Irish Competition Authority Decisions

1. Separate notifications were made by each party of a distribution agreement between Northern Telecom (Ireland) Ltd (NT) and Telecom Eireann Information Systems Ltd (TEIS) 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 to issue a certificate, a licence under Section 4(2) of the Act.

2. The notification concerns an unwritten agreement which has been in operation since 1984 whereby NT appoints TEIS as non-exclusive distributor of certain of its communication products in the State.

3. NT is a manufacturer of telecommunications equipment, located in Galway, whose ultimate parent is Northern Telecom Ltd of Canada. TEIS is an Irish company, wholly owned by Bord Telecom Eireann (BTE) but since 31 December 1995 the business of TEIS has been conducted as a division of BTE under the TEIS name and subject as always to safeguards as to arm’s length dealing with the rest of BTE. It is a distributor and retailer of telecommunications equipment.

4. The products distributed under the agreement include telephones, key systems and SL-1s, comprising the equipment used in the Meridian 1 range of private automatic branch telephone exchange systems (PABX) and other miscellaneous business telephone equipment. The market is that for the distribution of such telephone equipment. According to NT, other companies involved in the market are Siemens, Alcatel, AT&T, Ericsson and GPT, and about 10 smaller suppliers; buyers include Irish business and industrial concerns and Government departments. It stated that there was a wide range of different PABX systems available in the State.

5. According to NT, the agreement is an oral non-exclusive distribution agreement which has been in operation since 1984, under which TEIS is appointed distributor in Ireland of certain NT products. It stated that the operation of the agreement could be summarised as follows:

- TEIS undertakes to distribute the products throughout the territory on behalf of NT;

- TEIS is not prohibited from distributing competing products, although it is expected to use its best endeavours with respect to NT products;

- TEIS undertakes to provide on-going technical and other necessary services to support the customers for the products; to this end there is an understanding that it must employ competent personnel, and NT provides training for these personnel to ensure that high standards are maintained;

- there are informal arrangements for providing sales forecasts to NT and for agreeing on the purchase requirements of TEIS; advertisements are subject to NT's approval prior to use, and NT also provides certain promotional materials; and

- sensitive technical and commercial information disclosed by one party to another as a result of the operation of the agreement must be kept confidential by both parties.

NT confirmed, in a letter of 10 August 1994, that the agreement was non-exclusive, and that it had a written distribution agreement for the same products with Cable & Wireless (Ireland) Ltd, which is the subject of a separate notification. NT also stated that it was proposed to renegotiate the arrangements with TEIS, in order to reduce the agreement to written form.

6. In its notification, TEIS stated that, under the agreement, it was appointed exclusive distributor of the NT products. In a letter of 29 August 1994, however, TEIS stated that the term "exclusive" in relation to the agreement was something of a misnomer. It was aware that there was an arrangement between NT and Cable & Wireless (Ireland) Ltd in relation to similar products, and it stated that the arrangements between TEIS and NT were not "exclusive" in the correct sense of the term. In the notification, TEIS stated that it operated as a distributor for the supplier, there was no express minimum purchase obligation, but it would be understood that TEIS would use its best endeavours to promote the sale of the products, and to do so under trademarks and taking due cognisance of the intellectual property rights of the supplier. In its letter of 29 August 1994, TEIS stated that:

'So far as known to TEIS, there are no restrictive or potentially or ostensibly restrictive provisions in the arrangements between TEIS and NT save perhaps as might be implied in the circumstances namely,

(i) an implied obligation to promote the products in question with customers;

(ii) as a corollary of (i), support for the products in question by way of loyalty to the supplier - a retailer can only stock a certain number of makes and will promote those products in order to achieve sales.’

7. In its initial submission, NT stated that the market was highly competitive because of the presence of 6 major suppliers and about 10 other suppliers. There were no significant barriers to entry into the market. The only formality to be observed was that producers had to obtain type-approval certification for the products from the Department of Transport, Energy and Communications before they could be put on the market. TEIS also stated that the market was an intensely competitive one. It had been fully liberalised for a number of years and there were no regulatory restraints since the requirement for holding a licence to supply, install and maintain terminal equipment had been abolished pursuant to European Community-inspired liberalisation programmes.

8. In support of its request for a certificate, NT stated that:

'It is submitted that the Agreement does not infringe the provisions of Section 4(1) of the Competition Act, 1991 (the "Act") and consequently deserves to be granted a certificate in accordance with Section 4(4) of that Act.

In Societe Technique Miniere v Maschinenbau Ulm ([1966] CMLR 357), the Court of Justice held that even sole distribution agreements were not automatically prohibited under Article 85(1). Such agreements only fell within the prohibition in Article 85(1) in particular factual situations or because of the severity of the clauses protecting the exclusive rights conferred by the Agreement.

It is submitted that this reasoning also applies to the question of whether the provisions of this Agreement fall within Section 4(1) of the Act. Here, the distributor has not been granted any exclusive rights. NT is not prevented from appointing other distributors of the Products in the same territory, and it has in fact appointed a second distributor, which helps to promote intra-brand competition in the State. In addition, it is open to NT to appoint more distributors if it so wishes and this acts as a further competitive spur to those distributors already appointed (See Nallen/O'Toole (Belmullet); Competition Authority decision of 2nd April, 1992, para. 27, on the importance of such potential competition).

Similarly, TEIS is not prevented from distributing competing goods and is currently engaged in the distribution of certain competing Siemens products, without any objection from NT. Suppliers wishing to appoint a distributor would have no difficulty in finding other suitable distributors in the State. There are no clauses imposing absolute or even qualified territorial protection as there are no restrictions on either active or passive sales in the Agreement. There are no barriers to entry on the market. In addition, there is considerable inter-brand competition in the State.

TEIS are not prevented from obtaining the goods for resale from parties other than NT. It is also contended that the other aspects of the agreement, concerning technical and other ongoing services for the Products, advertising, the provision of information, and the non disclosure of confidential information, are not in any way restrictive of competition.

For all these reasons, it is considered that the provisions of this Agreement do not operate to prevent, restrict or distort competition in the market for the Products in the State. It is therefore submitted that a certificate should be granted in respect of the Agreement.'

9. In support of its request for a certificate, TEIS stated that, in general, it did not believe that the agreement restricted it in its freedom to take independent business decisions. TEIS also maintained that it might be contended that none of the provisions, enumerated in para 6 above, nor the agreement itself had as their object or effects the prevention, restriction or distortion of competition, and, if that were so, the agreement was devoid of restrictive provisions. It stated that it would not be admitted that any of the matters referred to in its letter of 29 August 1994 (see para 6) would contravene Section 4.

10. Both NT and TEIS also presented arguments in support of the grant of a licence which are not relevant to this decision.

11. Section 4 (1) of the Competition Act 1991 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 goods or services in the State or in any part of the State are prohibited and void'.

12. Section 3(1) of the Competition Act defines an undertaking as 'a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service.' NT is engaged in the production and distribution of goods for gain, and TEIS is engaged in the distribution of goods for gain, and they are both undertakings. The agreement is an agreement between undertakings, even though it has not been expressed in written form. The agreement has effect within the State.

13. The notified agreement is a non-exclusive agreement for the distribution of NT products by TEIS. NT may engage other undertakings to distribute the products in the State, and has done so. TEIS is not prevented from dealing in competing products, and in fact does so, nor is it prevented from obtaining the products from sources other than NT. The agreement has neither the object nor the effect of preventing, restricting or distorting competition within the State, and so it does not offend against Section 4(1) of the Act.

14. In the Authority’s opinion, Northern Telecom (Ireland) Ltd and Telecom Eireann Information Systems Ltd are undertakings within the meaning of Section 3(1) of the Competition Act and the notified agreement is an agreement between undertakings. The Authority considers that the agreement does not offend against Section 4(1) of the Act.

15. The Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the unwritten non-exclusive distribution agreement between Northern Telecom (Ireland) Ltd and Telecom Eireann Information Systems Ltd, notified on 30 September 1992 under Section 7 (notification nos. CA/298/92E and CA/622/92E), does not offend against Section 4(1) of the Competition Act, 1991.