Irish Competition Authority Decisions

1. This notification concerns a standard distribution agreement between The Irish Times Newspapers Ltd and newspaper retailers, which was notified to the Authority on 25 September, 1992. The notification requested 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). A Statement of Objections was issued on 19 December 1996 to the notifying party indicating the Authority’s intention to refuse to issue a certificate or grant a licence in respect of the notified agreements. The Irish Times, in a letter dated 5 February 1997, offered to amend the clause in the agreements which the Authority found offensive.

2. This notification concerns a standard agreement for the supply and distribution of a newspaper - The Irish Times - to newsagents throughout the State by the publisher. The agreement sets out the various requirements for the supply of newspapers to the retail outlets around the country such as opening hours, minimum orders, premises, credit-rating, location and price. The agreement applies to all new outlets, transferrees and defaulters. A number of newsagents is supplied on the basis of older agreements which have not been notified. The Irish Times submitted three notifications concerning three different aspects of the arrangements for the distribution of newspapers - method of payment, minimum orders and the price of newspapers. In fact, these are clauses of a single standard agreement. The Authority has pointed out previously that, in its view, only an entire agreement can be notified and certified or licensed. Individual clauses of an agreement cannot be notified.

3. The Irish Times Newspapers Limited is a subsidiary of The Irish Times Trust Limited. The Group is involved in the publication and distribution of newspapers. The other parties to this agreement are certain newspaper retailers.

4. The products involved are daily newspapers. There are four domestically produced national daily newspaper titles on sale in the State (The Irish Times, Irish Independent, The Cork Examiner and The Star), two domestically produced evening titles (Evening Herald and The Evening Echo) and four domestically produced Sunday titles (The Sunday Business Post, The Sunday Independent, The Sunday Tribune and The Sunday World). In addition eleven UK national daily newspapers and nine UK Sunday titles are distributed and sold throughout the State. The Authority stated in its interim report on the newspaper industry that there were several distinct newspaper markets in the State. [1] The arrangements relate to the Irish Times a daily newspaper which is published six days per week. In the case of daily newspapers the Authority concluded that there was a distinct Irish quality daily newspaper market which is the market in which the Irish Times competes.

5. Table 1 indicates that total daily sales of Irish national newspapers in between January and June 1996 were just under 399,000. Sales of the Irish Times amounted to 101,223 or just over 25% of all Irish daily newspaper sales. Sales of the Irish Times in the first six months of 1996 rose to 101,223. The Irish Independent was the largest selling Irish daily with average daily sales of 157,393 in the first half of 1996. According to the National Newspapers of Ireland (NNI), sales for all UK daily newspapers in Ireland amounted to 27% of daily paper sales in 1995. The Star, a tabloid newspaper, had daily sales amounting to 85,973 in the first six months of 1996. The Irish Press has not been published since 26 May, 1995. Sales of The Cork Examiner Group are largely confined to the Munster region.

Source: ABC

6. The distribution system for newspapers and magazines in Ireland was described in detail in the 1979 report by the Restrictive Practices Commission. [2] Essentially, the actual system of distribution has not changed a great deal since that date. Irish national newspapers are primarily distributed by the publishers, acting as their own wholesalers, to a large number of retail outlets. Time is an essential factor in the publishing and distribution of newspapers, and since they are generally considered to be a highly perishable product with a short shelf life, they have to be distributed quickly and frequently to many outlets throughout the country.

7. There are differences in the methods of delivery of newspapers between Dublin and the rest of the country and between the morning, evening and Sunday papers. Each newspaper publisher is responsible for its own despatch operation. In the Dublin area each newspaper carries out its own delivery service to retail outlets, with the exception of city centre news vendors who are supplied by "shoppers" who take bulk copies of newspapers and resell to the vendors. Deliveries outside Dublin involve parcels of newspapers being transported by train and by trucks to certain focal points throughout the country and thereafter transferred to buses, district mail vans, postmen, private contractors, local hauliers or special delivery agents. Independent Newspapers uses its own wholesale distributor (Newspread) for newspapers in a few locations (Cork, Enniscorthy and Donegal). The Cork Examiner is mainly delivered in its own vans with a small proportion of deliveries being transported by mail vans, bus and local trains.

8. There are approximately 6,000 to 7,000 outlets in the country for the sale of newspapers. Street vendors are not included in this figure. The multiple supermarkets have also commenced selling newspapers in their outlets with Dunnes Stores selling newspapers in 45 of their branches and Quinnsworths selling newspapers in 36 of their branches. The Irish Times sells its newspaper through [ ] of these outlets. These outlets are described in the Irish Times notification as the ´buyers', 'who purchase the newspaper titles' from the company. The notified agreement applies to only about [ ] retailers. None of the newsagents appointed under the notified agreement sell less than the minimum of 60 copies per week specified in the agreement. There are [ ] newsagents which sell less than 60 copies per week and [ ] newsagents which sell less than 5 copies per day under older agreements. Some multiple supermarket outlets also sell newspapers. [see para. 34] The Irish Times stated that it only refused to supply a relatively small number of applicants and that such refusals were based on objective criteria such as credit worthiness or opening hours.

9. It appears that newspapers are almost always sold at the stated cover price which is printed on the masthead. In its Interim Report on the Newspaper Industry the Authority noted that there was a remarkable similarity in the timing of price changes of three of the Irish daily newspapers papers over a period ten years. The Irish Times and the Independent had repeatedly increased prices on the same day and by the same amount while constantly maintaining a price differential of 5p between them. Following publication of the Report the price of the Irish Independent was initially increased by 5p. The Irish Press had, with one or two exceptions, almost always simultaneously increased its prices by an identical amount over most of this period, with some deviations from this pattern in recent years. The Report also noted that Independent Newspapers ran a campaign, in October 1994, whereby copies of the Saturday edition of the Irish Independent were effectively sold at 30p in certain retail outlets in South Dublin City for two successive Saturdays. [3] In addition Independent Newspaper introduced a direct delivery service in parts of North County Dublin in 1994. A feature of the service was that consumers were offered the copies of the Independent Newspaper titles for less than the cover price. Discounts are also given to students.

10. The notified arrangements involve a standard newspaper distribution agreement in the

form of terms and conditions of supply. These arrangements apply to all newly appointed retailers, transferees and outlets which have failed to maintain payments under older agreements. Around [ ] of the [ ] outlets selling the Irish Times are party to the notified arrangements in September, 1992.

11. The notified arrangements included the terms and conditions of the company and an application form for completion by the applicant. The Application Form which the Applicant completes requires certain information to be provided including details of the Applicant, the premises - whether it was owned, leased or rented - the nature of the business, what newspapers were sold at the premises, whether magazines or paperbacks were sold, hours of business, etc. The Applicant was asked if a home/office delivery service would be provided. Details were also requested of any new developments in the area such as new housing estates, shopping centres and new factories/offices.

12. After an initial 12 week probationary period, the agreement is of an indefinite duration. The terms and conditions include the following clauses. Under clause (B) the newsagent is required to pay all charges on a weekly basis by means of a Direct Debit (the relevant forms are completed along with the application form). The newspapers remain the property of the Company (Irish Times) until all sums due have been paid to the Company, the newsagent holding all monies in trust for the Company. All unsold copies of the newspaper returned to the Company within four weeks of the date of publication will be credited to the account of the newsagent, subject to a limit of 5% of newspapers supplied to the newsagent during that period. There are requirements to maintain sufficient stocks of the papers, to display them in a prominent position at the premises, to arrange a suitable location for the delivery of the papers, to keep records of all sales of newspapers and to notify any non-delivery of newspapers before 10.00 a.m. on the same day, failure to do so could result in a refusal of credit allowances for claims in respect of same.

13. Clause (G) requires the Newsagent to purchase a minimum of 10 copies of the paper per day or 60 copies per week from the Company; and additional copies may be supplied occasionally by the Company. Clause (I) of the Terms and Conditions states that: "A recommended retail price, as indicated from time to time on the respective mastheads of each of the Newspapers, shall apply to all sales of the Newspapers by the Newsagent". The agreement is personal to the newsagent who is prevented from assigning or transferring the agreement to anyone else (clause (K).

14. The Agreement may be terminated by giving at least four weeks notice in writing to the other party, or if the newsagent's business goes into liquidation or receivership, by the non-compliance of the newsagent to any of the provisions of the agreement or if there is a change in the control of the newsagency business without the prior written consent of the Company. Under clause (P) the Company reserves the right to amend any of the terms and conditions of the agreement by notice in writing to the newsagent.

15. The Irish Times submitted that the relationship between the Company and the newsagents was not an agreement between undertakings because the newsagent was merely an agent and not an undertaking within the meaning of the Competition Act. The relationship between the Company and the newsagent was that of an agency relationship as was shown by the Authority's decision on ESSO Contractor Agreement. [4] The newsagents were self-employed intermediaries between the Company and the purchasers of the newspapers and were not employees of the Company. They concluded sales of newspapers on behalf of the Company, for an indefinite period, but the Company continued to own the newspapers and the proceeds of the sales were held in trust for the Company. The price was set by the Company, who was entitled to do so as the owner of the goods, as was the norm in a principal-agency agreement. The sale proceeds were collected weekly by direct debit. The newsagents accepted some risk, the employment of staff was the concern of the newsagents only. The profits on the sale of the newspapers accrued to the Company as well as any losses such as returns for non-sale of the newspapers (the limit of 5% on returns did not apply to exceptional circumstances where extra copies were supplied by the Company). The newsagent was obliged to comply with all the instructions in the Terms and Conditions. The Company concluded from the Authority's decision in respect of the ESSO Contractor Agreement and Abbey Sun/Capitol Holdings [5] that the agreement was not one between undertakings as only the Irish Times was an undertaking. The Company submitted, in the event that the Authority did not accept the reasons stated above, the agreement should be granted a certificate on the same grounds.

16. The Company submitted, in support of its request for a licence, that the Irish Times required a system for distributing to a very large number of outlets varying quantities of newspapers in the shortest possible time-frame due to the short shelf-life of the product. They maintained that a distribution-type arrangement with distributors placing individual orders on a daily basis would be unduly expensive to operate. Because of the very high demand for newspapers there was a need for a large numbers of outlets but in convenient locations with long opening hours. They concluded that the market would not withstand a reduction in the number of outlets. Due to the high credit risks involved, the publisher had to ensure that the relationship with the newsagent was on a secure financial basis, since the publisher gave newspapers to the agent without any guarantee of payment. Therefore the agreement was designed to ensure a guarantee of supply for the agent and payment for the publisher.

17. They submitted that it would be impossible for the Company to distribute to each reader in the country, therefore an intermediary was required. A newsagent was ideal for the purpose of selling newspapers. Because of the need to distribute newspapers swiftly and efficiently, appointing agents was the only way to ensure an adequate sales coverage. The agency arrangement in this case was more appropriate than that of a distributor because (i) the goods would have to be bought by a distributor, (ii) the number of copies required by the newsagent can vary so the agency arrangement provided more flexibility, (iii) as demand for newspapers was unpredictable the newsagent could be left with many unsold copies and the agency arrangement allowed the newsagent to return the unsold copies to the publisher, whereas a distributor would have to suffer the loss.

18. The Company submitted that the idea of having a dedicated newsagent who had a guaranteed minimum supply of newspapers each day was very beneficial to the consumer as the consumer did not have to search out supplies. They maintained that a uniform cover price was advantageous to all consumers as it would be socially undesirable for readers in remote areas to pay more for their newspapers than those who were closer to the place where the newspaper was printed. They pointed out that the Competition Authority had not objected to the sale by oil companies through agents of oil products at a uniform price throughout the country. For example, copies of the Irish Times sold in Cape Clear were transported by truck to Cork, by van to Clonakilty, by another van to Baltimore, by boat to Cape Clear and by another van to the shop. They maintained that the implication of having floating newspaper prices were so serious that the Irish Times Ltd requests the Competition Authority to seek the opinion of the Minister for Arts, Culture and the Gaeltacht if such a move was even contemplated.

19. The Irish Times submitted that only a few applicants had been refused supplies of newspapers for reasons such as poor credit risk, unsuitable premises (e.g. could not store and keep dry the newspapers when delivered or not open in the morning for the sale of a morning newspaper - off-licences), the shop was not open every weekday and Saturday or incomplete information was provided. They submitted that [ ] of newspapers were returned, this figure was higher than the one in the agreement. The company gave fair allowance for exceptional circumstance such as bad weather, late delivery and full allowance for "box-outs". No newsagent was appointed under this agreement with a minimum order of less than 10 per day or 60 per week, but there were [ ] newsagents with orders of less than 60 per week and [ ] with orders of less than 5 copies per day under older agreements.

20. The Irish Times submitted that the minimum orders requirement ensured the economically efficient distribution of the newspapers and did not adversely affect competition. They stated that the level of order varied so that a different minimum applied in high density population urban areas (a normal industry practice both in Ireland and abroad). The minimum number in each case would be determined objectively and they claimed that it would not be possible to set the minimum number in advance. The arrangements facilitated the establishment of efficient competitors in the relevant market to stimulate further competition by offering high quality products on efficient terms. There would be no significant reduction in the number of competitors, but rather an increase in trade by virtue of maintaining a market for the products. The notified agreement set the minimum order at a level of 10 per day or 60 per week. This was stated to be to accommodate newsagents who had a very high demand on Saturdays and a lower demand on weekdays.

21. The company submitted, in their arguments in support of a licence, that the EU Block Exemption on Exclusive Distribution agreements (1983/83) did apply even though the distributor undertook to purchase minimum quantities and likewise in the Block Exemption on Exclusive Purchasing agreements (1984/84). They submitted in the present case that there were no restrictions on the retailer from carrying competing goods i.e. titles. They cited the Carlsberg Beers [6] decision by the EU Commission where the Commission allowed a restriction to stand whereby Grand Metropolitan Ltd was required to purchase over half of its requirements of lager beers from Carlsberg. They submitted that the present minimum order requirement would be significantly less than half of the total requirement of newspapers and would be determined by market forces as well as the strong retailer lobby. Similarly, in Goodyear Italiana Spa [7] the Commission permitted an obligation to purchase agreed minimum quantities and the breach of same allowed Goodyear Italiana to terminate the contract. They submitted that the minimum order requirements were not restrictive of competition but rather promoted competition by improving the distribution of goods without any indispensable restrictions.

22. The company submitted that the requirement to pay by weekly direct debit facilitated the establishment of efficient competitors in the market to stimulate further competition by offering high quality outlets which were commercially viable. The number of competitors would not be reduced as a result of the measures. They claimed that the number of retailers selling The Irish Times had risen since the introduction of the Direct Debit Method of payment. The arrangements allowed the creation and maintenance of new competitors in the geographical market because of the ability to use a local distributor with local contacts, local advertising, marketing capabilities and distribution arrangements. The company submitted that where an arrangement did not have an appreciable affect on trade in Ireland then the Authority might issue a certificate.

23. The company had introduced the direct debit system method of payment in April, 1989 because the previous system of [ ] credit had resulted in a significant number of outlets defaulting on their payments - up to [ ] of retailers had failed to comply with it. They maintained that the direct debit mechanism was a common and widespread one used by many other businesses. It had been introduced as a weekly system so as to ensure that there was an early indication of defaulters and it was limited to new outlets, transfers and defaulters to avoid objections by the current retailers. At present, approximately [ ] of the total [ ] outlets in Ireland for the Irish Times operate this new system.

24. The company believed that the payment arrangements did not have an appreciable effect on competition. They stated that the average retailer took approximately [ ] copies of The Irish Times each per day. The difference over one month between paying weekly by variable direct debit or [ ] in arrears was the deposit interest to be earned on [ ] and in one month, this amounted to [ ] for the average retailer out of a total cost of [ ].

25. The company submitted, in support of the granting of a licence, that direct debit would improve the distribution of newspapers while allowing consumers a fair share of the resulting benefit because it prevented bad debts from mounting up for the company which could affect the price at which the newspapers were sold to consumers. They maintained that every new retailer and every transferee after the change in April, 1989 was treated equally and all were being asked to use the direct debit system. No new applicant or transferee was given the old system. The company submitted that the collection of payment by way of direct debit was merely an accounting procedure.

26. The company submitted that its resale pricing policy had been adopted to ensure an economic and equitably efficient distribution of its newspaper titles, and in the absence of same a different price would apply in Dublin (where the company prints) to other parts of the country. They maintained that there was a justification for distinguishing newspapers from books because of (i) the need to transport newspapers quickly, (ii) their short shelf-life (iii) the social functions of newspapers and (iv) newspapers were generally regarded as being special in terms of pricing arrangements (in Japan RPM for newspapers was exempted). They conceded that the resale price concept might restrict some outlets from selling the titles at other prices.

27. The company submitted, in support of their request for a licence, that while EU Competition Law did not normally favour Resale Price Maintenance (RPM), it had recognised the particular and peculiar nature of newspapers. In the Court's decision on Binon/AMP[8], it was recognised that there might be reasons to exempt the resale price maintenance scheme for newspapers because of the need for publishers to take back unsold copies. The Commission proposed, in its decision on AMP[9] to exempt AMP's selective distribution system for newsagents, but had postponed a decision until the review of the notice on commercial agents.

28. The Irish Times submitted that RPM performed an important social function in that if market forces operated then, for example, The Irish Times might sell for 50p on D'Olier Street but would sell for, perhaps £2.50 on Cape Clear Island. They maintained that there was great merit in having RPM in the context of such a socially valuable good as a newspaper, otherwise regions far away from the place of printing (who had an equal right to information) would be severely disadvantaged by differing prices. They argued also that as the primary readership for the paper's series of articles in the Irish language probably was in Gaeltacht areas, the same price criteria might apply in those areas i.e. the price of the paper could be twice or three times its current price.

29. The company maintained that as the EU was concerned with the protection of small and medium-sized enterprises (SMEs), and had developed a policy on SMEs generally, it would be incongruous if the EU's competition policy was very stringent on such businesses. The Irish Times submitted that as small and medium-sized businesses were very important in the Irish context, the Competition Authority should be anxious to ensure that its application of the competition rules did not unduly restrict the development and maintenance of an Irish small and medium-sized business sector. If there was no RPM, the Irish Times could be sold by large multiples at a discount and the SMEs such as tobacconists, newsagents, grocers and others could suffer irreparable damage. They submitted that there was also a regional policy argument in favour of RPM.

30. They submitted that all of the terms and conditions were indispensable. The Company submitted that the notified arrangements did not afford the undertakings the possibility of eliminating competition in respect of the products in question because (a) there were many newsagents around the country; (b) The Irish Times Ltd needed these newsagents to sell its products and (c) the respective market shares of each of the parties meant that it was impossible for either side to eliminate competition.

31. RGDATA submitted that there had been continual difficulty over the supply of newspapers to new outlets and that no objective criteria were published by the newspapers to determine on what basis outlets did or did not receive newspapers. They submitted that the payment of accounts by direct debit on a weekly basis did not apply to all accounts at present. It should be applied to all accounts and not be compulsory for new applicants only. They maintained that the terms of payment were onerous for the retailer and that this also provided significant benefits to the newspaper company in terms of collection and other costs at the expense of the retailer. RGDATA believed that the terms of payment should be on a monthly basis and that retailers should not be required to pay by Direct Debit, except where this had been negotiated with the retailer. They also pointed out that all the newspaper companies had adopted this practice now and it could be considered as a concerted practice by them.

32. RGDATA also objected to the question on the Irish Times application form which concerned the distance of the new applicant's premises from that of the nearest existing newsagent which they considered to be anti-competitive. (Such a question does not appear on the application form submitted to the Authority as part of the notified arrangements). They considered the question concerning the hours of business to be irrelevant in deciding whether to supply newspapers or not. RGDATA maintained that the requirement that all publications must be sold at the cover price only was a form of resale price maintenance and was prohibited by Section 4 (1). The Association did not object to a standard cover price on newspapers provided it was applied to all newsagents. They considered it essential that all newsagents received the same gross margins on sales.

33. RGDATA stated that it did not know what the minimum order of copies required by the newspapers was, but it recognised the need for a minimum order provided the quantity was stated by the newspaper companies, it was not excessive and that it applied to all customers. RGDATA assumed that if the arrangements received a certificate or a licence that any amendments to the terms of business would have to be notified to the Authority.

34. Power Supermarkets Ltd objected to the requirement by the Irish Times for the payment of accounts by direct debit before supply would be commenced. They maintained that this requirement should be on a voluntary basis only and they had no objection to the Irish Times offering an incentive to retailers to pay on a direct debit basis. They did not believe that a direct debit requirement should be one of the conditions of sale of any supplier. They contended that this condition offended against Section 4(1) (d) - application of dissimilar conditions to equivalent transactions - of the Competition Act because this requirement applied as a condition of sale to new applicants only and not to the existing outlets. They further submitted that it also offended against Section 4(1) (e) of the Act - making the conclusion of contracts subject to supplementary obligations .

35. One individual submitted that they had taken over the proprietorship of a retail outlet and was refused supplies of newspapers until the debts of the previous operator have been paid.

36. A retailer submitted that he objected to the application by the Irish Times seeking the grant of a licence for the operation of new trading conditions. He referred in particular to clause G of the Contract, which stipulated that a minimum of 10 copies a day or 60 copies per week must be purchased by the newsagent. This clause was being operated on a selective basis with certain newsagents only. He had no objection in principle to a minimum order quantity being imposed provided such a requirement applied to all newsagents and that it was not at the discretion of the supplier to decide the manner in which these newsagents were selected. He objected to the continuation of the selective procedure whereby some newsagents were supplied under the old terms and conditions and new entrants to the market had to operate under different terms and conditions.

37. He referred to clause P where the company reserved the right to amend any of the terms and conditions at any time and he maintained that a proviso should be included to the effect that the minimum order quantity could not be changed unless the change applied to all newsagents, regardless of date of contract. He also contended that the Agreement was not in keeping with the laws of the Republic of Ireland, especially the Competition Act and requested the Authority to refuse to allow any retrospection to apply to any licence regarding the Terms and Conditions. He also requested the Authority not to allow the dates of the contract with newsagents to be the deciding factor as to which newsagents should be included or excluded from any terms and conditions since the newsagents operating under the new terms and conditions would be placed at a serious disadvantage vis-a-vis their competitors.

38. The UK Monopolies and Mergers Commission (MMC) was asked to investigate the supply of national newspapers in England and Wales at two separate levels - the supply from publishers to wholesalers, and the supply from wholesalers to retailers. It presented a comprehensive report in December 1993. [10] Newspaper distribution had been the subject of previous enquiries by the MMC and by the Office of Fair Trading (OFT). This reference arose from continuing complaints about refusal to supply would-be retailers, and because there had been major changes in distribution arrangements between publishers and wholesalers since the previous review of the newspaper distribution system in 1985.

39. The MMC noted that the sale or return system weakened the incentives and prospects for active price competition at both wholesale and retail levels. Publishers favoured sale or return, though both publishers and wholesalers imposed limits on the allowed rate of returns. Cover prices were determined by publishers, and were recommended prices, although they were almost always observed in the market. Resale price maintenance is prohibited in the UK under the Resale Prices Act, 1965. In certain circumstances, exemptions may be granted but no such exemption has been given in the case of newspapers. Wholesale and retail margins were set at discounts to the cover price, so the cover price also determined trading margins. The MMC observed that there was near universal observance of the publishers' cover prices by all retailers, and price competition at the retail level was virtually non-existent.

40. Newspaper wholesalers restricted the supply of newspapers to retail outlets of their choice. The MMC examined the main criteria used, the use of trial periods or trial supplies, the appeals procedures for applicants that had been refused supplies, the procedures applied to transfers of supplies when a newsagency changed ownership, and the costs and resources used within the evaluation system as a whole. Retailers could not obtain supplies from wholesalers operating outside their area, and, in order to obtain a full range of titles, they usually had to obtain supplies from two or more wholesalers. Wholesalers essentially focused on whether the applicant would make an 'effective' newsagent, and whether the area was already adequately served. Those refused could appeal to the wholesaler or to the newspaper publishers. Where a newsagency changes hands, a simple application procedure applies. It appeared that wholesalers almost never withdrew supplies from an existing newsagent, whatever its level of sales or standard of performance.

41. While some of the criteria could be objectively measured, the MMC considered that others were a matter of judgment. Wholesalers might offer a trial to an applicant where there was doubt about whether the criteria are satisfied, after which supplies were provided or refused, depending upon whether a minimum sales target had been attained. On average, in recent years, some 22% of applicants to the larger wholesalers were granted supplies at the first stage, and a further 13% trial supplies, of which 92% were subsequently given full supplies. Including a small number granted supplies after appeal to the publishers, 34% of applicants were ultimately successful.

42. In its conclusions the MMC stated that the main barrier to entry to the retail trade was the refusal to supply system operated by wholesalers. It considered that the sale or return system was an important feature of the industry which promoted the wide availability of newspapers by encouraging retailers to carry the whole range of newspaper titles and to have copies on display through the day. The MMC considered that the display of cover prices restricted competition in that it encouraged retailers to observe the marked price and discouraged them from determining their own selling price. It also considered that the refusal to supply new outlets on the grounds that the wholesaler considered the area to be adequately supplied, and the ban on retailers selling-on newspapers, both restricted the number of newspaper retailers. They thus prevented competition between existing retailers and the potential new entrants who were denied supply. The proviso that sales might be made only through the designated outlet restricted the retailer's freedom to sell newspapers in the way he considered most effective and thus restricted competition.

43. The MMC considered that the display of cover prices amounted to effective resale price maintenance and discouraged retailers from charging lower prices. It found that it was very rare for national newspapers to be discounted by retailers and that the maintenance of uniform prices clearly owed much to this. It found little evidence suggesting that, in the absence of cover prices, prices to the consumer would tend to be lower. While most retailers regarded newspapers as a product which would attract custom, it was not one which they were likely to use as a loss-leader. The fact that they received it on sale or return terms also discouraged price-cutting. Overall, the MMC was not confident that a change from the current practice would have beneficial effects to outweigh the loss of convenience to consumers from knowing the price of the product and that it would be available at the same price throughout the country.

44. The MMC also considered whether the use of cover prices encouraged price leadership among publishers and led to prices higher than would otherwise occur. It was clear that publishers took account of the present and likely prices of competing titles in the same segment of the market. Often prices settled at the same level and moved closely together. This could, however, equally be seen as a response to competitive forces. There was active competition at the publisher level for readership and advertising revenue, and price was clearly a weapon. In the 1993 price contest between The Sun and the Daily Mirror, competition had led to a downward pressure on prices. While the use of cover prices might sometimes have led to a more rapid response to a competitor's price change than might otherwise have occurred, the MMC did not think that there was any evidence that this had led to higher prices than would have occurred in their absence. It saw no reason to think that a requirement on publishers to make clear on the newspaper that the cover price was a recommended and not a fixed price would have any practical effect in leading to lower prices.

45. The MMC stated that the wholesalers' practice of refusal to supply, based on the criteria of the area being 'already adequately served' and of the suitability of the applicant, clearly protected existing newsagents. Not only was this likely to remove the spur that competition would provide to maintain performance, thus protecting the inefficient newsagent, but the system would also be slow to respond to changing patterns of demand or to try out new ways of stimulating sales. The MMC recognised that the present system facilitated widespread availability of newspapers but it protected inefficiency and responded slowly to changes in demand, opportunities to offer consumers improved convenience and new sales methods. The MMC concluded that some consumers were receiving a lower level of service than would exist in the absence of the restrictions, that this was an uncompetitive practice, and that it was against the public interest.

46. The MMC said that the wholesalers' requirements that retailers granted supply of national newspapers might sell only by retail and only from the designated outlet were primarily designed to support the main restriction on refusal to supply and to ensure that it was not circumvented. In order to operate the main criterion against which the wholesaler considered applications for supply - whether the area was already adequately served - it was deemed necessary by wholesalers that newspapers were sold only from identified outlets. This also prevented retailers from responding to local variations in demand or transferring them between different branches to take account of local fluctuations in demand. The practice did have the advantage for publishers and wholesalers, in that it enabled them to keep tabs on where sales took place and to control returns. With the increasing use of information technology support, the MMC thought that some of these advantages could be maintained. The MMC concluded that the requirement by wholesalers that newspapers be sold only from designated premises was an uncompetitive practice, which was against the public interest.

47. Overall, the MMC stated that remedies were difficult to frame and their effects could not be foreseen at all precisely, and it had to proceed with caution. It believed that to remove the present restrictions completely and to require wholesalers to supply all creditworthy applicants on terms that covered the extra costs of delivery to that outlet might well lead to a surge in applications for supply, at least in the short term, because the existence of sale or return greatly enhanced the attractiveness of newspapers to the retailer as a virtually risk-free product. The growth in outlets could result in sharp increases in wastage and higher costs for publishers and wholesalers, leading either to a cut-back in supplies to individual outlets or to higher newspaper prices. The MMC considered that the system had tended to protect the traditional CTN (Confectioner-tobacconist-newsagent) outlet, and had contributed to its survival. If changes led to a major exodus of these businesses from the industry, and a reduction in home delivery services and early opening hours, the loss to consumers would be unlikely to be made good by the opening of other types of outlet.

48. The MMC proposed that all existing retailers be given the right to move supplies between outlets and the freedom, within existing retail margins, to sell on to other retailers as this would allow retailers the opportunity to respond sensibly to consumer demand. It would, according to the MMC, also provide a useful safety valve which would permit those at present refused supply to make arrangements with a newsagent in the neighbourhood to receive or collect supplies. The MMC felt that, for various reasons, the scope and extent of this remedy would be somewhat limited. It believed that copies would only move a limited distance, where the loss of information to publishers would not have serious effects. While the total number of outlets selling newspapers would increase and while the volatility of sales at the individual outlet would probably increase, the MMC did not think that this need lead to a growth in waste since the existing controls on returns could continue to be applied at the main retailer level. It considered that this remedy would provide a useful, if not complete, answer to the detriments which had been identified, and it recommended that steps be taken to secure its implementation.

49. The Minister for Corporate Affairs introduced a code of conduct, agreed between the newspaper wholesalers and the OFT, to implement more wide reaching reforms of the newspaper distribution system. The newspaper wholesalers signed legal undertakings to abide by the code of conduct. The code provides that any retailer meeting certain requirements must be granted a supply of newspapers. The main requirement is a minimum entry requirement in the form of a provision under which the retailer must agree to take a minimum order for newspapers equal to half the average level of sales in other outlets within the area of the newspaper title in question. Such order must be on a firm sale as opposed to a sale or return basis for the first six months. In addition the retailer must pay a deposit equivalent to the value of three months sales of the minimum order figure. This deposit is refunded after 12 months. In practice the average level of deposit works out at around stg£750. Following the introduction of the new code there was an increase in the number of retailers selling newspapers. A number of multiple supermarket chains also began selling newspapers. As new outlets were obliged, under the code, to take supplies of newspapers on a firm sale basis, some had begun to sell newspapers at a discount to the cover price.

50. A number of newspapers in the U.K. were warned by the Director General of the OFT for breaches of the Resale Prices Act 1976 concerning minimum resale prices [11] where clauses in their terms and conditions were found to contain requirements that their newspapers must only be sold at the cover price displayed on the mastheads. The newspapers in question were required to give written assurances that they would not try to maintain minimum resale prices. The Newspaper Society was also requested by the OFT to bring this fact to the attention of their members.

51 A Statement of Objections was issued on 19 December 1996 to the notifying party indicating the Authority’s intention to refuse to issue a certificate or grant a licence in respect of the notified agreements. The Irish Times, in a letter dated 5 February 1997, offered to amend the clause and submitted the text of a proposed amendment as follows:

´Clause I of the terms and conditions will provide:

“The Irish Times shall have the power to recommend a price at which the Newspapers are sold by the Newsagent. However, the Newsagent is free at all times to set its own price.”

51. 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.

52. 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.' Irish Times Newspapers Ltd is engaged in the production and supply of goods, in this case newspapers, for gain. The retail outlets are engaged for gain in the sale of newspapers and other goods. Consequently, both the publishers and the retailers of newspapers are undertakings within the meaning of Section 3 (1) of the Competition Act. The standard newspaper distribution agreement between the company and the retailers is an agreement between undertakings. The relevant geographic market is the State.

53. The Irish Times claimed that the notified arrangements did not constitute an agreement between undertakings as the retailers were agents acting on its behalf. This is a misreading of the Authority's decisions with respect to agency. The Authority has stated in previous decisions that an agreement between a principal and its agent is an agreement between undertakings. Consequently even if the notified arrangements were to be regarded as a principle-agent agreement, the claim that it was not an agreement between undertakings would still be rejected by the Authority.

54. The Authority did not accept that the present arrangements constituted a principal-agent relationship. Newsagents were not an auxiliary organ of the newspaper publishers akin to an employee, nor were they economically dependent on them, since they were in fact engaged in selling a wide range of goods. Indeed the claim by the Irish Times that the newsagents were agents who did not bear any risk was at variance with the statement expressed in their original submission that the newsagents 'purchase(d) the newspaper titles from the company'. It was also relevant that newsagents sold competing newspaper titles. In such circumstances the Authority believed that newsagents were operating independently and could not be regarded as an auxiliary organ of the newspaper publishers. This view was in accord with that of the European Court of Justice in VVR v. Sociale Dienst where it held that:

´..a travel agent of the kind referred to by the national court must be regarded as an independent agent who provides services on an entirely independent basis. He sells travel organised by a large number of different tour operators and a tour operator sells travel through a very large number of agents. Contrary to the Belgian Government's submissions, a travel agent cannot be treated as an auxiliary organ forming an integral part of the tour operator's undertaking. [12]

55. The arrangements involved a standard distribution agreement for the Irish Times' newspapers. Newspapers were supplied to a wide variety of outlets including traditional newsagents, petrol station forecourt outlets and street vendors, although the latter were not supplied on foot of the notified arrangements. The arrangements enabled the Irish Times to adopt a selective approach in deciding which outlets to supply. Selective distribution agreements may or may not be anti-competitive and a careful assessment of the facts was required in each case. Where such criteria was adopted unilaterally by a supplier the question of an agreement or concerted practice between undertakings did not arise. The position changed, however, where refusal to supply an outlet was the result of an agreement or an understanding with existing retailers. Such arrangements clearly protected existing retailers against the emergence of new competitors and were contrary to section 4(1). Where refusal to supply decisions were based on quantitative rather than qualitative factors, it implied that the object and the effect was to limit the number of retailers in order to protect existing outlets and implied a tacit understanding or concerted practice between the supplier and those retailers. The same would apply where qualitative criteria were not applied uniformly. The Authority had received a number of complaints concerning the refusal by newspaper publishers to supply new outlets. The Irish Times had stated that ´only a handful of applications are ever refused and the reasons would be, for example, poor credit risk, unsuitable premises, the shop was not open every weekday or Saturday or incomplete information was provided.' They also stated that the applicant was always told the reason for refusal and that when the problem was sorted out outstanding applications proceeded satisfactorily. While some outlets had been refused supplies, it had not been shown that this was done for other than legitimate commercial reasons. On the basis of the information in its possession, the Authority believed that decisions to refuse supplies have been based on qualitative rather than quantitative criteria. The distribution agreements did not therefore offend against section 4(1) per se.

56. Clause B of the standard terms and conditions provided that retailers had to pay all charges by means of a weekly direct debit. While a number of submissions had criticised this provision they had not shown that it was an anti-competitive practice. The Authority accepted that it was a means of reducing the risk to the publisher of supplying new outlets. While such provisions did not apply to existing outlets with a good payments record, those outlets who have fallen into arrears were subsequently required to switch to a system of direct debit payments. The outlets not required to pay by direct debit were those which have an established record for prompt payment. The Authority did not therefore consider that such a provision involved discrimination between similar customers or that it was designed to place new outlets at a competitive disadvantage vis a vis existing outlets. Nor did the Authority believe that such a provision amounted to making the conclusion of contracts subject to acceptance by other parties of supplementary obligations which by their nature had no connection with the subject of such contracts as was claimed. Consequently the Authority did not believe that this provision offended against section 4(1).

57. Clause D provided that unsold copies returned within four weeks of publication would be credited to the newsagents account up to a limit of 5% of newspapers supplied during the period. The provision of newspapers on a sale or return basis was designed to enhance sales. Newspapers were an extremely perishable product. Unless sold within a few hours of delivery they were unlikely to be sold at all. Newspapers can be purchased on impulse by consumers. Thus having supplies available in retail outlets lead to additional sales. In the absence of sale and return arrangements, the risk to newsagents of not selling copies would increase and this would prompt them to reduce orders. The likely result was that overall newspaper sales would be reduced while some consumers who would buy a newspaper would not be able to obtain one. While sale or return provided an incentive to retailers not to discount on the cover price, the Authority believed that its object and effect was to enhance newspaper sales rather than to restrict competition. Consequently, in its opinion, such a provision did not offend against section 4(1).

58. Clause G provided that a minimum of 10 copies per day or 60 per week must be purchased from the company by the newsagent. Such provisions helped ensure that it was economically viable for the publishers to supply new outlets. In such circumstances the inclusion of minimum orders was not anti-competitive. It was submitted to the Authority that such conditions were unfair since they did not apply to existing newspaper retailers. As already stated many outlets were supplied with less than the minimum order level for new outlets. The minimum level of orders was not particularly onerous and did not represent a barrier to entry in the Authority's view. Supplying additional outlets would increase distribution costs and the suppliers were entitled to impose a minimum order requirement in an attempt to ensure that it was commercially viable to supply such outlets. In the Authority's opinion, therefore, such provisions were not anti-competitive and did not offend against section 4(1).

59. Clause I provided that the ´recommended retail price' on the masthead of the newspapers applied to all sales of the newspapers by the newsagents. In effect this provision required all retailers to sell the newspaper at the price specified on the masthead. It therefore amounted to full scale resale price maintenance (RPM). The Authority had previously set out its views on RPM in respect of books, where it stated that:

´The Authority considers that the weight of evidence indicates that RPM is generally restrictive of competition. Consequently, in its view, agreements involving RPM will generally offend against Section 4(1).’ [13]

RPM described a practice whereby a supplier agreed to supply retailers on condition that they sold the goods at a price specified by the supplier. Such arrangements restricted the ability of retailers to determine their own prices. They also eliminated price competition between retailers for the suppliers' products when, as in this case, it applied to all retailers handling his products. It was virtually unknown for newspapers to sell at other than the cover price throughout the State. It was clear that the provision was designed to prevent price competition in respect of Irish Times' newspapers and that it had that effect. These accounted for over 25% of Irish daily newspaper sales. It was also relevant that Independent Newspapers also included provisions for RPM in its agreements with retailers. While not all other newspapers have notified their agreements the indications were that RPM was practised widely in the newspaper trade. Thus in the Authority's view such arrangements had the object and the effect of preventing, restricting or distorting competition. This provision therefore offended against section 4(1).

60. Economic theory argued that RPM might inhibit competition in a number of ways. It could inhibit the entry of discount outlets and thus prevent retailing innovations. Manufacturers who had relied on RPM in order to encourage product promotion by retailers and increased sales might be unwilling to dispense with such arrangements long after the need to promote new products had ended. Where many manufacturers engaged in RPM it might be difficult for one to end the practice since retailers might simply cease stocking the firm's products. While some economic theories suggested that there might be circumstances in which RPM might increase overall economic welfare, most goods and services did not appear to satisfy the necessary conditions for such a result. Newspapers did not meet such criteria. Consumers did not require detailed advice from retailers before deciding to buy a newspaper. The evidence suggested that RPM was likely to restrict competition and result in prices being higher and output lower than would otherwise be the case.

61. RPM might be operated as part of a cartel arrangement whether between suppliers or retailers. In the case of a supplier cartel, RPM might be used as a means of preventing cheating by cartel members. By preventing discounting among retailers it reduced the incentives for suppliers to renege on the cartel arrangement. A retail cartel might also put pressure on suppliers to operate a system of RPM as a means of ensuring compliance by all retailers.

62. RPM had been prohibited under the competition laws of most developed countries. Legislation which permitted RPM in many individual states was repealed in the United States in 1976 and the Supreme Court has regarded RPM as a per se violation of the antitrust rules. Legislation prohibiting RPM was enacted in Canada in 1951, in France in 1953 and in the UK in 1964.

63. The Authority's view was in accord with that of the European Court of Justice in Binon v AMP which was specifically concerned with the issue of RPM in the case of newspapers which it found to be anti-competitive and contrary to Article 85(1) of the Treaty of Rome. In its judgment the Court stated that:

´The requirement in the framework of a selective distribution system for newspapers and periodicals which affects trade between Member States, that fixed prices must be respected renders that system incompatible with Article 85(1) of the Treaty. [14]

The Court stated that it was a matter for the EU Commission to decide whether they satisfied the requirements for an exemption under Article 85(3).

64. None of the other provisions in the notified terms and conditions offended against section 4(1).

65. The Irish Times has now amended its terms and conditions by means of a letter dated 5 February 1997 wherein a new clause I was substituted in place of the original one stating that even though the Irish Times could recommend a price, the newsagent was free to set its own price.

66. Irish Times Newspapers Ltd and the retail newsagents are undertakings within the meaning of Section 3(1) of the Competition Act and the notified new standard terms and conditions of sale of Irish Times Newspapers constitute an agreement between undertakings. In the Authority's opinion, the arrangements as originally notified, prevented price competition in respect of the publishers newspapers between different retail outlets and, in tandem with similar arrangements operated by other newspaper publishers they restricted price competition between retailers in respect of newspapers generally. Consequently the notified arrangements offended against Section 4(1) and they did not satisfy the requirements for a licence under Section 4(2).

As the offensive provision has now been amended the agreement no longer offends against Section 4(1).

67. The Competition Authority has issued the following certificate:

Irish Times Newspapers Ltd has amended clause I of its standard agreement for the supply and distribution of newspapers as follows:

“The Irish Times shall have the power to recommend a price at which the Newspapers are sold by the Newsagent. However, the Newsagent is free at all times to set its own price.”

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the standard agreement for the supply and distribution of newspapers between Irish Times Newspapers Ltd and the newspaper retailers, (notification nos. CA/112-114/92E), notified on 25 September 1992 under Section 7, as amended by the revision to clause I, does not offend against Section 4(1) of the Competition Act.

For the Competition Authority

Patrick Massey

Member

11 March, 1997.

[1]. Competition Authority [1995], Interim Report of the Study of the Newspaper Industry, Dublin, Stationery Office.

[2]. Restrictive Practices Commission. Report of Enquiry into the supply and distribution of daily and Sunday newspapers published in Ireland, and of newspapers, periodicals and magazines distributed by wholesalers. prl 8380. May 1979, pp. 12-19.

[3]. Consumers entering the outlets were offered vouchers giving 50p off the cover price.

[4]. Decision no. 328 of 14 May, 1994.

[5]. The Authority rejected an agreement between Abbey Sun Insurance and consumers on 10 July 1992 as not being an agreement between undertakings.

[6]. OJ 1984 L207/26, 2.8.84.

[7]. OJ L 38/1Q, 12.2.75.

[8]. 243/83, 1985 , 3 CMLR 800

[9]. AMP, 1987 OJ C 164/2.

[10]. MMC Report of December, 1993. ´ The supply of national newspapers: A Report on the supply of national newspapers in england and Wales.’ (UK) HMSO, Cm 2422.

[11] . “Fair Trading” Consumer & Competition News from The OFT, issue no. 12 Autumn 1995; issue no. 13 Spring 1996.

[12]. See WR v Sociale Dienst [1987] ECR 3801.

[13]. Competition Authority decision no. 336 of 10 June 1994, Para 70.

[14]. SA Binon & Cie v. SA Agence et messageries de la presse.