Irish Competition Authority Decisions

1. Notification was made by Cross Vetpharm Group Ltd 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 grant a certificate, a licence under Section 4 (2) in respect of a standard agency agreement between Osmonds, a division of Cross Vetpharm Group Ltd, and its representatives. A Statement of Objections was issued on 16 May, 1995, to which no response was received.

2. The notification concerns a standard agency agreement between Osmonds, a division of Cross Vetpharm Group Ltd,"the principal" and its "representatives" who act as agents for Osmonds. The company has agency agreements with each of its 14 representatives.

3. Cross Vetpharm Group Ltd is a distributor of veterinary products which it distributes through its retail division - Osmonds. It is based in the State and is an Irish registered company. The company also manufactures veterinary products itself and supplies directly to the general farming public. The company has 14 representatives who act as agents in order to obtain business for Osmonds within a defined territory.

4. The products involved in this notification are veterinary products for use primarily as animal remedies by the general farming public. The company manufactures veterinary products and distributes products on behalf of its associated companies also through its retail division - Osmonds - and the representatives. There are a number of other Irish companies involved in the distribution of veterinary products including Co-operative Animal Health Limited as well as the Agricultural Co-operative Societies and agricultural merchants. There are also a number of manufacturers, suppliers, distributors and importers of veterinary products operating in this market.

5. The agency agreement is a standard agreement with each of the company's 14 representatives whereby Osmonds is the principal and the representatives are appointed as agents for the sale of pharmaceutical products. There is no fixed date for termination of the agreement, but it may be terminated by either side by 30 days' notice in writing. The agent takes orders from customers and transmits them to the principal, collects payment and transmits it directly to the principal. The agent is paid a commission calculated as a percentage on invoices issued and cash received. The agreement is in the form of a letter with the terms and conditions in a separate document attached to it.

6. Under Clause 3 of the Letter of appointment the agent agrees to: "...not at any time either during or after the termination of the Appointment,...disclose or communicate to any person ...any information .."

7. Under Clause 3 of the "Conditions" the agent "...shall not approach any prospective customer outside the Area or otherwise canvass for business outside the Area without the prior written consent of Osmonds. If the representative writes any business outside the Area Osmonds reserves the right to retain all or part of the commission which would otherwise be payable to the Representative in respect of such business ..."

8. Under Clause 6 of the Conditions the agent shall "...take all such orders at the prices fixed by and on the terms and conditions of sale of Osmonds. The agent also agrees not to "...engage or be interested or concerned either directly or indirectly as principal Representative employee or other wise in any other business or trade concerning goods or goods and services of the kind sold by Osmonds."

9. Under clause 18 the agent agrees that he:

" (a) will not seek to obtain business outside the area without obtaining the prior written permission of the Manager of Osmonds;..."

10. Under Clause 19 of the Conditions the agent agrees that:

" (a) for a period of one year after the termination of this Agreement for any cause whatever, the Representative shall not canvass, solicit or endeavour to take away from Osmonds business or any customers or clients of Osmonds who have been customers or clients of Osmonds prior to the termination of this Appointment."

11. Osmonds submitted that clauses 3, 6 and 19 (a) of the Conditions were included because of the incidence of representatives leaving the company and attempting to induce customers to do business with them. They submitted that these clauses were reasonable on the grounds that the former representative/agent had gained knowledge of their customers base and expertise at the Company's expense. They submitted that past experience indicated that the representative/agent capitalised on his former association with the company and the high standing of the name whilst not necessarily working to the same standard required by Osmonds. A high percentage of representatives who attempted to go out on their own failed in a very short space of time but they caused a lot of problems which in turn created a bad image for the Company within the marketplace.

12. Osmonds maintained that this market was a highly competitive market and as they dealt principally in the promotion and sale of products made by associated companies within the Republic of Ireland and had traditionally built up a very good relationship with customers, it was necessary to ensure that a former agent/representative did not use and/or abuse the knowledge that he had come into while an agent for Osmonds. The company submitted that if an agent traded in a successful location on behalf of Osmonds and formed a relationship with a customer and then attempted on ceasing his Agency Agreement with Osmonds to change that customer to other products it could have a disastrous effect on not only the profitability and continuance of the Osmond good name but further result directly in the loss of employment in the company.

13. Osmonds submitted that the company did not seek to restrict the former agent in his obtaining employment or continuing as an agent within the country. It simply wished to restrict the agent from utilising information that had come into his possession while acting as an agent for the company. They claimed that under Common Law agents could be so prevented. The Company maintained that the clauses in this agreement would not restrict competition from persons who wished to conduct themselves professionally but would deter an opportunist wishing to capitalise on the goodwill of a company which had invested many years in developing a professional approach in industry.

14. The Authority issued a Statement of Objections to the notifying party on 16 May, 1995 indicating that it intended to refuse a certificate or licence to the notified agreement and setting out the reasons why it intended to do so. No response was received from them.

15. 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'.

16. 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.' Cross Vetpharm Group Ltd trading as Osmonds is engaged for gain in the distribution of veterinary products and is an undertaking within the meaning of the Act. The agents are also undertakings by virtue of the fact that they are contracted to act as self employed representatives for Osmonds and are conducting their own businesses in doing so. Consequently, the notified arrangements constitute an agreement between undertakings.

17. This agreement creates an agent-principal relationship between Osmonds and its representatives. The Authority has stated in the Conoco consignee agreement [1] that the relationship of principal and agent does not in itself offend under section 4(1), and that certain restrictions which are necessary to that relationship also do not offend. This agency agreement per se does not offend and nor do the clauses of the agreement save as follows.

18. Clause 19 provides for a one year post termination non-solicit of the business or customers of the principal. The Authority has previously stated in relation to employees [2] that such a restriction, provided it is limited in time and is confined to the customers of the employee's geographical area, is not offensive. The Authority considers that the same considerations apply in relation to this agency agreement. A restriction on the agent soliciting those customers of the former principal with whom he has dealt may therefore be regarded as essential both to protect the principal's proprietary interest in the goodwill of his business and to normal agent/principal relationships. Where, as here, the restriction extends to a wider area, and to customers other than the customers of the agent it is not justified for the above purpose and offends against Section 4 (1). The notification includes the argument that "the Company does not seek to restrict the agent...continuing as an agent within the country." If the intention of the parties is to restrict the agent only in his own former contract area, as this suggests, that would not be offensive, but the wording of the agreement goes further than that.

19. Under Section 4 (2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which, "having regard to all relevant market conditions, contributes to improving the production or distribution of goods or provision of a service 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 undertaking 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".

20. The arguments offered in the notification in relation to clause 19 relate to Section 4(1) and not Section 4(2) considerations. No facts given in the notification indicate an improvement in production or distribution of goods or technical or economic progress resulting from this clause and the Authority therefore cannot find this restriction to be indispensable to any such improvement. In any case the Authority does not consider that the restriction is indispensable for the attainment of any improvement attributable to this agreement.

21. In the opinion of the Competition Authority the standard agreement between Cross Vetpharm Group Ltd, trading as Osmonds, and their agents for the promotion and sale of veterinary products (notification no. CA/989/92E) notified on 30 September, 1992, under Section 7, constitutes an agreement between undertakings. It considers that clause 19 of the Conditions of the Agreement offends against Section 4(1) of the Competition Act, 1991 and does not satisfy the requirements for a licence under Section 4(2). Consequently the Authority refuses a certificate or licence in respect of this agreement.

For the Competition Authority

Patrick Massey

Member

25 August 1995.