Irish Competition Authority Decisions

1. Notification was made of a standard distributorship agreement between Murphy Brewery Ireland Ltd and seven of its distributors on 30 September 1992, with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2).

2. The notification concerns an agreement between Murphy Brewery and seven of its distributors, whereby each distributor is appointed exclusive sales agent of its draught Heineken lager and Murphy's stout within a specified territory.

3. Murphy Brewery is an Irish registered company, located in Cork, whose ultimate parent company is Heineken N.V. of the Netherlands. It is involved in the brewing, marketing and distribution of beers. The seven distribution companies subject to the agreement at the time of notification were as follows:

(i) Cooney & Co;

(ii) Kerry Keg Distributors Ltd;

(iii) Harold Reinhardt;

(iv) Cill Dara Keg Distributors;

(v) Limerick Keg Co. Ltd;

(vi) George Stafford Sales Ltd; and

(vii) Tipperary Wholesale Ltd.

A different agreement with Clada Soft Drinks Ltd has been notified, and is the subject of a separate decision. Another different agreement, with West Cork Bottling Company, has not been notified.

4. The products involved in the standard agreement are draught Heineken lager and Murphy's Irish stout. Murphy Brewery estimates that it has the second highest share in the market for beer, lager and stout in the State, but this is very much smaller than that of the market leader, Guinness. The service involved is the distribution of these products to the licensed trade. Murphy Brewery delivers directly to the licensed trade in Cork and Dublin, and elsewhere it uses various distribution companies. Murphy Brewery stated that there were a very large number of actual and potential suppliers of distribution services for this market.

5. The notified sales agency agreement was made with the first distributor on 1 May 1992. The agent was made exclusive sales agent of the products in the territory outlined in a map. All enquiries received by Murphy Brewery from the territory are to be referred to the agent, and the agent may be given rights in the territory for any new draught products. The agent will not seek customers or promote products outside the territory, nor stock the products in any branch or distribution warehouse outside the territory. The agent is required to accept all orders from customers within the territory for the products; to collect the products from Murphy Brewery's premises at the agent's expense; to collect cash payments from certain customers; to support the sale of the products in order to achieve any sales targets agreed; to keep proper books and records and allow their inspection; and not to accept orders from customers whom Murphy Brewery has given notice are not to be supplied. Advertising and other expenditure must be authorised by Murphy Brewery, but the agent must spend a minimum sum each year on advertising and promotion. The agent is to be paid a fixed cash commission for each keg of the product sold. The commission is to be adjusted each year by reference to movements in transport costs calculated by reference to Consumer Price Commodity Group Indices. The agreement may not be assigned without consent. No brand or identification may be changed or defaced in any way. Title in the products is retained at all times by Murphy Brewery and the products at all times remain the property of Murphy Brewery. The agent is authorised to accept orders and to deliver products to customers on foot of accepted orders. Murphy Brewery agrees to actively promote the products by placing at least one sales representative and one dispense service mechanic in the territory. Murphy Brewery agrees to honour all contracts for the sale of products and to deal with all after-sales enquiries. The initial term of the agreement is three years, and it may be extended for additional three year periods.

6. Murphy Brewery stated that the exclusive nature of the agreement could be regarded as anti-competitive, but this was contemplated by EU Regulation 1983/83, and was justified by the circumstances of the market. It submitted that the distributor was effectively an agent rather than a distributor, and the agreement should be entitled to a certificate since such a relationship did not restrict competition. Reference was made to the 1962 Notice on agents by the EU Commission. The distributor bore no financial risk and constituted an agent. It was argued that the arrangements would facilitate the development of new, and the maintenance of existing, competitors in the market to stimulate further competition by offering high quality service. There was a relatively high number of competitors and this number would not be significantly reduced. The arrangements allowed for the creation and maintenance of new competitors in the geographical market because of the ability to use a local distributor with local contacts and distribution arrangements. Murphy Brewery stated that it believed that the agreement did not appreciably affect trade in the State.

7. Murphy Brewery also stated that the agreement benefited from exemption under EU Regulation No. 1983/83, and, in the light of this, it was submitted that Section 4(1) of the Competition Act did not operate to prohibit it. Reference was made to the case law of the Court of Justice whereby conflicts between Community competition law and national competition rules ´must be resolved by applying the principle that Community law takes precedence.' Murphy Brewery argued that an interpretation of the Act which would result in the prohibition of an agreement falling within the provisions of the block exemption regulation would prejudice the uniform application throughout the Community of EEC competition law. Murphy Brewery argued that the appropriate measure for the Authority to take would be to grant a certificate to the agreement. Murphy Brewery also presented arguments in support of its request for a licence, which are not relevant to this decision.

8. In response to questions from the Authority in August 1993, Murphy Brewery stated that the agreement was merely agency whereby the ´agent' merely collected the goods and delivered them, and prepared a delivery docket; Murphy Brewery invoiced the customer. It also stated that the agreement was a pure delivery agreement.

9. Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings 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.

10. 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." Murphy Brewery is engaged in the production and distribution of goods, and the distributors are engaged in the distribution of goods. They are all undertakings, and the agreement is an agreement between undertakings. It has effect within the State.

11. The essential feature of the notified standard agreement is that the distributors take orders from, and deliver Murphy Brewery products to, Murphy Brewery customers; in return for the performance of these services, the distributors are paid a fee by Murphy Brewery. The agreement does not involve the purchase and resale of the products by the distributors, and it is not an exclusive distribution agreement as defined in the category licence for exclusive distribution agreements (Decision No. 144, of 5 November 1993), nor as defined in EU Regulation 1983/83. Since the distributors are intermediaries who have continuing authority to negotiate the sale of goods on behalf of Murphy Brewery, they are, in the opinion of the Authority, commercial agents of Murphy Brewery.

12. As the Authority stated in the Conoco consignee agreement (Decision No. 286 of 25 February 1994), it considers that an agreement between a principal and its commercial agent does not, in principle, offend against Section 4(1) of the Act. The Authority considers that the notified Murphy Brewery agreement does not offend against Section 4(1).

13. The Authority also stated in its Conoco decision that, even though the basic arrangement of commercial agency might not offend against Section 4(1), certain clauses in the agreement might occasionally do so. The Authority considers that none of the clauses in the notified standard agreement offend against Section 4(1). In particular, the Authority does not consider that Clause 2, which provides that the agent must not actively seek customers or promote the products outside the territory, affects competition. Murphy Brewery appoints an agent for a specific territory, the agents do not purchase the goods for resale, and the price of the goods to customers is determined by Murphy Brewery. Clause 2 does not prevent or restrict any competition between the agents which would have occurred in the absence of the clause. In addition, the principal is entitled to determine the duration of a commercial agency agreement, and the remuneration paid to agents, without there being any effect upon competition.

14. Murphy Brewery and its distributors are undertakings, and the notified agreement is an agreement between undertakings. In the Authority's opinion, the notified standard agreement is a commercial agency agreement, and it does not have the object or effect of preventing, restricting or distorting competition.

15. 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 standard form distribution agreement between Murphy Brewery Ireland Ltd and its distributors notified under Section 7 on 30 September 1992 (notification no. CA/428/92) does not offend against Section 4(1) of the Competition Act, 1991.