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

(ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question."

10. Section 7(3) of the Act provides that no licence or certificate may be granted until an agreement has been notified. It goes on to provide that "any such licence may in the case of an agreement, decision or concerted practice to which subsection (1) applies be made retrospective to the date of notification under that subsection." Section 7(1) provides for the notification of agreements which come into existence after the commencement of Section 4(1), i.e. after 1 October 1991. The present arrangement was in existence prior to that date and was notified under Section 7(2). The notified agreement expired on or about 31 May 1993. Consequently a licence cannot be made retrospective in this case even if the conditions for the grant of a licence were satisfied. In this instance it appears to the Authority that:

(a) the supplier agreeing to safeguard the distributor's rights conferred absolute territorial protection on the distributor;

(b) the distributor accepting the supplier's orders, and the supplier being entitled to accept or reject orders, limited the freedom of the distributor to choose his own customers; and

(c) the delivery of the invoice to the distributor, and payment of 50% of the list maintenance price restricted the freedom of the distributor to set his own prices.

These restrictions would not have satisfied the requirements of

the category licence for exclusive distribution agreements nor would they have satisfied the conditions of Section 4(2).

11. In the opinion of the Authority, the exclusive distribution agreement between Reflex Investments plc and Storage Technology Ltd (notification no. CA/750 /92E) notified on 30 September 1992, under Section 7(2) of the Competition Act, constituted an agreement between undertakings. It considers that the agreement offended against Section 4(1) of the Competition Act and therefore it refuses to issue a certificate. The agreement expired on or about 31 May 1993. The Authority is not empowered to grant a licence with retrospective effect in the case of an agreement notified under Section 7(2). In any case the limitation on the freedom of the distributor to set its own resale prices and the other limitations in the agreement would have precluded the Authority from granting a licence as these would not have satisfied the conditions of Section 4(2) of the Competition Act. Accordingly, the Authority refuses to grant a licence in respect of the notified agreement.

For the Competition Authority

Patrick M. Lyons

Chairman.

19 May 1994