Irish Competition Authority Decisions

1. Notification was made on 15 June 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 grant a certificate, a licence under Section 4(2) in respect of an Agency Agreement between Cerestar UK Ltd and Betco Marketing Ltd. Notice of intention to issue a certificate was published in the Irish Times on 14 October 1994. No submissions were received by the Authority.

2. The notification concerns an agreement dated 24 March 1992 whereby Cerestar UK Ltd, as principal, has granted to Betco Marketing Ltd, as agent, the sole agency for the marketing of certain Cerestar products in the State and in such other geographical areas as may from time to time be agreed.

3.(i) Betco Marketing Ltd, which was established in 1991 by two former employees of Cerestar in Ireland, is an Irish company based in Cork with an issued share capital of £100. Its turnover in 1993 was £279,000. In addition to the sole agency agreement with Cerestar UK, which comprises 95% both of Betco's activities and turnover, Betco also holds sole agencies from Rotterdamsche Margarine Industrie (Romi) and Holland Sweetener Company. The products involved in the 3 agencies are stated to be complementary to and not in competition with one another.

(ii) Cerestar UK Ltd is a UK company based in Manchester which is engaged in the manufacture of starch and glucose for use in the manufacture of a wide range of food and chemical products. The company's turnover during the 1993 financial year was Stg.£ 180.7m with direct sales in the State in 1992 stated to be £13m. The ultimate parent company of Cerestar UK Ltd is Montedison Spa which is a large multinational agro industrial group. The direct parent company of Cerestar UK Ltd is Cerestar Holdings BV of the Netherlands whose business throughout Europe is starch and glucose manufacturing.

4. The products which are the subject of the notified agreement are those products which are manufactured by Cerestar UK Ltd or manufactured for Cerestar UK Ltd which are from time to time agreed between Cerestar & Betco as being included in the agreement. The products fall into three categories:

(i) Products derived from starch, including Vital Gluten;

(ii) Gluten Feed, Gluten Meal and Corn Steep Liquor;

(iii) Caramel Colour/Glucose.

These products are elements of foodstuffs and are sold onwards to Irish manufacturers of food, confectionery, brewing products, soft drinks, chemicals etc. The products form part of the starch/sweetener market which, including sugar, is estimated by Betco at £150m annually.

5. Betco have indicated that there are several companies competing in the Irish market for the products in question including starch and glucose manufacturers, sugar manufacturers and barley/malt producers. According to the notifying parties the market is a very competitive one because the large European manufacturers of starch and glucose all have agency agreements with Irish agents. There is no Irish manufacturer of starch and glucose and there are no significant barriers to entry to the market. Competition in the market is enhanced because of the alternative sources for the production of starch (it can be produced from maize, wheat and potatoes) and also because sugar/glucose can be used as an alternative sweetener. Betco estimate that the Cerestar products account for 38% of the Irish market for these products.

6. Betco Marketing Ltd is not, under the terms of the notified agreement, allowed to market or promote or solicit orders for, the products outside the State, unless the parties agree in writing to include other geographical areas. The relevant market is, therefore, the State.

7. The notified agreement is an Agency Agreement dated 24 March 1992 under which Cerestar appoints Betco as its sole agent for the marketing, sales promotion and soliciting of orders for certain Cerestar products within the State (the Territory). The agreement operates for the initial period from 1 November 1991 to 31 December 1996 and continues indefinitely thereafter unless terminated by either party on 6 months notice to expire at a year end. The duties of the agent and principal are set out in detail in the agreement. The agent is empowered as sole agent to negotiate and enter into contracts for the sale of Cerestar products on terms within the general guidelines and conditions set by Cerestar. Cerestar will specify the prices to be charged and Betco cannot offer discounts below those set by Cerestar. Cerestar may remove products from the agreement if it has good grounds for doing so but may not appoint another agent in the territory for such products. Cerestar may make sales in the territory whether or not the customer was introduced by Cerestar

Under clause 4, the agent undertakes, inter alia, to serve the principal as an agent with due and proper diligence, to use his best endeavours to promote, market and increase sales of the Cerestar products, to pass on to the principal all enquiries about the products, to maintain at his own expense offices and administration facilities, etc.

Clause 4.7 provides that the Agent will "not without the previous consent of the Principal market or promote the Products outside the Territory nor solicit orders for the Products from any person outside the Territory or any person in the Territory if the Agent knows or has reason to believe that the Products concerned will be resold outside the Territory;"

Clause 4.8 provides that the agent ".... will not during the continuance of this Agreement and for a period of one year after its termination (without the previous written consent of the Principal) be concerned or interested either directly or indirectly in the manufacture, production, importation, sale, marketing or promotion of any goods within the Territory which are like, or similar to, or which perform or are designed to perform the same or a similar function as the Products or any other products which have at any time during the continuance of this Agreement been marketed or sold by the Agent on behalf of the Principal or which might otherwise compete or interfere with the sale of any of the Products or such other products;" However, clause 8.4 provides that if within 5 years of the date of the agreement, the agreement is terminated as a result of the agent failing to achieve targets or if some other person is appointed agent then the one year non compete clause would not apply to Betco.

Clauses 6 and 7 provide that the agent must forward any orders to the principal. The orders must be approved by the principal and payment made to the principal.

Clause 8 of the agreement requires the principal to provide the agent, free of charge, sales and promotional material, samples and technical support. The principal undertakes not to appoint any other to be its agent in the territory except if either party has given notice of termination or the agent has failed to reach sales targets. The clause also provides for the payment of commission to the agent based on a fixed sum per tonne of products sold in the territory.

Clause 9 of the agreement requires the agent during the term of the agreement and after its termination to keep Restricted Information confidential and not to use it for any purpose other than for the performance of obligations under the agreement. Restricted information is defined as any information or data disclosed to the Agent pursuant to the agreement but does not include information which has become public knowledge or information which was already known by the Agent.

Clause 10 of the agreement provides that the agent must use his best endeavours to achieve sales targets set by the Principal while clauses 11 and 12 relate to events and consequences of termination of the agreement. Clause 13 relates to protection of the intellectual property rights of the Principal.

The agreement also contains clauses relating to a review or amendment of the agreement to comply with requirements of EU Council Directive 86/653 relating to Commercial Agents (clause 2.4) or to comply with any requirements of the Competition Authority (clause 14).

8. The parties have submitted that the notified agreement is an agency agreement between them for the sole and exclusive agency of Betco Marketing Ltd to Cerestar UK Ltd. They maintain that the agreement will not prevent, restrict or distort competition in the State or in any part of the State. According to the parties the agreement merely restricts who Cerestar can appoint as its agent for the sale and marketing of the products in question and also regulates Betco's obligations and rights under the agreement. The parties maintain that the restrictions in the agreement which are imposed on the parties are necessary to attain the objectives of selling Cerestar products in the Republic of Ireland by means of a sole agent. The purpose of the restrictive covenants in the agency agreement is not to eliminate competition in Ireland vis-a-vis the sale of the Cerestar products but to regulate the actions necessary to achieve the objective of selling the Cerestar products in Ireland via a sole agent.

9. The parties also claimed that agency agreements are subject to a block exemption under Article 85 of the Rome Treaty. They added that the (EU) Council stated "that in its view contracts made with commercial agents in which those agents undertake for a specified part of the territory of the Common Market to negotiate transactions on behalf of an enterprise or to conclude transactions on behalf of an enterprise whether in their own or the enterprise's name are not covered by the prohibition contained therein".

10. As regards the post term non compete clause 4.8 in the agreement Cerestar has explained:

"Betco Marketing Limited will, as the agent, be furnished with confidential and trade information concerning the businesses of Cerestar UK Limited, the principal. In addition, Betco will have direct contact with the customers and suppliers of Cerestar. In such circumstances, clause 4.8 is regarded as a fair and lawful protection of Cerestar's business interests in Ireland. The restriction is reasonable in that it is limited to "the Territory" and is for a period of only one year from termination of the Agreement".

11. On the question of other agencies Betco has indicated that:

"(i) The three Agency Agreements with Cerestar, Rotterdamsche and Holland Sweetener Company are the only Agencies held by the Company. Notification has been made to the Authority in respect of each Agreement.

(ii) The products covered by the Agency Agreements are non-competing products. The Agency Agreement with Holland Sweetener Company is for Aspartame which is a specific type of sweetener commonly used in soft drinks. The Agency Agreement with Cerestar covers starches and different types of sweeteners eg Glucose which are complementary to the Aspartame supplied under the Holland Sweetener Company Limited Agency Agreement. In addition some small quantities of edible oils are sold on behalf of Cereol, a Cerestar Group Member, under that Agency Agreement. The types of oil supplied are sunflower oil, rape seed oil and ground nut oil which are complementary to the oils supplied under the Rotterdamsche Agency Agreement i.e. palm oil and coconut oil.

(iii) Betco Marketing Limited does not engage in any other business apart from these Agencies.'

12. Agency agreements are not subject to a block exemption. The EU Commission issued a notice on Exclusive Dealings with Commercial Agents in 1962 but this Notice is now regarded as legally obsolete. The EU Commission has indicated its intention to prepare a revised Notice on this matter but this has not yet been finalised. The EC Court of Justice considered the question of agency in the Suiker Unie case, where it stated:

'If such an agent works for his principal he can in principle be regarded as an auxiliary organ forming an integral part of the latter's undertaking bound to carry out the principal's instructions and thus, like a commercial employee, forms an economic unit with this undertaking'. The EU Council Directive on Self Employed Commercial Agents (86/653/EEC) was adopted on 18 December 1986 and was implemented into Irish law from 1 January 1994 by way of Statutory Regulation SI No. 33 of 1994. A commercial agent is defined in the Directive as "a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person, hereinafter called the principal, or to negotiate and conclude such transactions on behalf of and in the name of the principal". The Directive outlines rights and obligations for commercial agents and principals.

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". Cerestar is a body corporate engaged for gain in the production, supply and distribution of starch and sweetener products while Betco is a body corporate engaged for gain in the provision of a service associated with the same goods, i.e. the marketing and promotion of the sale of the goods in the State. The Authority considers that both companies are undertakings and that the notified agency agreement is an agreement between undertakings. The agreement has effect within the State.

15. The relationship between Cerestar and Betco has been summarised in para 7. Both parties have argued that the agreement is a commercial agency agreement and that the agreement does not offend against Section 4(1). Given the terms of the agreement and the relationship between Cerestar and Betco the Authority considers that Betco is an intermediary between Cerestar, the principal, and the purchaser of the goods and is therefore a commercial agent of Cerestar.

16. As the Authority stated in the case of 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 Competition Act. In this instance Betco acts as commercial agent for three separate principals ,viz., Cerestar, Romi and Holland Sweetener. However the products covered by each agency agreement are not in competition with one another and the Authority takes the view that since the other interests do not create a conflict with the duty of loyalty by Betco to Cerestar the necessary close identification of Betco, with Cerestar is not affected. The Authority therefore considers that the agreement between Cerestar and Betco, insofar as it creates an exclusive agency relationship between the principal and the commercial agent, does not offend against Section 4(1). The Authority might take a different view in circumstances where an agent was involved in the distribution of a wide range of competing goods or where two direct competitor companies appointed the same agent.

17. The Authority also stated in its decision on Conoco 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. In the Authority's opinion many of the clauses in the notified agreement, which might otherwise raise issues under the Competition Act, arise from this basic arrangement and therefore do not offend against Section 4(1). These include the arrangements for the exclusivity of Betco's appointment, the territorial restrictions on marketing and the setting of prices and contract conditions by Cerestar.

18. Clause 4.8 of the agreement imposes a post term non compete clause on Betco by providing that during the 5 year period of the agreement and for a period of one year after it is terminated Betco is precluded from being involved with competing goods. The Authority has tended to oppose the imposition of post termination non compete clauses in exclusive dealing agreements. The Authority has also indicated that such clauses in employment contracts would offend against Section 4(1) where the former employee attempted to set up in business in competition with the former employer. In the case of a sale of business, however, the Authority has accepted that a post termination non compete clause is essential to ensure the transfer of the goodwill.

19. The notified agreement is not a sale of business agreement, nor is it an employment contract. It is an agreement between an agent and a principal. The Authority takes the view that the one year non compete clause on termination arises from the basic arrangement between Cerestar and Betco. During the term of the agreement the special relationship of agent and principal means that the agent is wholly integrated into the distribution system of the principal and is privy to the principal's affairs with contacts with the principal's customers which could enable him to compete unfairly with his principal or the agent who succeeds him. The EU Directive on Commercial Agents provides for a maximum post term non compete clause of 2 years from termination. As the period provided for in the notified agreement is less than that, the Authority considers that this clause does not offend against Section 4(1).

The effect of a one year noncompete clause on an agent like Betco would be minimal. Only a relatively small number of persons would be affected by a non compete clause of this nature because it is understood that there are very few agents involved in commercial operations compared to employees.

20. Clause 9 of the notified agreement imposes restrictions on Betco as regards the use of confidential information during the course of the agreement and after its termination. The Clause allows disclosure by the agent for the purposes of the Cerestar agency and to the extent necessary and as far as possible, on a confidential basis to customers or prospective customers. The definition of "Restricted Information" in the recitals of the agreement includes all information disclosed by Cerestar to Betco whether classified as confidential or not. Effectively the information involved is confidential and trade information concerning the business of Cerestar which has been provided by the principal to the agent to enable the agent to act in the capacity of its intermediary. It does not include information in the public domain or information already known to the agent prior to it being disclosed to him by Cerestar. The information belongs to the principal and is not the agent's information. It is supplied to the agent in the context where the agent is in a position of trust more similar to that of an employee rather than that of an independent trader. During the continuance of the agreement such a confidentiality requirement seems quite justified to avoid the possibility of the essential loyalty of the agent to the principal from being compromised and would not, in the Authority's opinion offend against Section 4(1).

21. The confidentiality requirement lasts indefinitely after the agency terminates and the Authority would be concerned that a clause of this nature should not be used to prevent Betco from competing with Cerestar after the agency agreement has been terminated. However in this instance Betco is engaged in the business of the provision of agency services i.e., sales promotion of Cerestar products, rather than in the production of and trading in the products manufactured by Cerestar. If Betco wished to enter the market in competition with Cerestar, following the termination of its agency with Cerestar, it would seek to do so as a agent for competing products. Betco would not need to be able to use or disclose confidential technical information relating to Cerestar's processes or costings to compete fairly in such an event. The confidential information in this instance is akin to technical know how. EU Regulation 556/89 which relates to Know How Licensing agreements permits restrictions on post term use of technical know how as long as the information has not fallen into the public domain. This is in the case of a licensee who operates on a much more arms length basis to the licensor than that of an agent to a principal. Betco's own commercial information relating to the Irish market is not affected by the clause as the clause relates only to information disclosed to the Agent by the principal or any other member of the principal's group. The Authority therefore concludes that the operation of this clause would not have the object or effect of preventing Betco competing with Cerestar if the current agreement terminated. In the Authority's opinion therefore, none of the provisions in the notified agreement offend against Section 4(1).

22. Cerestar UK Ltd and Betco Marketing Ltd are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified agency agreement is an agreement between undertakings. In the Authority's opinion the notified agreement between Cerestar UK Ltd and Betco Marketing Ltd does not offend against Section 4(1) of the Competition Act, 1991

23. 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 Agency Agreement dated 24 March 1992 between Cerestar UK Ltd and Betco Marketing Ltd notified under Section 7 on 15 June 1992 (notification no. CA/48/92) does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Des Wall

Member

21 November 1994.