Irish Competition Authority Decisions

1. The notified arrangements concern the acquisition of Angus Fine Chemicals Limited (AFCL), a Cork based company, by Hickson International plc (Hickson), an English company based in West Yorkshire, from ANGUS Chemical Company (ANGUS), the U.S. based parent company of AFCL. The arrangements include a number of related agreements. The Authority issued a statement of objections to the parties on 11 April 1994, indicating its intention to refuse to issue a licence or grant a certificate to the notified arrangements. In a letter dated 1 June 1994, the parties indicated that they would amend the offensive provisions in the arrangements. Notice of intention to grant a certificate and licence was published in the Irish Times on 24 June 1994. No submissions were received in response to the notice. The Supplemental Agreement giving effect to the proposed amendments was signed on 1 September 1994.

2. The parties to the acquisition are Hickson International plc and ANGUS Chemical Company of Illinois, USA. AFCL is the subject of the acquisition agreement. It is a party to some of the related agreements.

3. Hickson International plc is an independent group of businesses specialising exclusively in the provision of high quality chemical products for manufacturing industries and markets worldwide. It is a publicly quoted company. In 1991 it had a turnover of STG£379m, of which STG£79m was attributed to fine chemicals. The company's business activities can be put into four categories: Fine Chemicals, Performance Chemicals, Applied Chemicals and Protections and Coatings. Its sales in Ireland for 1991 amounted to Stg £529,000 consisting solely of sales of surfactants and timber treatment products.

(i) Fine Chemicals: This is currently made up of two companies, Hickson and Welch based at Castleford, England and Hickson Danchem, based in Virginia, USA. Hickson and Welch is the world's largest merchant manufacturer of nitrotoluene derivatives which are sold into the detergent, textile, paper, dyestuff and agrochemical markets. It is also a custom manufacturer of chemicals i.e. it manufactures higher value organic chemicals to the order of its customers who may provide the necessary know-how or rely on Hickson and Welch to develop it. Hickson Danchem is a toll chemical manufacturer: i.e. it sells its manufacturing skills to provide customers with their specific requirements.

(ii) Protections and Coatings: This division sells varnishes and lacquers for coating of wood furniture, stains for wood products and chemicals for the protection of wood against fire, insect attack and rot. It manufactures these chemicals in England, Italy, Holland and France.

(iii) Applied Chemicals: This division sells wood protection chemicals in North America and sulphur containing chemicals into the agricultural market as fertilizer and into the mining and other industries for a range of uses including mineral processing. Its companies trading in this field are Hickson Corporation, Kerley and Koppers-Hickson (joint venture, 49%).

(iv) Performance Products: This division sells surface active chemicals or "surfactants" to the detergent and personal care industries from manufacturing plants in England and South Africa. It also sells a range of organic and inorganic chemicals to diverse industries from plants in South Africa. Its companies operating in this area are Manro, Hickson Timber Products and Hickson Surface Coating.

4. ANGUS Chemical Company is a Delaware based company which is a wholly owned subsidiary of Canstates Holdings Inc., whose ultimate parent is the Alberta Natural Gas Company Limited of Alberta, Canada, a company quoted on the Toronto Stock Exchange. Angus produces and markets nitroparaffin based chemicals, fine chemicals and pharmaceutical intermediaries. Nitroparaffins are produced at the company's plant located at Sterlington, Louisianna. During 1991 this plant was damaged in an explosion and fire. The company also has a wholly-owned subsidiary Angus Chemie GmbH operating in the Federal Republic of Germany. In 1991 it had a turnover of $112m.

5. AFCL makes high value organic chemicals to order for major pharmaceutical companies. Following its acquisition by Hickson, its name was changed to Hickson Pharmacem Limited. It incurred a net loss of almost £4.3m. in 1991 on an annual turnover of £17m. It has 160 employees. The plant was damaged in an explosion and fire during 1993.

6. AFCL is a custom fine chemical manufacturer. By custom fine chemical manufacture is meant the manufacture of higher value organic chemicals to the order of customers who provide the greater part of the know-how necessary for the production of such chemicals. AFCL's products constitute raw materials which are subsequently processed to an active drug ingredient or to a pharmaceutical intermediate. AFCL currently produces chemicals for a relatively small number of firms. It has 6 customers of which 3 are on formal long term contracts. Its contracts include one for the supply of [ ] NMSM to [ ]. This accounts for 40% of AFCL's business. A product called nitromethane, which AFCL had obtained from its former parent Angus, is used to produce NMSM. NMSM is used to manufacture Zantac, a popular anti-ulcer drug registered by the Food and Drug Administration (FDA) of the USA.

7. The market in which AFCL operates is that for the manufacture of custom fine chemicals. There are no substitutes for the goods produced by AFCL in the sense that it produces specific products for particular customers. Although the chemical products produced by AFCL are goods, in reality it appears that AFCL is engaged in providing a service, namely the production of such chemicals to the customer's specifications. It competes with other similar producers for contracts to produce such goods. The buyers of such products provide the necessary know-how to produce them and, in effect, they are contracting out the task of producing the raw materials which they require. Producers of custom fine chemicals such as AFCL compete for the business of producing such chemicals. Thus, in considering whether the arrangements have the effect of preventing, restricting or distorting competition, the focus of attention is not on the market for the particular products currently being produced by AFCL, but on the market for custom fine chemical production generally.

8. Competition in this market is provided in the main by the in-house divisions of potential pharmaceutical industry customers and other suppliers located throughout the world. It was claimed that competing firms located in Ireland include Newport Pharmaceuticals, Athlone Chemicals, Irish Fehr, Plaistowe and S.I.F.E. It was also claimed that there were a number of competitors in the U.K. including Sterling Organics (Eastman Kodak), Fine Organics (Laporte), MTM plc., Ibis (Shell) and Robinson Brothers. Transportation costs are not a factor in this market as the products being dealt with are high in value and small in volume. The notifying parties claim therefore that competition is truly global. The notifying parties claimed that, as there was no particular Irish market for customs fine chemicals, it was not possible to calculate figures for such a market. The custom fine chemical market worldwide is estimated at US$50 billion annually of which pharmaceutical chemical demand constitutes 40% to 50%.

9. The production of NMSM is a particularly significant part of AFCL's business. There are only two purchasers of NMSM worldwide, [ ] and another purchaser of whom it was claimed purchases approximately 10% of the quantity purchased by [ ]. There are four suppliers of the raw material needed to manufacture NMSM, nitromethane. These are Angus and three companies operating in the People's Republic of China. The arrangements notified include an agreement between AFCL and Angus for the purchase of Nitromethane. The combined production capacity of the Chinese companies is substantially less that of Angus. AFCL is the only user of nitromethane in Ireland, although there are many other users of the product worldwide, given the diverse nature of the end products which it is used to produce. The notifying parties have indicated that there are no effective substitute products available for either NMSM or nitromethane.

10. According to the 1989 Census of Industrial Production (CIP), the gross output of the chemical industry in Ireland was £2,282.6m. At that time, the industry employed 12,923 people in 216 establishments. Of these 155 had a workforce of less than 50. Only 54 establishments employed more than 100 people, but these accounted for 63.3% of gross output. The estimated turnover for the industry in 1989 was £2235m. The CIP figures indicate that there were 112 firms in the chemical sector in 1989 compared with 90 in 1981. According to the IDA there were 277 chemical firms operating in Ireland in 1991 of which 110 were foreign owned. The CIP figures for the chemical industry include 72 pharmaceutical establishments in Ireland in 1989 with a gross output of £1,328m. The number of pharmaceutical firms in 1989 was 51 compared with 33 in 1981.

11. There is no specific information on the number of custom fine chemical producers. It is believed that a number of the firms included under the broad chemicals classification in official statistics are engaged in the production of such goods. It is likely that a number of the pharmaceutical firms purchase raw materials from fine chemical producers whether in Ireland or elsewhere, while others may produce their requirements in-house.

12. A high percentage of what is produced by Irish chemical companies is exported, with few companies depending solely on the domestic market. The value of chemical exports in 1991 was £2,657.5m. Imports of chemical products are also relatively high, amounting to £1,707.5m in 1991. Imports of organic chemicals in 1991 amounted to £349.4m, 20.5% of all chemical imports. Again it is not possible to establish how much of these imports could be classed as custom fine chemicals, although much of what is imported consists of raw materials for further processing. Nevertheless it would appear that transportation costs do not constitute an impediment to competition from overseas suppliers of custom fine chemicals.

13. The notified arrangements involve a number of agreements as follows:

- a share purchase agreement,

- an exclusive supply agreement,

- a know-how licensing agreement,

- two consultancy agreements,

- a vendor agreement,

- a deed of agreement,

- a secrecy agreement,

- an agreement to transfer invention rights,

- an inventory value agreement,

- an accounting memorandum.

All of the agreements were dated 8 July 1992, with the exceptions of the secrecy agreement and the agreement to transfer invention rights which were dated 22 June 1992 and the consultancy agreements which were dated 4 August 1992.

14. The share purchase agreement specifically provides at clause 13.3 that:

´This Agreement (including all documents to be executed pursuant to Clause 4), the Exit Deed, the Disclosure Letter, the Accounting Memorandum and the In-4 Agreement contain the whole agreement between the parties relating to the subject matter of this Agreement....'

Clause 12.1 provides that:

´The parties shall immediately on the execution hereof notify this Agreement and the documents to be executed pursuant to this Agreement to the Competition Authority of the Republic of Ireland pursuant to and in compliance with the provisions of the Competition Act 1991, with a view to obtaining a certificate or a licence in respect of the provisions of this Agreement and such documents.'

Notwithstanding this, the Authority only received all of the agreements on 2 December 1992 following several requests.

15. The Share Purchase Agreement, (Share Agreement), provides for the 100% acquisition of AFCL by Hickson through the purchase of all the issued and outstanding shares in the company. Clause 9.1 of the agreement contains a number of restrictive clauses. Specifically it provides that neither the Vendor hereby nor any other member of the Vendor Group will:-

(i) for a period of 4 years immediately following completion canvass or solicit orders for the supply of Restricted Products (as defined) to, or for the manufacture of Restricted Products for, any person who was a customer of AFCL at any time within the three year period prior to completion; or

(ii) for a period of 4 years immediately following completion, supply or manufacture Restricted Products to or for any person who has been a customer of AFCL at any time within the three year period prior to completion; or

(iii) for a period of 2 years immediately following completion, induce or seek to induce any particular employee of AFCL at completion (including certain named individuals who have employment arrangements with ANGUS but who are regarded as employees of AFCL for this purpose) to become employed whether as employee or consultant or otherwise, by ANGUS or other members of its group; or

(iv) use, or reveal to any person, any of the know-how or the trade secrets, techniques or processes owned by and exclusive to AFCL or unless the relevant licensor or any joint owner thereof shall have consented in writing to ANGUS so doing, use or reveal to any person any of the foregoing which have been licensed to AFCL, or which are jointly owned by AFCL and a third party, until such time as the same fall into the public domain otherwise than by reason of a breach of this undertaking or is made available to ANGUS or any other member of its group by a third party other than in breach of any duty of confidentiality owed by that third party to AFCL; or

(v) disclose to any person any other confidential extra information of AFCL or of any customer of AFCL (other than where ANGUS is authorised by such customer in writing to do so), until such time as the same shall fall into the public domain otherwise than by reason of a breach of this undertaking or is made available to ANGUS or any other member of its group by a third party other than in breach of any duty of confidentiality owed by that third party to AFCL; or

(vi) knowingly assist, or procure any other person to do any of the foregoing things."

16. Clause 9.4 provides for the amendment of any part of Clause 9 should it be considered void in its present form.

17. To take effect concurrent with the Acquisition, AFCL entered into a long term contract with ANGUS for the supply of nitromethane. This is the "Nitromethane Supply Agreement" (the Supply Agreement). Clause 1 provides that:

´(a) Subject to the provisions of clause (c), during the term of this Agreement, ANGUS shall sell and deliver to Buyer and Buyer shall purchase and accept from ANGUS quantities of Product necessary to satisfy ninety percent (90%) of Buyer's requirements of Product for the production and sale of [ ] ("NMSM") to [ ] and [ ] being collectively referred to hereinafter as [ ], as the same may be amended, renewed, extended or otherwise modified or replaced from time to time (the [ ] Agreement").

18. AFCL has the option of purchasing additional quantities of nitromethane. The agreement provides, however, that Angus is under no obligation to sell and deliver more than 400,000 pounds of Nitromethane per annum under the terms of this Agreement although if the quantities to be supplied exceed that limit it has the option of supplying such quantities upon the terms and subject to the conditions set forth in the agreement.

19. Clause 3 provides that the agreement is for a period of three years commencing January 1, 1992 through December 31, 1994. It also provides that the agreement will be automatically renewed on an annual basis thereafter unless one of the parties terminates it by written notice to the other at least sixty (60) days prior to the end of the term.

20. In addition ANGUS agreed to licence technology by which AFCL could manufacture this material itself in the event of a shortfall in supply. This is the "Nitromethane Licence Agreement" (the Licence Agreement). Under the terms of this agreement, ANGUS agrees to grant to AFCL a limited right and license to use the technology that ANGUS possesses to produce Nitromethane. Clause 2 provides that, if, after full compliance by all parties with Section 4(a) of the [ ] Agreement, AFCL and [ ] are unable to obtain Nitromethane for use in producing NMSM to fulfil the [ ] Agreement, Angus will grant, subject to any required compliance with applicable export laws and regulations, AFCL a personal, non-transferable right and licence to use the technology at its current plant located in Cork, solely in connection with the production by AFCL of chemically synthesized Nitromethane for use in producing NMSM pursuant to the [ ] Agreement. AFCL is obliged to use its best efforts to minimize the possibility of this licence becoming operative and to minimize the period during which it is operative.

21. In addition AFCL may only use the technology during those limited periods in which AFCL and [ ] cannot obtain Nitromethane as contemplated by Section 4(a) of the [ ] Agreement and is therefore required to chemically synthesize Product pursuant to Section 4(b) of the [ ] Agreement. Title to the technology which may be licensed to AFCL and any other information (as hereafter defined) is not conveyed to AFCL by the licence granted. The agreement also provides that title to any improvements made to the technology by AFCL at any time that the licence granted hereunder is operative shall be owned by AFCL. AFCL hereby grants to ANGUS an irrevocable non-exclusive royalty-free perpetual right and license to use such improvements.

22. Clause 3 provides that AFCL must notify ANGUS in writing that it requires the technology, setting forth in sufficient detail the facts and circumstances surrounding such requirement. Angus is then required to make the technology available to AFCL as soon as reasonably practicable and in any case not later than twenty (20) days after the written notification. AFCL is also required to notify ANGUS in writing as soon as it no longer requires the technology to produce nitromethane in accord with the agreement.

23. Clause 4 states that:

´(a) Obligations. AFCL shall maintain in strict confidence and shall not disclose to any third party any Technology or other information disclosed by ANGUS to AFCL, including, without limitation, information disclosed by ANGUS personnel to AFCL pursuant to Section 3(b) of this Agreement (collectively, the "Information"). In addition, AFCL shall not use the Information except solely for the purposes contemplated herein. AFCL shall limit disclosure of Information to only those employees of AFCL who have a need to know such Information solely for purposes contemplated herein. AFCL shall require that, as a condition to an AFCL employee's receipt of any Information, each AFCL employee shall expressly agree to be bound by the confidentiality and use terms of this Agreement. AFCL shall bear full responsibility and liability for breach of this Agreement by its current or former employees.

(b) Limitations. The obligations of Section 4(a) shall not apply to information which:

(1) is now or shall in the future become available to the general public through no fault or action of AFCL;

(2) is disclosed to AFCL subsequent to the date hereof by a party other than ANGUS without obligation of confidentiality; or

(3) is developed by AFCL subsequent to the date hereof independent of any past or future disclosure from ANGUS.

(c) Disclosure. If disclosure of Information is: (i) sought by any third party pursuant to court process or otherwise; or (ii) required to be disclosed to a governmental body under law, AFCL shall notify ANGUS immediately in writing and before making any such disclosure. Thereafter, AFCL shall, after consultation with ANGUS, take all reasonable steps requested by ANGUS to assist ANGUS in procuring a confidentiality order, confidential treatment or otherwise avoiding any public disclosure of Information.

(d) Return of Information . Upon ANGUS' written request, AFCL agrees to return any and all documents or other materials containing or reflecting Information. AFCL agrees to give ANGUS whatever reasonable assurances ANGUS requires that all documents or other materials containing or reflecting Information have been returned.

(e) Injunction. AFCL acknowledges that ANGUS may suffer irreparable harm if any Information is disclosed or used in violation of the terms hereof, and that remedies at law may be inadequate to protect ANGUS against a breach or threatened breach of this Agreement. AFCL agrees that ANGUS shall be entitled to appropriate equitable relief, including injunctive relief if necessary, in addition to any legal damages or other remedy provided by law.

(f) Survival. The survival of the parties obligations with respect to Section 4 shall survive the expiration or termination of this Agreement for any reason.'

24. Clause 5 provides that the agreement shall expire upon the earliest to occur of the following:

(1) the termination of the [ ] Agreement, or any extension or renewal thereof; and

(2) the termination of the Supply Agreement.

In addition ANGUS may terminate the agreement immediately if AFCL breaches either Section 2 or 4 of this Agreement. Either party may terminate the agreement in the event of a default by either party.

25. Under the terms of the consulting agreements, ANGUS agrees to provide Hickson with consulting advice relating to technical matters necessary for the continuance of two separate

contracts. The agreements are identical, except for the names of the customers and consultants and duration of the consultancy.

26. The Vendor Agreement is an agreement between ANGUS and Lazard Brothers & Co. Ltd., whereby Lazard Brothers has undertaken to act as agent in the sale of shares in Hickson International which were paid to Angus as consideration for the acquisition of AFCL.

27. The Deed of Agreement records the obligations to, or rights and remedies against, the other party in the event of termination of the Acquisition Agreement.

28. Under the terms of the Secrecy Agreement, AFCL agrees to treat as confidential, certain technical information disclosed to it by ANGUS prior to the sale for a period of ten years. The relevant extracts of the agreement are as follows:

´In consideration of the opportunity afforded to AFCL to manufacture products for ANGUS by utilizing the ANGUS technical information, AFCL promised, prior to receiving the information disclosed, to preserve the ANGUS technical information identified in Exhibit A in strict secrecy within its own company organization, and further agreed not to reveal the information to any third party by oral or written communication for a period of ten (10) years. AFCL further promised to inform its employees that they are so obliged to preserve the ANGUS technical information. AFCL has, in fact, so preserved the information disclosed by ANGUS thus far, and promises to continue to so preserve that information. This agreement shall not apply to any portion of the information that comes into the public domain through no fault on the part of AFCL, or that is disclosed to AFCL by a third party who has a right to make such disclosure, or for which a written release is obtained from ANGUS.

In the event that AFCL does not manufacture a product for ANGUS, AFCL will return the written technical information pertaining to the product and any product samples to ANGUS.'

29. ANGUS, through its subsidiary AFCL, founded a fellowship for the development of nitroalkanes at University College Cork from which AFCL was granted an exclusive license by UCC to any inventions and patent rights participating to the development. Under the terms of this agreement AFCL has agreed to transfer such rights to ANGUS in return for which Angus has agreed to reimburse it for the payments to date and for all future payments, if any.

30. The IN4 agreement is an agreement between ANGUS and Hickson which determines the value and payment mechanism in respect of certain items of inventory, namely stocks of IN4 which are used in the manufacture of chemicals for a particular company.

31. The Accounting Memorandum determines the specific meaning of the accounting terms used in the context of the overall agreement.

32. The notifying party argued that, by analogy with the criteria adopted in the Reuter/BASF European Commission decision, the Remia European Court of Justice judgment, and the Competition Authority's decision in Nallen/O'Toole, the restrictions in clause 9 of the Share Purchase Agreement should not be held to infringe Section 4(1) of the Competition Act.

33. It was further argued that as the acquisition constitutes a ´merger or take-over' for the purposes of Section 5 of the Mergers, Take-overs and Monopolies (Control) Act, 1978, having already been cleared by the Minister for Industry and Commerce, it should not be reviewable under the Competition Act. They also submitted that, by analogy with EC Commission review of mergers and acquisitions under Articles 85 and 86 of the Treaty of Rome, the acquisition of 100% interest in a company could only be reviewed under the Competition Act, if at all, under Section 5 of the Act which deals with abuse of a dominant position. Reference was made to the European Court of Justice Judgment in BAT and Reynolds v Commission in support of this view. As the Share Purchase Agreement represents a 100% acquisition, it was argued that this Agreement should be dealt with in a similar manner. It is submitted that the Competition Authority's main purpose is to review agreements which come within the scope of Section 4 of the Act and not Section 5.

34. The parties stated that the supply agreement arose because AFCL needed supplies of the raw material nitromethane in order to ensure the continued supply of a certain chemical intermediate product to one of its customers [ ]. It was claimed that there were only two producers of this raw material and that the agreement secured supplies for AFCL and could not be considered to constitute a restriction of competition.

35. EEC Regulation no. 556/89 of 30 November 1988 is a block exemption treaty which applies Article 85(3) of the Treaty of Rome to categories of know-how licensing agreements. It came into force on 1 April 1989 and applies until 31 December 1999. Know-how, for the purpose of this regulation, is defined as ´a body of technical information that is secret, substantial and identified in any appropriate form'.

36. The regulation has the effect of exempting agreements involving the transfer of know-how from the provisions of Article 85(1). It recognises the increasing economic importance of non-patented technical information such as description of manufacturing processes, recipes, formulae and drawings. The regulation recognises that such agreements are pro-competitive and have beneficial effects on the economy by facilitating the transfer of technology and boosting innovation. They may, however, in some circumstances, inhibit competition by imposing territorial restrictions. The regulation also provides greater legal certainty for agreements of this nature, given that the transfer of know-how is frequently irreversible.

37. The regulation lists obligations of a restrictive nature that benefit from automatic exemption pursuant to Article 85(3) of the Treaty. A know-how licensing agreement to which only two undertakings are party and which contains one or more of these obligations is exempt from the provisions of Article 85(1). Among them is an obligation on the licensee to limit his production of a licensed product to the quantities he requires in manufacturing his own products, provided that such quantities are freely determined by the licensee. Other obligations include requirements that the licensee does not divulge the know-how to third parties, grant sub-licenses, assign the license or exploit the know-how where it remains secret after the termination of the agreement. A number of obligations involving territorial rights and protection are also contained.

38. The regulation also provides for an obligation on the licensee to advise the licensor of any developments made in exploiting the licensed technology within the period of the agreement and to grant him a non-exclusive license in respect of them. This is on condition that the licensee is not prevented from exploiting his improvements, in so far as they can be exploited with the licensors original know-how remaining secret.

39. The Authority expressed concerns about certain aspects of the notified arrangements to the notifying parties and additional information was sought. They replied on 8 April, 1993, and made the following observations.

40. In relation to the restrictions on disclosure of confidential information contained in clause 9.1(iv) of the Share Purchase Agreement, the following additional argumentation was submitted :

´...that the current notification in Hickson/Angus can be distinguished from the Decision in Reuter /BASF on a number of grounds, as follows:

The facts of Reuter/BASF involved a personal non competition covenant, backed by a personal obligation to maintain knowhow as confidential. The scope of the covenants was so wide as to prevent the covenantor, Reuter, from undertaking any business at all. In the instant case Angus are not so prevented from undertaking other businesses. Clause 9 of the Share Purchase Agreement makes this clear.

In Reuter/BASF the knowhow restriction also covered non commercialised research and development. In the present case the restriction only applies in respect of what has commercial value.

In Reuter/BASF, Reuter was prevented from keeping in touch with scientific and technical progress by doing any further research and development. As such, he was effectively eliminated from becoming a potential competitor at any time in the future. This is not the case here, where Angus is engaged in a variety and range of other businesses which are highly successful.

In the present circumstances it is submitted that the confidential information restrictions are reasonable, given that they only subsist until the information falls into the public domain. Given that the information in question constitutes a pivotal part of the assets acquired by virtue of the Acquisition Agreement it is submitted that this type of restriction, as opposed to a restriction limited by a fixed term, is reasonable, and most effectively reflects the legitimate commercial aspirations of the parties.

The European Competition Authorities have long held that in the absence of any harmonisation of the laws relating to confidential information each country is entitled to unilaterally protect confidential information. Such protection is not, in the absence of any harmonisation provisions, in itself anti-competitive. See Section 22 of the Treaty of Rome. Furthermore the protection of confidential information goes, it is submitted, to the very existence of the right and should be unimpeachable under European competition law, see Magill T.V. Guide v. Radio Telefis Eireann, case 70/1989.

....It is submitted that, as in relation to Reuter/BASF referred to above, the ACT/Kindle matter specifically referred to personal non competition covenants, and that many of the same distinctions enumerated above in the context of Reuter/BASF are substantially applicable, in particular the issue that Angus carries on a number of businesses and is not, by virtue of the Share Purchase Agreement with Hickson, effectively prevented from carrying on other commercial activity. '

41. In a further submission dated 20 September 1993 the parties again claimed that clauses 9(iv) and 9(v) were not anti-competitive. They stated that the wording of clause 9(iv) made it clear that it was not a disguised non-competition clause. They pointed out that 90% of the know-how involved was either owned by a customer exclusively or jointly by AFCL and the customer. They argued that the circumstances differed from those in Reuter/BASF. In particular they claimed that the Reuter/BASF decision was only concerned with a non-compete clause of excessive duration and not with the issue of a restriction on use or disclosure of confidential information. In addition they stated that the confidentiality obligation is no more than has been accepted by the EU Commission in the Know-How Licensing Regulation. It was pointed out that the Regulation states that an obligation on the licensee not to divulge the know-how communicated by the licensor is ´generally not restrictive of competition' and allows the licensee to be held to such an obligation after the licence has expired. They drew an analogy with a bottling firm licensed to manufacture Coca-Cola under licence and argued that if such a company were sold the vendor would not be entitled to exploit the Coca-Cola formula or commercial know-how which had been obtained through the licence. It was stated that the purchaser could not and would not object to the vendor competing with them after four years in making identical products and selling them to AFCL's customers as long as the vendor had not used the know-how owned by AFCL or by AFCL and the customer jointly.

42. Concerning the obligation on the purchaser to obtain at least 90% of its nitromethane from the vendor, the notifying parties argued that the 90% supply obligation in respect of nitromethane was not in fact a restriction of competition adversely affecting AFCL. They argued that AFCL's requirement for nitromethane arose in respect of its obligations under contract to supply to [ ] quantities of NMSM and that the purpose of this obligation was to guarantee to AFCL an ongoing reliable supply of nitromethane, which would allow it to meet its contractual obligations to [ ]. It was a question of ensuring security of supply as, in their view, the purpose and effect of the Agreement was to oblige Angus to supply this volume of material, not to prevent AFCL from dealing elsewhere.

43. They stated that consideration had been given to obliging Angus to supply to AFCL 100% of the latter's requirements of nitromethane. Ultimately, however, it was felt by the purchaser's side in the negotiations that AFCL should retain an effective option to source up to 10% of its nitromethane requirements elsewhere, lest another producer of nitromethane appeared on the world scene and AFCL wished to check on the quality and suitability of the material produced by such an alternative supplier. They also argued that the agreement had had a negligible effect on competition since, prior to the purchase by Hickson of AFCL, AFCL was supplied with virtually all of its nitromethane by Angus.

44. On the question of restricting the licensee's freedom to produce nitromethane under the Nitromethane Licence Agreement, the parties stated that the purpose of the Licence Agreement was to provide a safety net for AFCL in the event that Angus could no longer supply the substance in the event, for example, that the premises of Angus might be destroyed. Within the past couple of years Angus' plant in the USA was the location of a major industrial accident which caused several fatalities and which appears to have been caused due to the volatility of the substances being manufactured there. It was consciousness of this history and the danger of another such incident that prompted the purchaser, in the instant case to seek, in defined circumstances, access to the technology of Angus, to allow AFCL to produce nitromethane itself on an emergency and temporary basis, in order to maintain its contractual obligations to [ ], pending the recommencement of production of nitromethane by Angus following any unfortunate incident such as was envisaged.

45. It was also argued that the technology which Angus has relates to a continuous process production of nitromethane. If the licence agreement were triggered, Angus would give to AFCL a subset of that technology which would enable AFCL to produce nitromethane on a batch process. This batch process would not be as economically efficient as the continuous process used by Angus and would, by its very nature, be an interim or temporary solution to a problem such as is envisaged above. They also pointed out that prior to the current arrangements between the parties AFCL had no right of access to the nitromethane technology of Angus.

´As a matter of competition law it is therefore submitted that it would be incorrect to state that AFCL are subject to a restriction, since AFCL had no rights to use the technology prior to the Agreement. Furthermore, there is nothing in any of the agreements which restricts AFCL from becoming a nitromethane producer using appropriate technologies should it wish in the future to do so. It must be stated however that it is extremely unlikely that AFCL would ever wish to become such a producer.'

46. The Authority issued a Statement of Objections to the parties on 11 April 1994 indicating that, in its view, the non-compete provisions in Clauses 9.1(iv) and 9.1(v) offended against section 4(1) of the Competition Act and did not satisfy the requirements for a licence under section 4(2). The parties were informed that the Authority therefore intended to refuse to issue a licence or grant a certificate in respect of the notified arrangements. They were given 28 days to respond and offered the chance of an Oral Hearing. The parties subsequently sought an extension of the 28 day period stating that they were examining ways of amending the clauses in question in order to satisfy the Authority's concerns. In a letter dated 1 June 1994 the parties indicated that they would amend the provisions of clause 9.1 as follows.

´For the purpose of assuring to the Purchaser the full benefit of the Company, the Vendor hereby undertakes to the Purchaser that the Vendor will not, and will procure that no other member of the Vendor Group will:-

(i) for a period of four years immediately following Completion canvass or solicit orders for the supply of Restricted Products to, or for the manufacture of Restricted Products for, any person who was a customer of AFCL at any time within the three year period prior to completion; or

(ii) for a period of four years immediately following completion, supply or manufacture Restricted Products to or for any person who has been a customer of AFCL at any time within the three year period prior to completion; or

(iii) for a period of two years immediately following completion, induce or seek to induce any particular employee of AFCL at completion (including...) to become employed whether as employee or consultant or otherwise, by the Vendor or any other members of the Vendor Group; or

(iv) use, or reveal to any person, any of the know-how or the trade secrets, techniques or processes licensed to the Company or jointly owned by the Company and a third party unless the relevant licensor or any joint owner thereof shall have consented in writing to the Vendor so doing until such time as the same fall into the public domain otherwise than by reason of a breach of this undertaking or is made available to the Vendor or any other member of the Vendor Group by a third party other than in breach of any duty of confidentiality owed by that third party to the Company; or

(v) use, or reveal to any person, any of the know-how or the trade secrets, techniques or processes owned by and exclusive to the Company until such time as the same fall into the public domain otherwise than by reason of a breach of this undertaking or is made available to the Vendor or any other member of the Vendor Group by a third party other than in breach of any duty of confidentiality owed by that third party to the Company PROVIDED that such undertaking shall not prevent the Vendor from doing those things set out in clause 9.1(i) and 9.1(ii) above after the expiry of the time periods contained in those sub-clauses; or

(vi) disclose to any person any other confidential information of the Company or of any customer of the Company (other than where the Vendor is authorised by such customer in writing to do so), until such time as the same shall fall into the public domain otherwise than by reason of a breach of this undertaking or is made available to the Vendor or any other member of the Vendor group by a third party other than in breach of any duty of confidentiality owed by that third party to AFCL PROVIDED that such undertaking shall not prevent the Vendor from doing those things set out in clause 9.1(i) and 9.1(ii) above after the expiry of the time periods contained in those sub-clauses; or

(vii) knowingly assist, or procure any other person to do any of the foregoing things."

47. The Supplemental Agreement was finally signed on 1 September 1994. This proposed amendment distinguishes between technical know-how belonging in whole or in part to customers and licensed by them to AFCL and that technical know-how which relates to the business sold itself. It provides that a limitation on using the latter type of technical know-how must be limited in time.

48. 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.'

49. The parties to the share purchase agreement are Hickson International and Angus Fine Chemicals both of which are corporate bodies engaged in the provision of goods and services for gain and are therefore undertakings within the meaning of the Act. AFCL is a party to some of the subsidiary agreements. It is also an undertaking within the meaning of the Act.

The Share Purchase Agreement

(i) The Acquisition

50. The present arrangements constitute an agreement between undertakings whereby Hickson has purchased the business of AFCL from Angus. The parties have argued that as the agreement constitutes a merger which has been approved by the Minister for Industry and Commerce under the Mergers Act, it does not come within the scope of Section 4(1). They also argued by analogy with EC law that the arrangements constitute a concentration which is not within the scope of Article 85(1). These arguments have been dealt with in previous Authority decisions where the Authority indicated that it did not believe such agreements were automatically excluded from the scope of section 4(1). In the Authority's view, where a notified arrangement constitutes an agreement between undertakings, the issue to be decided is whether it has the object or effect of preventing, restricting or distorting competition. The stated object of the notified arrangements is to transfer ownership of the business of AFCL from Angus to Hickson. The Authority indicated in Woodchester that such an object per se does not offend against Section 4(1).

51. AFCL, as already stated, is a custom fine chemical producer, i.e. it makes high grade organic chemicals to order for its customers. Other Hickson subsidiaries are also engaged in the relevant market so that the number of competitors will be reduced as a result of the arrangements. Again in Woodchester the Authority stated that it did not consider that an agreement, which led to a reduction in the number of competitors, prevented, restricted or distorted competition per se . The object of section 4(1) is to protect competition not competitors and, in the Authority's view, a reduction in the number of competitors does not necessarily result in a reduction of competition.

52. The Authority believes that the sale is unlikely to have any effect on competition in the relevant market. As pointed out AFCL effectively manufactures chemical products to order for customers. Any firm within the State which is currently purchasing products from AFCL or which wishes to have fine chemicals products manufactured to its specifications will be able to obtain them from other custom fine chemical producers either in Ireland or elsewhere. The Authority considers that transport costs in the case of such products are relatively low and do not represent a barrier to competition from overseas producers. It is relevant in this context that much of AFCL's current output is exported, in some cases to customers in the Far East. The nature of the market is such that purchasers of such products located in Ireland can choose to have their requirements manufactured by producers located almost anywhere in the world.

53. In addition the Authority accepts the argument that a number of customers could produce their own requirements in-house rather than buy them, if, in fact, Hickson tried to exercise any market power. It would appear to the Authority that new suppliers would also be likely to enter the market in such circumstances. The Authority recognises that the costs of establishing or converting a plant to produce such products are not insignificant, but believes that such costs are within the compass of a large number of chemical and pharmaceutical firms which would have the necessary skills and resources to enter this market. Nor does the Authority believe that the arrangement will have any adverse effect on competition on the supply side, i.e. in its view the arrangement will not have any detrimental impact on other Irish based firms' ability to supply the products in question. Although Hickson was clearly a potential competitor on the Irish market, the Authority concludes that, having taken all relevant market factors into account, the sale of the business of AFCL to Hickson will not have the effect of preventing, restricting or distorting competition in the State or in any part of the State and so it does not offend against section 4(1).

(ii) Non-compete provisions.

54. Clause 9 contains a number of non-compete provisions. The Authority has indicated its views on such restrictive agreements in a number of previous decisions. In ACT/Kindle the Authority indicated that it believed that a restriction on the vendor of a business competing with it for up to five years may be necessary to secure the complete transfer of the business where technical know-how was involved. The Authority, in ACT/Kindle referred to the definition of technical know-how contained in the EC Regulation on Know-How Licensing. The Authority believes that for a non-compete clause to be regarded as essential to protect technical know-how, the know-how would have to satisfy the requirements set out in Article 1(7)(1) of the Regulation.

55. The present notification involves the sale of a business engaged in the production of high grade organic chemicals and the Authority believes that this clearly involves technical know-how. Given the Authority's decision in ACT/Kindle, the restrictions in clause 9.1(i) and 9.1(ii), which are for four years duration, do not exceed what is necessary for the complete transfer of the business. They are limited to certain products and to dealing with anyone who was a customer of AFCL during the previous three years so that in terms of geographic scope and subject matter they involve no more than is necessary to secure the complete transfer of the business. Consequently, in the Authority's view, the restrictions in clauses 9.1(i) and (ii) do not offend against Section 4(1) of the Competition Act.

56. The Authority has also considered the question of restrictions on vendors soliciting employees to leave the business and take up employment with them. It stated that it regarded such restrictions as necessary to protect the goodwill of the business being sold and that, provided such a restriction was limited in time to what was necessary to secure the transfer of that goodwill, it was not objectionable. In this instance the restriction is for two years, which the Authority regards as sufficient to ensure the transfer of goodwill. Consequently in its opinion clause 9.1(iii) does not offend against Section 4(1) of the Act.

57. The Authority also gave its views on restrictions on use or disclosure of technical know-how in ACT/Kindle. In particular it noted the views expressed by the EC Commission in

Reuter/BASF that:

´In no circumstances may an obligation to keep know-how secret from third parties, imposed on the transfer of an undertaking, be used to prevent the transferrer, after the expiry of the reasonable term of a non-competition clause, from competing with the transferee by means of new and further developments of such know-how.'

The Authority then went on to state that:

´To afford the purchaser unlimited protection against the use of technical know-how by the seller would, in the Authority's view, restrict competition since such an unlimited restriction would go beyond what is necessary to secure the complete transfer of the business to the purchaser. As in the Reuter/BASF case it appears reasonable to limit such protection to the time required to allow the purchaser to obtain full control of the undertaking. Once such a reasonable time has elapsed, however, the purchaser is no longer entitled to be protected against competition by the seller.'

58. Hickson sought to rely on the above passage from Reuter/BASF, in particular, the reference to ´new and further developments of such know-how' to claim that the restrictions in the agreement as originally notified differed to those in Reuter/BASF. In effect they claimed that it was only restrictions on new and further developments of the know-how which were not permitted. The Authority does not agree with this view. The Commission stated in Reuter/BASF that:

´It is further recognised that it may be necessary in certain cases to provide additional safeguards to ensure the effective performance of an agreement where technical knowledge, constituting an important part of the value of a transferred undertaking, is placed at the disposal of the transferee. As in the case of goodwill, it must be possible to prevent the transferrer for a certain time from using such knowledge in a manner which would prevent the transferee from acquiring with its market position undiminished.

Here too, the protection afforded to the transferee should be limited in time, since the transfer of legally unprotected know-how confers no exclusive rights on the purchaser. Contrary to the contention of BASF, the transfer of technical know-how in connection with the sale of an undertaking does not automatically preclude any further activity on the part of the seller based on such know-how. The opportunity of using know-how which is unknown to competitors is, like goodwill, a competitive advantage. This advantage can be diminished by the development by third party competitors of their own know-how. Unlike third parties the transferrer of an undertaking remains aware of the contents of any transferred know-how, since he cannot divest himself of his own knowledge. For this reason it appears legitimate to protect the transferee in order for a certain time to enable him to acquire the undertaking with its competitive position undiminished. This need to protected the competitive position of the undertaking provides the justification for and prescribes the time limits to any non-competition clause involved.

In determining the duration of the non-competition clause, the factors particularly to be taken into account are the nature of the transferred know-how, the opportunities for its use and the knowledge possessed by the purchaser. It is also reasonable to assume that the transferee will actively exploit the assets transferred. A distinction must be made between know-how existing at the date of transfer and new or further developments by the transferrer based on or in connection with the transferred know-how. A non-competition clause extending to new or further developments can be of shorter duration.'

59. The Commission clearly indicated that the transfer of technical know-how in connection with the sale of an undertaking does not automatically preclude any further activity on the part of the seller based on such know-how . In drawing a distinction between the know-how existing at the time of the sale and new or further developments of the know-how, it indicated that a longer non-compete clause could apply in respect of the existing know-how. Thus, in the Authority's opinion, the Commission's views in Reuter/BASF do not support the arguments made by the parties.

60. In this instance the position with respect to ´know-how' is somewhat more complex. The Authority believes that the business in which AFCL is engaged, i.e. that of operating a custom fine chemical production plant, involves a degree of technical ´know-how'. The Authority also recognises, however, that there is another element of technical ´know-how' involved here. AFCL produces chemicals in accord with the specifications

of its customers. The know-how involved in producing the specific products belongs to those customers, who have effectively licensed it to AFCL. These two categories of ´know-how' must be treated differently.

61. In the latter case the Authority regards it as legitimate for customers who supply technical ´know-how' to AFCL in order for it to produce goods to their specifications, to restrict AFCL from using such know-how for any other purpose. Such know-how is the property of AFCL's customers, and was not, and is not the property of AFCL or of Angus. Consequently, to the extent that the restriction in clauses 9.1(iv) and (v), as notified, related to technical know-how provided to AFCL by one of its customers, in order to enable it to supply that customer, they do not offend against section 4(1). This was always the Authority's position and the Authority had never suggested that a restriction on the use or disclosure of such ´know-how' was anti-competitive.

62. The position with respect to technical ´know-how' regarding the operation of a custom fine chemical plant itself is different. In this instance the Authority agrees with the EC Commission view in Reuter/BASF that an obligation to keep know-how secret from third parties, imposed on the transfer of an undertaking, may not be used to prevent the transferrer, after the expiry of the reasonable term of a non-competition clause, from competing with the transferee by means of new and further developments of such know-how. To the extent that they have this effect clauses 9.1(iv) and (v), as notified, offended against section 4(1) as they went beyond what was necessary to secure the transfer of the business being sold.

63. In seeking to justify such a restriction, the parties, in the Authority's view, were asking it to take a different view to that of the Commission in Reuter/BASF for no good reason. In particular they argued that in the latter case the Commission view was prompted by the fact that the offensive clauses would have prevented the vendor, an individual, from earning a livelihood. In the Authority's view that is an incorrect interpretation of the Reuter/BASF decision, which found that a similar restriction was anti-competitive, as it prevented a vendor re-entering a particular business after a certain period of time. The Authority also rejects the claim that the Reuter/BASF decision was only concerned with a non-compete clause which was excessively long and not with the restrictions on the use of confidential information. Such an interpretation is inconsistent with what the Commission said as shown in above. In the Authority's opinion this requires that Angus be free to use any ´know-how' relating to the operation of a custom fine chemical plant which they possessed as the former owner of AFCL, to re-enter that market four years after completion of the sale.

64. In respect of other confidential information the Authority has indicated in ACT/Kindle and Budget Travel that a restriction on using or revealing confidential information of a non-technical nature could not be used to prevent the vendor from re-entering the market following the expiry of an acceptable non-compete clause. In the latter decision the Authority accepted the restriction subject to an undertaking by the purchaser that the clause would not be used in this way. The Authority therefore believes that the restrictions contained in clauses 9.1(iv) and 9.1(v), as notified, could have been used to prevent the vendor from re-entering the market and for this reason also they offended against section 4(1).

65. The parties have now amended the specific clauses in question. In particular the new clause 9.1(iv) provides for an unlimited restriction on the use or disclosure of ´know-how' which was owned by third parties or was owned jointly by the company and a third party, without the permission of that third party. For reasons already stated above the Authority does not believe that such a provision offends against section 4(1). The new Clauses 9.1(v) and 9.1(vi) prevent the vendor using or disclosing know-how which is the exclusive property of the business and other confidential information subject to the proviso that such restrictions will not prevent it from engaging in manufacturing or supplying or soliciting orders for products in competition with the company once four years have elapsed since completion. The Authority believes that this no longer represents an unlimited restriction on the use of the ´know-how' such as would prevent the vendor ever re-entering the market. Consequently, in its opinion, such restrictions do not offend against section 4(1).

The Supply Agreement

66. The Supply Agreement is an arrangement under which AFCL agrees to purchase 90% of its requirements of a particular product (nitromethane) which is used in producing NMSM under contract for one of its customers. The agreement is for a period of 3 years and is subject to automatic renewal on an annual basis thereafter unless one or other of the parties gives written notice of termination to the other.

67. This arrangement obliges AFCL to obtain 90% of its requirements from Angus thereby preventing it from obtaining the bulk of its supplies from other suppliers and also preventing such other suppliers from selling the product in question to AFCL. The parties have claimed in their defence that the only other sources of supply are three firms based in the Peoples' Republic of China. They have argued that it makes sense for AFCL to purchase its requirements from Angus rather than obtain supplies elsewhere, as the quality of such supplies might not be satisfactory to the customer who purchases the NMSM produced from the Nitromethane. In addition they have argued that the provision is designed to ensure supplies to AFCL from Angus which is the dominant producer of Nitromethane, and not to oblige AFCL to purchase from Angus.

68. Similar arrangements have been found to be in breach of EC competition rules. Although many of these cases have been regarded as infringements of Article 86, some were also found to infringe Article 85(1). In Billiton/M&T an agreement by M&T to purchase all of its requirements of tin tetrachloride, used in its production of tin cans, from Billiton, was found to infringe 85(1) as well as Article 86. Similarly in Soda Ash I the EC Commission insisted on the deletion of such restrictive arrangements. In Carlsberg the Commission found that an agreement by Grand Metropolitan to purchase large quantities of lager from Carlsberg for a period of 11 years, where the quantity involved represented over half of Grand Metropolitan's lager requirements, infringed Article 85(1) on the grounds that it prevented the purchaser from producing this quantity itself, or from obtaining it from other producers. In Industrial Gases, the Commission secured an amendment whereby clauses requiring customers to obtain all or a fixed percentage of their requirements from one supplier were replaced by commitments to purchase quantities falling within a fixed minimum-maximum.

In Moosehead/Whitbread, however, the Commission found no infringement of Article 85(1) in the case of an exclusive purchasing obligation for yeast, on the grounds that it was necessary to ensure satisfactory exploitation of know-how and trademarks licensed under the agreement.

69. While accepting that Angus is a dominant producer of Nitromethane and that some provisions are required to ensure supplies to AFCL so that it may continue to produce NMSM, the Authority nevertheless considers that such a provision restricts competition for the supply of Nitromethane to AFCL. It may be, as the parties claim, that there are only a small number of suppliers of the product throughout the world. Nevertheless the provision restricts competition by obliging AFCL to purchase 90% of its requirements from a single supplier which is stated to be dominant in the market for that product. In addition the provision would prevent new suppliers from competing for AFCL's business. Consequently it restricts competition in the market for the product within the State and offends against section 4(1).

70. The licence agreement provides that, should AFCL be unable to obtain supplies of Nitromethane from Angus or any other source, Angus will provide it with the necessary know-how to produce its requirements of the product itself. The agreement provides that the know-how only be used to produce the product for use as a raw material in the production of NMSM, which AFCL has a long term agreement to supply to a customer. AFCL will have the title to any improvements which it makes to the know-how and grants Angus an irrevocable non-exclusive, royalty free perpetual right and license to such improvements. AFCL is prohibited from disclosing the licensed know-how to third parties except where it has come into the public domain or it has obtained the know-how from another source or is developed independently by AFCL.

71. The Licence Agreement is a form of ´know-how' licence agreement. Certain restrictions e.g. those on disclosure, in the agreement are necessary to protect the secret know-how which is the lawful property of Angus. Unless such know-how were protected, then Angus would almost certainly not provide the know-how necessary for the production of the product concerned to AFCL. Without the licence AFCL might not be able to supply NMSM to its client.

72. AFCL may only use the know-how to produce NMSM during periods when it is unable to obtain supplies from Angus or any other source. The ´know-how' belongs to Angus. They are under no obligation to supply such ´know-how' to AFCL. Angus is not licensing the ´know-how' to AFCL to enable it to engage in the production of nitromethane generally. It cannot restrict competition since in the absence of the licence AFCL could not produce nitromethane. The arrangement is designed purely to ensure that, in the event of any disruption of supplies, AFCL will be able to produce its own supplies of nitromethane in order to continue producing NMSM. While the EC Know-How licensing Regulation provides that a licence may not restrict the quantities which the licensee may produce, the Authority considers that the present arrangement is not a standard know-how licence but is an arrangement designed to deal with a particular contingency, which may never arise. Consequently, in the Authority's view the licence agreement does not offend against section 4(1).

73. The Secrecy Agreement is concerned with preserving confidential information, essentially technical know-how, which Angus had previously supplied to AFCL, to enable AFCL to produce certain products for Angus. While such information was not provided as part of a know-how licence arrangement, it was in many respects a similar type of arrangement, albeit one between a parent and subsidiary. As in the case of licensed know-how, the know-how is the property of the parent, and it is entitled to be protected against its disclosure to third parties. Consequently, in the Authority's opinion, the Secrecy Agreement does not offend against Section 4(1).

74. The remaining agreements involve a variety of diverse arrangements, including provisions for the valuation of stocks, the transfer of rights over technological developments stemming from a University Research Programme funded by AFCL when it was an Angus subsidiary, arrangements for the issue and sale of Hickson shares by Lazard to fund the purchase of AFCL, and consultancy agreements whereby Angus agrees to supply the services of certain staff to assist AFCL in the development of technology for use in the production of certain products for supply to AFCL's customers. In the Authority's opinion none of these agreements have either the object or effect of preventing, restricting or distorting competition within the State or any part of the State, and do not offend against Section 4(1).

75. Under Section 4(2), the Competition Authority may grant a

licence in the case of any agreement which offend 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.'

76. Clauses 9.1(iv) and 9.1(v) of the sale agreement, as notified, relating to the use and disclosure of confidential information went beyond what was necessary to secure the transfer of the goodwill of AFCL. They could not therefore be regarded as indispensable and consequently they did not satisfy the requirements for a licence under section 4(2).

77. The supply agreement provides AFCL with the raw material necessary to produce certain products under contract for [ ]. It therefore contributes to improving the production of goods. The customers of AFCL benefit from this to the extent that they obtain supplies of the finished products as a result. Supply agreements of this type are dealt with in the EC Commission Notice on Restrictions Ancillary to Concentrations. The notice recognises that it may be necessary, at least for a transitional period, to maintain a supply arrangement between the purchaser and the vendor because the transfer of the business may entail the disruption of traditional lines of internal procurement and supply arising from the previous integration of operations. The Commission's view is that there is no general justification for exclusive purchase and supply obligations. The notice states that:

´Save in exceptional circumstances, for example, resulting from the absence of a market or the specificity of products, such exclusivity is not objectively necessary to permit the implementation of a concentration in the form of a transfer of an undertaking or part of an undertaking.'

It also states that the duration of such provisions ´must be limited to a period necessary for the replacement of the relationship of dependency by autonomy in the market. The duration of such a period must be objectively justified.'

78. The Authority notes that, in this instance, there are only a small number of suppliers of the product in question worldwide, and that Angus is the dominant producer. It also recognises that access to supplies is essential for AFCL to produce certain products in order to supply its customers. It accepts that in the absence of such a provision there could well be a disruption of supplies to AFCL. Were AFCL to be denied access to supplies, there is a significant possibility that it would not be able to produce NMSM. Were this to happen AFCL would lose a valuable customer accounting for one third of its output. The Authority believes that, in such circumstances, guarantees of supply were essential to Hickson agreeing to acquire AFCL at the price paid. Consequently the Authority believes that such a provision may be indispensable for a time.

79. The Authority does not believe that the supply agreement affords the undertakings the possibility of eliminating competition in respect of a substantial part of the market in question. The supply agreement therefore satisfies the requirements of section 4(2). In the circumstances the Authority considers that as it regards the restrictions in the agreement as only necessary to avoid disruption to supplies in the short-term, the licence should be limited to a period of 5 years from the date of notification.

80. In the Authority's opinion, Hickson International, Angus Fine Chemicals and AFCL are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition by Hickson of the business of AFCL, together with the related agreements involving Hickson, Angus and AFCL constitute an agreement between undertakings.

81. In the Authority's opinion the agreement for the sale of AFCL by Angus Fine Chemicals to Hickson International, as amended by the Supplemental Agreement of 1 September 1994 does not offend against section 4(1) of the Competition Act. The Supply Agreement between AFCL and Angus offends against section 4(1). The remaining agreements do not, in the Authority's opinion, offend against section 4(1). In the Authority's opinion, the Supply Agreement satisfies the requirements for a licence. The Authority believes that a licence for a period of five years from the date of notification, i.e. 29 July 1992, is justified in this instance.

82. 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 of 8 July 1992 between Angus Chemical Company and Hickson International plc for the sale to Hickson of Angus Fine Chemicals Limited, (CA/56/92), notified on 29 July 1992, under section 7, and amended by the Supplemental Agreement of 1 September 1994, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

7 September 1994.

83. The Competition Authority has granted the following licence:

Pursuant to Section 4(2) of the Competition Act, 1991, the Competition Authority hereby grants a licence to the agreement of 8 July 1992 between Angus Chemical Company and Angus Fine Chemicals Limited for the supply of Nitromethane by Angus Chemical Company to Angus Fine Chemicals Ltd., which was entered into pursuant to the sale of Angus Fine Chemicals Ltd. to Hickson International plc, (CA/56/92), notified on 29 July 1992, under section 7. This licence shall apply from 29 July 1992 to 28 July 1997.

For the Competition Authority

Patrick Massey

Member

7 September 1994.