Irish Competition Authority Decisions

Decision No. 482

1. This notification concerns three standard distribution agreements between Independent Newspapers Marketing Ltd. (INML) and newspaper retailers which was notified to the Authority on 30 September, 1992. The first agreement applied to new retail outlets, the second to existing retail outlets and the third applied in the case of transfer of ownership of outlets. 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 issue 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 and an oral hearing was held on 19 March 1997.

2. The notification concerns standard agreements for the supply and distribution of newspapers - The Irish Independent, Evening Herald and the Sunday Independent - to newsagents throughout the State by the publisher. The agreement set out various requirements for the supply of the newspapers to the retail outlets around the country such as opening hours, premises, credit-rating, location, home delivery, price and no-resale.

3. INML is a part of The Independent Newspapers plc (INP) Group of companies and distributes the publications published by Independent Newspapers (Ireland) Limited. The other parties to this agreement are the retailers who sell the newspapers.

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 Independent, Evening Herald and Sunday Independent. 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 Independent competes. The arrangements also affect the evening newspaper market and the market for quality Irish Sunday newspaper titles.

5. Table 1 indicates that total daily sales of Irish national newspapers between January and June 1996 were just under 399,000. The Irish Independent is the largest selling daily newspaper with average daily sales of 157,393 in the first half of 1996, equivalent to 39% of the market. The Star is a tabloid newspaper which is 50% owned by Independent Newspapers and it had daily sales amounting to 85, 973 in the first six months of 1996. It is not covered by the arrangements and is not part of the relevant market. Sales of The Cork Examiner Group are largely confined to the Munster region. According to the National Newspapers of Ireland (NNI) sales for all UK daily newspapers in Ireland amounted to 27% of all daily paper sales in 1995.

Source: ABC

6. There are only two evening newspapers, the Evening Herald and the Evening Echo. Sales of the Evening Echo are confined mainly to the Cork area. The Evening Herald is the only evening newspaper in other parts of the country.

7. Table 2 gives the breakdown of the sales of Irish Sunday Newspapers in 1994. The Sunday Independent accounted for almost 256,000 or 35.2% of sales of Irish Sunday newspapers, while the Sunday World accounted for 28.3%. The latter title is owned by Independent Newspapers but it competes in the tabloid end of the market with UK imports. It is not covered by the notified arrangements and is not part of the relevant market. The Sunday Press which accounted for 21.5% of Irish newspaper sales has not been published since May 1995. The Sunday Tribune is partly owned by Independent Newspaper but is not subject to the notified arrangements. There are also nine Sunday titles imported from the UK, with sales in September 1994 of 416,000 according to the NNI.

Source: ABC

8. 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.

9. 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 Examiner is mainly delivered in its own vans with a small proportion of deliveries being transported by mail vans, bus and local trains.

10. There are approximately 6,000 outlets in the country which sell the three Irish Independent titles which are the subject of the notified arrangements. Some of these sell them on the basis of the arrangements for new outlets (CA/375/92E and CA/376/92E) which only came into effect in April 1991. The remainder of the 6,000 outlets sell the newspapers on the basis of the older agreement (CA/1139/92EX). 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.

11. 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 unilaterally increased by 5p. 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.

12. INML notified three separate agreements to the Authority. One agreement was for a new agency, one for an existing agency and the third one was a transfer of agency agreement. The application form for the new agency agreement requires details of the proprietor such as the name of the business and/or company, whether the premises was owned, leased or rented and whether the proprietor owned or rented his own home, hours of business and the nature of the business. The newsagent was asked why a newsagency was considered necessary in the area and the distance of the premises from the nearest existing newsagency. The application also required the applicant to give details of the newspapers, magazines and paperbacks currently sold by the business and the sources of supply in each case. The agent was also requested to state if there had been any new development in the area such as a new housing estate, shopping centre or new factories or offices. The application form for the transfer of an agency agreement requests similar details as well as the name, address and account number of the previous agent. This form also states that the application for the transfer of an newsagency would not be considered unless the previous agent's account had been cleared in full and it stated too that the transfer was at the absolute discretion of the company and no reasons would be given for a refusal.

13. The terms and conditions of business were the same on the two new application forms. The terms and conditions for the existing agents was similar to the new agents except that some clauses were not included. The new newsagent was now required to complete a bankers reference before the application would be considered. The new agent was also obliged to lodge a sum of money with the company as a security for payment of account. If the proprietor of the newsagency was a limited company, a personal guarantee had to be signed by each of the directors. Clause (d) required that the account must be paid by weekly variable direct debit, payment in full was due on receipt of statement for new agents only (clause (e)) and non-payment or part payment of the account when due resulted in a discontinuation of supplies, and could lead to the termination of the agreement for new agents (clause (f)). Where supplies were stopped for non-payment of supplies, the company required the cash value of two months business as well as the amount owed before supplies would be resumed (clause (g)). Under clause (i) of the terms and conditions credit for unsold copies to a maximum of 5% was permitted except in certain cases where the company could specify a minimum supply with no allowance for unsold copies. Clause (j) specified that the publication must be sold at the cover price only and could not be sold to a third-party for resale, except with the prior consent in writing of the company, and where a newsagent (appointed after April 1991) became aware of another newsagent re-selling supplies to a third party, he was obliged to notify the company in writing immediately. Clause (k) restricts the sale of the publications to the premises of the applicant only. The retail price of the company's supplies and titles remained solely within the discretion of the company (clause (s)) - in the new agreements only. The sale of the publication was restricted to the address of the premises in the company's records, and the publication could not be displayed, collected, distributed or sold from any other premises.

14. The company considered it essential that a secure and safe place be provided for the publication, failure to do so could result in no credit being extended for missing copies. Adequate supplies had to be provided to meet demand, a prominent and permanent display was required for the paper, a newsagency service had to be provided on all publication days and a home delivery service must be provided if required. Clause (p) specified that a service/delivery charge would be applied. Under clause (q) of the terms and conditions - from April 1991 - the agreement was not transferable or assignable by the newsagent, but a third party could make an application in writing for a transfer. Such an application could be refused at the absolute discretion of the company and no application for the transfers of agencies would be considered unless the previous newsagent's account was paid in full. Failure to comply with any of the terms and conditions of the agreement could lead to the withdrawal of a granted newsagency and termination of the agreement (clause (t)).

15. Table 3 gives details of the number of applications for supply of newspapers during each of the years 1992-94. This shows that several hundred requests were received each year for supplies of newspapers. The level of refusals in 1992 and 1993 was relatively high. In 1992 almost 38% of requests were unsuccessful. In 1994 both the level of requests increased considerably while the number of refusals fell so that the rate of refusals in that year was just 15%.

Source: INML

16. INML submitted that the arrangements related to the distribution in Ireland of publications of Independent Newspapers (Ireland) Ltd by INML to the retailers, (who must first be approved by the Company). Retailers of Independent Newspapers publications provided the key link between the publisher and its readers and it was therefore of crucial importance that they be selected carefully in the interests of ensuring the widest possible distribution of the company's publications and a high standard of service to its readers at a reasonable cost. The criteria whereby retailers were approved by the company and the terms and conditions of supply were designed to achieve these objectives.

17. The company submitted that it must be satisfied with the applicant's credit-rating and the applicant must complete a mandate to settle its account with the company by weekly direct debit. New applicants were required to lodge a security deposit equal to the value of four weeks' net supply which was held until the retailer had either ceased trading or had transferred the business to another owner, at which point any net balance was returned to the retailer. The security deposit was required because retailers paying by weekly direct debit could generally secure up to one month's unofficial credit before the company's financial control system finally stopped further supplies until unpaid direct debits were discharged. The retail trade experienced a high level of business failure which left suppliers very exposed unless provision for guarantees or security was made. They submitted that the requirement of a lodgement or guarantee as security had been implicitly accepted by the EU Commission in the AMP Notice. [4] The company submitted that the transfer of an agency required the previous account to be cleared in full since from the transferee's point of view, it ensured that the new applicant would not have to assume the liabilities of the existing agent to INML in respect of the agency and from the company's point of view, it was considered necessary in order to avoid the transfer of agencies (sometimes to associates of the transferor) in circumstances where significant debts were left unpaid and became very difficult to collect.

18. The company submitted that the applicant's premises must be suitable, i.e. a dry and secure place be provided for the receipt of the publications, a prominent location must be provided for display purposes and any other business carried on at the premises must be compatible with the sale of the INML publications. Details of the suppliers of other newspapers, magazines and paperback books were sought in the application form in order to establish the applicant's bona fides as a news retailer. They maintained that such details were normally sought of applicants for admission to any selective distribution system, as for example in the Parfums Givenchy case [5] where the EU Commission noted that the sale of competing brands in the same retail outlet gave customers an opportunity to compare products. The company did not restrict the retailers in any way in their choice of other publications for stock. The applicant must be prepared to open the premises on all days considered necessary by the company - all publishing days. The company must be satisfied with the location of the retailer's premises. Such factors as the pattern of supply and demand in the locality, the extra cost and logistical implications of supplying newspapers to the applicant's premises, the number of copies which the applicant was likely to sell, the number and size of existing authorised retailers in the locality and the likely effect of the opening of the new outlet on net sales of the publications in the area. The company maintained that some limit to the acceptable levels of returns was necessary in order to control distribution costs and to minimise the risk of fraud by retailers (who in many cases return only mastheads rather than complete copies). The 5% level was the target level which the company would like to achieve, [ ] % had been the typical level for the past number of years. The higher the level of permitted returns, the greater the company's distribution costs and it was in the company's interest to keep these as low as possible. INML pointed out that in practice it tended to be quite flexible in individual cases as regards returns and the 5% level would be required only in exceptional circumstances. The average cost of returns as a percentage of production costs was approximately [ ]% (i.e. £ ). The company did not, at present, specify a minimum supply with no return allowance. The applicant was required to provide suitable staff to comply with the company's standard terms and conditions of trade, especially with regard to opening hours, sorting of returns, accounting and the provision of a home delivery service, where required.

19. The standard terms and conditions in use since April, 1991, were intended to cover earlier versions of the standard terms and conditions which comprised some, but not all, of the provisions contained in the current ones. They stated that those earlier versions still apply to many retailers appointed when those versions were in general use. The company submitted that the following provisions could be regarded as restricting the parties in their freedom to take independent commercial decisions. Clause (j) of the terms and conditions essentially limited the type and number of retailers who sold the company's publications by restricting the retailers freedom due to the prohibition on sales to unauthorised resellers. Clauses (j) and (s) obliged the retailers to sell newspapers at a price set by the company. Clause (k) contained an obligation that the retailer sell the publications only from the designated premises. Under clause (n) the retailer was required to ensure that adequate supplies were available to meet the demand by consumers. Other restrictions in the terms and conditions imposed obligations on the retailers in line with the criteria for the selective distribution system. The company applied slightly different terms of supply to the wholesalers and shoppers than it did to the approved retailers due to the different roles of each, (for example different amounts of commission were given to the retailers). The company submitted that this did not amount to the application of dissimilar conditions to equivalent transactions, but to the application of modified terms commensurate with the differences in the status and function of the other parties.

20. INML submitted, in their arguments in support of a certificate, that in selective distribution systems the EU Commission and the ECJ outlined three conditions where the prohibition in Article 85(1) did not apply: (i) the goods involved had characteristics which justified the suppliers in restricting the outlets in which they should be sold; (ii) the authorised agents were selected solely on the basis of objective qualitative criteria as opposed to quantitative criteria designed to restrict the number of authorised outlets; and (iii) the selection criteria were applied in a uniform, objective and non-discriminatory way so that all suitably qualified resellers were admitted to the system. The company submitted that the goods involved in this notification had characteristics which justified the suppliers (INML) in restricting the outlets in which they should be sold. Newspapers were found to be products which justified the operation of a selective distribution system, by the ECJ in the Binon and Cie SA v. Agence et Messageries de la Presse SA cases. [6] Newspapers (and other periodicals) had a limited shelf-life making a rapid and reliable system of distribution essential. Once the limited shelf-life for sale of the newspapers had expired, they had practically no value. It was for this reason that publishers were required to operate a "returns" policy. They submitted that the very limited shelf-life cast doubt on the viability of sales for resale otherwise than through the distribution system. They claimed that there was very little elasticity in the demand for newspapers at the point of sale. They submitted that the fundamental role of a free press in the preservation of a democratic system of government (Article 40.6.1.i of the Constitution of Ireland) together with the special social and cultural role of the press in society justified the maintenance of a specialized distribution network which ensured the orderly availability of a variety of titles to as large a number of citizens as possible. They maintained that this special role was recognised by publishers as akin to a public service obligation and their operations were consequently not always motivated by solely commercial considerations.

21. INML submitted that the authorised agents were selected solely on the basis of objective qualitative criteria as opposed to quantitative criteria designed to restrict the number of authorised outlets. The classification of various criteria as "objective qualitative criteria" varied depending on the nature of the product. [7] The company submitted that the criteria relating to credit rating, suitability of premises, opening hours, location, staffing, the obligation to maintain adequate supplies of publications and the obligation to sell publications from specified premises had been deemed qualitative criteria by the EU Commission and the ECJ in a number of cases. [8] They further maintained that the criteria relating to location and the obligation to sell from specified premises was essential, in the context of the specific character of the market in the distribution of newspapers, required a stable and balanced distribution network with an adequate geographical spread. They pointed out that the RPC Report on the newspaper industry [9] recognised the impossibility of devising a set of general rules which could be applied to individual cases to decide whether a publisher should supply a retailer or not and also that there should be a mechanism (Board of Appeals) that permitted applications for supplies to be dealt with on a case by case basis. The company submitted that the suggestions concerning the relevant criteria to be considered by a future board of appeals, such as (i) the convenience of the public (especially where there were new developments such as housing, factories or shopping centres), (ii) the legitimate interests of the applicants and (iii) the necessity for newspaper publishers of keeping the cost of distribution, in terms of both time and money, within manageable limits, corresponded broadly to criteria currently used by INML.

22. INML submitted that the location criteria were essential to a workable distribution system for newspapers and that this in turn stimulated inter-brand competition in Ireland and also to ensure an adequate geographical spread of distribution of INML publications. These two aspects were particularly important in the context of the special role of newspapers in a democratic society. Not all dealers who satisfied the criteria were admitted to the system, over 6,000 have been approved, as the stability of the system would be endangered and it would not be possible to ensure the rapid delivery which newspapers required nor the operation of the "returns" system. The company's decision to limit the number of outlets approved did not prevent other newspaper distributors from approving the same outlets. They further submitted that the distinction drawn by the EU Commission and the ECJ between the qualitative and quantitative selection of retail outlets was a distinction without meaning in economic terms since outlets could be limited quantitatively for the same reasons that they were limited qualitatively. The company submitted the sole reason for the quantitative restrictions (in Article 85) was their capacity to lead to territorial market division which was contrary to the Single European Market, but this was not an objective of Section 4 of the Competition Act, and consequently the Authority should not feel bound by to follow the ECJ's reasoning.

23. INML submitted that the US courts had taken a more liberal approach to the analysis of the effect of refusals to deal (one of the essential characteristics of a distribution network which operated only through approved outlets) and had considered that unilateral action by a supplier was not prohibited. On this basis the company suggested that the selection of retailers by INML constituted unilateral action which should not be regarded as coming within Section 4(1). They submitted that the US courts had generally upheld refusals on the grounds that (a) a belief that a manufacturer already has sufficient distribution; (b) an attempt to implement standards imposed on distributors, such as appearance and image standards, credit requirements and sales quotas and (c) failure to meet quality standards. The company submitted that the selection criteria were applied in a uniform, objective and non-discriminatory way so that all suitably qualified resellers were admitted to the system.

24. The company submitted that the application of dissimilar criteria and terms to the supply of shoppers, wholesalers and retailers was justifiable on the basis of the different functions performed by these entities and that Section 4(1) of the Act did not apply to these aspects of the notified arrangements. They maintained that if they were obliged to supply all potential retailers, this would involve greater distribution costs in supplying smaller quantities to a larger number of outlets. Consequently it could force the company to reduce the acceptable level of returns and retailers might not maintain sufficient stocks to satisfy the requirements of all potential customers. The company pointed out that it was shown in the RPC Report where there was a sufficient number of outlets in an area, supplying additional outlets tended to spread the same sales over an increased number of outlets rather than increasing total sales and it also lead to an increase in unsold copies, thereby adding to the supplier's costs. The company stated that it did not impose a service/delivery charge but absorbed the cost of distributing newspapers. Service/delivery charges were imposed by certain wholesale distributors of newspapers and INML might be obliged to impose such charges in certain circumstances in the future (e.g. if distribution costs were to increase to a level which INML felt unable to absorb).

25. The setting and maintenance of a retail price by the company was an inherent aspect of a selective distribution system in the newspaper sector. RPM here did not have the object or effect of restricting or distorting competition since its sole purpose was to support the cost to the company of taking back unsold copies and it was a well established feature of a workable distribution system for newspapers. The financial burden of unsold copies was transferred to the publisher, thus encouraging retailers to stock a wide variety of publications, not just the more popular titles. Therefore, RPM stimulated inter-brand competition. They submitted that the purpose of RPM in the newspaper distributor sector was to support and protect the specialised distribution system which involved rapid delivery and the returns policy. The widespread availability of a variety of newspapers (a vital element of the current distribution system) would be endangered if uncontrolled intra-brand competition was permitted. The company pointed out that the Authority should note that a system of RPM which ensured that all consumers were charged the same price for access to an organ of the media was consistent with public policy in relation to the media, both in Ireland and abroad.

26. They maintained that because of their perceived "public service" obligations, newspaper operators could not permit a situation to arise where cover prices permitted discrimination among readers. The abandonment of price controls might result in lower prices in certain urban areas where distribution costs per copy were lower and retailers achieved higher turnover, but in rural areas where the higher cost of distribution per copy and the possibility of local geographic monopolies for certain retailers could lead to increased prices and could prejudice the accessibility for certain consumers of important news, information and debate. They pointed out that the prices charged to users of non-cable broadcast media (e.g. television and radio licence fees) did not vary regardless of the number of channels or stations available in a user's area or by reference to the increased per-subscriber costs of transmitting signals to small numbers of users in remote areas.

27. INML submitted, in support of its request for a licence, that the arrangements contributed to the improved distribution of the goods. They submitted that the advantages of INML's distribution system outweighed any perceived negative effects on competition by the restriction of the number of retailers, the obligation on retailers to sell from a designated premises and the obligation to sell at cover prices set by the company. The location criteria, which permitted INML to restrict the number of retailers it supplied was an essential feature of an efficient and workable distribution system in the newspaper sector. Such a system was necessary to ensure the rapid distribution of the publications at a reasonable cost to the consumer throughout a wide geographical area. It would be uneconomic and logistically impossible for INML to distribute to every retail outlet in the country (because of the high costs in time and money of serving a single outlet). A totally unrestricted network would lead to a higher cost to the consumer and to a less efficient distribution service without providing any advantages.

28. The company suggested the Authority should note the fundamental differences between a selective distribution system for newspapers (the primary motivation for which was rapid and widespread circulation) and those for luxury goods (such as cosmetics, jewellery, etc. where the primary motivation was the protection of the exclusive or luxury character of the product) considered on several occasions by the EU Commission. The criteria for admission to the latter's distribution network were much more stringent than those imposed by INML. The company suggested that the Authority should look at the EU Commission's "AMP Notice" [10] where they declared their intention to grant an exemption under Article 85(3) to a selective distribution system in the newspaper sector in Belgium. The Notice proposed to exempt a minimum turnover or quantitative criterion and rejecting criteria limiting a number of outlets within a geographical area. The RPC Report rejected the minimum turnover criterion as unworkable in favour of quantitative criteria relating to location. The EU Commission, in Ivoclar [11], exempted a manufacturer of artificial teeth who supplied them to authorised exclusive distributors, stating that "...supplying a much larger number of distributors would be detrimental to its objective of ensuring competent distribution of its products and involve needless expense.." and that "...the restriction of distribution to the authorised ...depots also created the conditions for the distributors to exploit the market intensively and to maximise the sales of Ivoclar products. The obligation on ...depots to maintain comprehensive stocks and to carry out sales promotions are a corollary of this restriction."

29. The company submitted that the operation of the RPM condition was an essential part of a viable, economic and efficient distribution system. The EU Commission, in its AMP Notice, was prepared to approve the fixing by the publisher of the cover price of its publications provided that it did not restrict retailers' freedom to import the publications from approved outlets in other member states (and sell those imported publications below the cover price fixed for Belgium). In Binon [12], the EU Commission acknowledging that RPM may be justified in the case of newspaper and periodical distribution, said "..if in so far as the distribution of newspapers and periodicals is concerned, the fixing of the retail price by publishers constitutes the sole means of supporting the financial burden resulting from the taking back of unsold copies and if the latter practice constitutes the sole method by which a wide selection of newspapers and periodicals can be made available to readers, the Commission must take account of those factors when examining an agreement for the purposes of [granting an exemption under] Article 85(3)". INML submitted that they investigated the national rules relating to the cover price of newspapers in eleven European countries and in all of them the newspapers were sold at cover prices fixed by the publishers. This practice was not expressly prohibited in any of those countries and was in fact expressly permitted in some (e.g. Germany, Denmark and Norway).

30. INML submitted that the restriction on retailers to sell from their specified premises was a vital part of the overall distribution system. INML submitted that their distribution policy was designed to optimise supplies and stock levels and minimise returns and the prohibition on re-sale to third parties related to this. Supplies and returns for each edition of each paper were recorded by computer and closely monitored and certain standards had to be maintained in their exposure for sale (eg. to be kept dry, well-displayed and easily accessible for consumers) and to ensure that the company's papers were given a position in each outlet which reflected their status as popular national newspapers. These marketing efforts would be undermined if sub-sales to third parties were permitted and optimisation of stock levels and merchandising would become impossible if the company had no direct contact with the sub-sellers. Given that the newspaper market was static or declining, sub-selling would result in fragmentation of sales, higher levels of returns (waste) and sellouts (lost sales opportunities). Retailers had little incentive to become involved in sub-selling to other retailers, since approved retailers had ready access to supplies and because of the short shelf life of the product, purchases from another retailer were unlikely. The company submitted that the principle of a prohibition on cross-supplies between retailers of newspapers in the same Member State was accepted by the EU Commission (in AMP Notice, para 18).The principle of confining sales of the product to specified premises had been accepted in many EU Commission cases [13]. In many cases, approval was given as much to the premises as to the retailer.

31. If retailers could transfer the publications to another address or person for resale, this would ultimately affect the business of other retailers in the same area and would lead to an increase in returned copies and consequently, to an unacceptable increase in the cost of operating the distribution system. In the RPC Report, it was claimed that if resales from undesignated premises were permitted, it would lead to a fragmentation in the market with the result that retailers would only stock the most popular titles. They maintained that this would obviously damage inter-brand competition and prejudice consumers who prefer less popular titles. INML submitted that in reality, sub-sales to other retailers were most unlikely given the extremely short shelf life of the product. In the AMP Notice the EU Commission indicated that it was prepared to exempt a restriction which prohibited retailers from passing on newspapers or periodicals to any third party with a view to their being resold.

32. INML submitted that the keeping of minimum stock quantities was essential in offering a choice of titles to readers and in ensuring that consumer demand was adequately met. Newspaper retailers were sometimes obliged to accept extra copies over normal orders ("box-outs") where a 'scoop' story or a promotional campaign required this. All "box-outs" copies were supplied on a full sale or return basis. They pointed out that the EU Commission, in its decision on Givenchy, said " ... if there were no requirements regarding the holding of stocks ...retailers would decide to concentrate their promotion activities on the brand leaders products.." They maintained that, unlike the case with luxury goods, this requirement was in no way burdensome on retailers because of the low per unit cost of newspapers to retailers and because of the returns system, which permitted them to recover outlay on unsold newspapers.

33. The company stated that there were two types of consumers of INML newspapers, readers and advertisers. They maintained that readers benefitted from the current distribution system by being able to purchase newspapers in virtually any part of the country at minimum cost and delay. The claimed that the current distribution system was the most economic and efficient way of ensuring the timely distribution of its newspapers and also promoted the availability of a choice of titles to readers at the least possible cost to them. They maintained that any obligations imposed on the company to undertake significant extensions to the distribution network would not improve the access of consumers to supplies of newspapers and would be likely to cause unacceptable delays in delivery and would entail substantial extra costs, which would ultimately be borne by the consumers.

34. The company pointed out that the requirement that sales be made only from designated premises and that minimum stock quantities be held were also in the interests of consumers; they pointed out that a minimum stockholding or purchasing requirement had already been accepted in principle by the Authority. [14] Consumers needed to be able to identify outlets where regular and reliable supplies of a range of newspapers, in appropriate condition and suitably displayed, were available; rather than visit a number of outlets where stocks may have been exhausted. They submitted that a substantial amount of a newspaper publisher's income was derived from advertising revenue. Advertisers benefitted from an efficient distribution system which permitted publications to be purchased by a maximum number of readers at a minimum cost and in as widespread a geographical area as possible. It was imperative for advertisers in the national press that their advertisements reached as many readers as possible and that this was done as quickly as possible. The proportions of INML's revenue attributable to sales and advertising were [ ]% and [ ]% respectively. The company stated that in the EU Commission's Merger Task Force on Newspaper Publishing [15], the proportion of revenue attributable to advertising in The UK was found to be 46% in 1992, it was higher in the quality segment (c. 58%) and lower for tabloids (c. 27%-30%). The company pointed out that the Authority should note that no unnecessary restrictions were imposed on retailers. Far from being precluded from selling products competing with those of the company, they were actively encouraged to sell a range of newspapers. The restrictions imposed by the selection criteria went no further than was absolutely necessary to preserve the efficiency of the distribution network.

35. The fixing of selling prices ensured equality of access among consumers to the information provided by newspapers. Abandonment of fixed selling prices could lead to two tiers of access, with consumers in urban areas, where distribution costs were low, favoured over consumers in more remote regions. They strongly endorsed the submission of the German Government in Binon (para 42) that "[i]f the possibility of fixing prices for newspapers ...is not accepted any effective distribution system for such products would be incompatible with the rules on competition and the effect on the diversity and freedom of the press would be disastrous. From that point of view it is not unimportant to note that systems of fixed prices in relation to the distribution of newspapers ...are accepted under the legislation of most Member States or are operated without encountering any difficulties."

36. The company submitted that the arrangements did not afford the possibility of eliminating competition for a substantial part of the products in question. The company's products faced stiff competition from a number of other Irish publishers and from UK and other publications. They wanted to emphasise that any possible restriction on competition, which would affect only competition between retailers, i.e. intra-brand competition, (which was less significant in this sector than in others because of the short shelf life of the products concerned) was outweighed by the importance of the current selective distribution system for the stimulation of inter-brand competition and by its guarantee of ready access for consumers to supplies of newspapers. Intra-brand competition was of particular significance to the newspaper sector. They pointed out also that the Authority should note that unsuccessful applicants for admission to the company's network were in no way precluded from seeking to sell other publisher's newspapers. The INML network operated to the benefit of smaller retailers who formed an integral part of the distribution system.

37. 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 weekly were onerous for the retailer and this also provided significant benefits to the newspaper company in terms of collection and other costs at the expense of the retailer. The Association 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.

38. 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.

39. They 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. The Association 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.

40. RGDATA pointed out that in the case of a limited company, two guarantee forms were required for the transfer of an agency. The Association strongly objected to the requirement that the account of the previous proprietor must be cleared in full before an application would be considered. They believed that this requirement was in breach of Section 4(1)(e) of the Competition Act because it was a supplementary obligation which had no connection with the subject of the contract. The new proprietor should not have to pay off the account of the old proprietor before supply was made. They maintained that in the case of collusion between the former proprietor and the new proprietor, which was an exceptional circumstance, there were other remedies open to the Irish Independent Company.

41. 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. Another individual submitted that a substantial sum - £700 - was demanded from him as security for payment of his account.

42. 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 [16]. 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.

43. 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.

44. 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.

45. 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.

46. 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.

47. 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.

48. 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.

49. 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.

50. 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.

51. 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.

52. 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.

53. 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.

54. 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 [17] 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.

55. The Authority issued a Statement of Objections to the notifying party on 19 December 1996 indicating its intention to refuse to issue a certificate or grant a licence in respect of the notified agreements. INML responded to the Statement of Objections and an oral hearing was held on 19 March 1997.

56. INML, in a written reply to the Statement of Objections, suggested amendments to a number of clauses in their agreement. They proposed to remove the prohibition against resale or sale from other outlets (clause k). In its place they would substitute a provision requiring the retailer to notify INML of the location from which the product was being sold. They also proposed removing the provision, whereby in the transfer of a newsagency to a new proprietor, the acquiring company was obliged to pay monies owed by the liquidated entity. INML further proposed to accept, in place of the requirement for a deposit by the new newsagent, a bank guarantee instead.

57. INML maintained that the ability to set the cover price was important due to the unique nature of newspaper distribution. They did not want to have any unnecessary expenses added to the cost of their product as that would reduce sales and the profitability of the company. INML considered that it was of great commercial importance to maintain the maximum availability of its product throughout the marketplace. They also considered that to remove the ability to set the cover price would seriously interfere with the contractual and marketing freedom of INML and it would be particularly damaging at a time when there was considerable change already taking place. They believed that a licence was appropriate in these circumstances.

58. INML proposed to remove the prohibition on reselling newspapers from a premises other than that of the premises of the retailers (clause k). It was a unilateral decision of the company, not an agreement. They submitted that the purpose of the deposit was to protect the company from bad debts and this was very important to them. Before the introduction of deposits, the company had bad debts of [£ ] million per year. The amount of the deposit depended on the size of the outlet and it was based on the retailer’s expected turnover for a four week period. They ranged from £400 to a maximum of £1,000. The deposit was held indefinitely by the company and it was refunded if the retailer ceased to trade or sold the business.

59. With regard to the obligation to sell newspapers at the cover price (clause j), the company said that it was aware of the decision in the Irish Times case [18] and they would have preferred to have met the Authority prior to the decision as they accepted that it would be difficult for the Authority to allow INML to operate RPM when it had been refused to the Irish Times. The main objective of INML was to increase sales. They maintained that newspapers were an unusual product and their availability throughout the country was of prime importance. The retail outlets operated like advertising posters for the company in every street corner and the ability for people to pick up a newspaper whenever they wanted to was considered by the company to be very important.

60. They maintained that the first issue to do with RPM was the possibility of a big store “loss leading” with a newspaper which could undermine the viability of smaller outlets to sell newspapers. If the smaller outlets began to close, the impulse purchase of newspapers would be reduced and their availability throughout the country would be reduced also. From an economic point of view, the question was whether the risk of closing many outlets to sell the product outweighed the benefits that would be derived from selling it at a lower price. There were benefits for the consumer with the lower price, but they did not think that the consumer would be better served if because of loss leading by the supermarkets the smaller outlets were forced to close. They did not think that people would travel 10 to 15 miles to purchase a newspaper. There was also the problem of managing supply from week to week in terms of stability. If a large outlet dropped the price of the newspaper on a Saturday night and sold out, then the other newsagents would not be able to sell any. The company was not convinced that the whole supply and demand relationship would be served by this.

61. Opening hours were also an issue especially for 24 hour convenience stores which because of their extra costs would charge more for the newspapers and this could result in a lack of credibility between the consumer and the retailer. Smaller traditional TSNs in small communities where newspapers formed a high percentage of their turnover would be affected over time and would probably close. Out of the company’s 6,000 outlets, 3,500 were traditional TSNs.

62. INML maintained that the free rider argument that was used to justify RPM applied to opening hours and shelf space. The issue of opening hours was critically important to newspapers as newspapers were a very high impulse purchase product, much more so than ten years ago. The importance of sale or return was recognised by the MMC in its report and by the Court of Justice too. It was very important to the company because it ensured the availability of the newspapers everywhere, but it was a heavy risk. It cost the company [£ ]. every year with returns amounting to [ %] of product. This cost was for print and it did not include distribution. If a big supermarket discounted heavily on a newspaper, it would require extra product, but this in turn would lead to higher returns from the other retailers. The stability of the distribution arrangement was recognised internationally. The product was particularly perishable. For the Evening Herald opening hours were also critical as it was sold mainly through shops that opened late.

63. The logistics and timing of the distribution of newspapers was important. It involved bar codes, monitoring of the product and the extra costs of sending extra supplies at particular times of the year. The costs of deliveries were incurred by the newspaper company. There was a provision for a service charge in their terms and conditions, but the company did not apply it. The company maintained that there was a shakeout happening in the smaller outlets, but they alleged that the removal of RPM would speed up the process and create losses that would not otherwise occur. People would purchase their newspapers from the large discounting stores not from the TSNs and the TSNs would loose not only the sales of newspapers but other sales as well. INML agreed that there was some latitude for the TSNs to reduce their margins on newspapers, but in a free for all, they would loose out. If consumers saw that a newsagent was 5p dearer for newspapers, then they would assume that the newsagent was more expensive for everything else too. The company’s objective over time was to reduce the newsagent’s margin as it was an extra cost to them.

64. The marketing of newspapers now was all about convenience and the product was much more an impulse purchase now than ten or fifteen years ago. If the small outlets were forced to close because of discounting by the larger outlets, then people would purchase newspapers less frequently. Newspapers were all about loyalty purchasing six days a week and that loyalty would be affected. People did not need to purchase newspapers everyday now to get information. If the number of distribution points contracted to say 3,000 outlets, there would be less points so people would have to travel further in order to purchase newspapers or they might not do so.

65. INML maintained that there was a much larger variation in sales of newspapers per day. The absence of RPM would mean that the company could not set the masthead price for the product nor could they decide how their distribution system operated. INML considered that they were the best people to make decisions concerning their products. Traditionally, newsagents acted as agents for the suppliers, they sold the newspapers at the price on the paper and they took no inventory risks. Supermarkets and newsagents sold many other items besides newspapers. Irish Independent sold only one item - newspapers - and its objective as a manufacturer was to increase its output and maximise the number of sales.

66. They did not consider that the newsagents had much market power in terms of price competition. If they reduced the price of newspapers and if the margins from newspapers formed a large percentage of their overall turnover, then their business would suffer. They pointed out that RPM was allowed and encouraged around Europe. INML also maintained that RPM was an item for a licence, not a certificate. If in doubt, the Authority could issue a licence for a limited period of time.

67. RGDATA maintained that the insistence on a cover price by INML was resale price maintenance since it did not permit retailers to determine their own prices and it eliminated price competition between retailers. They further maintained that such a stipulation was not necessary for the widespread and speedy distribution of newspapers. They considered that the ban on onward sales to third parties was designed to limit the number of outlets selling the newspapers. There did not appear to be any benefits for consumers in this nor was it indispensable for an efficient distribution system. They further maintained that permitting onward sales would reduce the pressure to obtain direct supplies for those retailers who had been refused supplies by the company. RGDATA were also of the view that not having newspapers for sale might create a competitive disadvantage for certain retailers and they would benefit from being able to purchase supplies even at the cover price.

68. The requirement by INML that the previous newsagent’s debts be cleared in full before the “agency” could be transferred to the new retailer was unprecedented in the trade and grossly offensive, according to RGDATA. They also maintained that there were different conditions applied to new retailers such as weekly direct debit, which did not apply to existing outlets who had 28 days credit. They considered that when the new retailers had established a good credit rating, they should be entitled to longer credit terms. RGDATA maintained that the requirement for a security lodgement or deposit from new retailers, which could be as high as £1,000, was again unfair discrimination since existing outlets did not have to pay it. These deposits were held indefinitely by INML and could be viewed as an interest-free loan. It would be more equitable if the deposit was returned after a period of time. There was also the possibility that the retailers could lose their deposits if INML got into financial difficulties, as happened with the Press Group.

69. RGDATA considered that the insistence by INML that adequate supplies to meet demand be available at all times seemed to be illogical and it also appeared to permit the company to impose a minimum purchase requirement which could be varied from retailer to retailer. This could become a maximum requirement and be used as a barrier to entry to the market. They considered that the requirement for a home delivery service, if required by INML, was unreasonable as it could be applied to some retailers and not to others and it could also mean that the service might have to be provided at a loss to the retailer.

70. The National Federation of Retail Newsagents (NFRN), referring to the requirement in the INML’s terms and conditions for a home delivery, did not think there was a great demand in this country for home delivery or among retailers to affect it. The shops here were a more convenience-type market whereas in the UK they were more of the newsagent type. They maintained that the agency for newspapers belongs to the premises and not to the owner and therefore any outstanding debts applied to the premises and not to the owner. They also were of the view that the deposits paid to INML should be put into an interest earning account, because in the case of the Irish Press the deposits were swallowed up. The margin was based on the net price of the newspaper. The existing margin on newspapers was vital for the continued existence of newsagents, and the N.F.R.N. felt that any increase in charges should be taken off the cover price as was the position with any other product as opposed to a separate charge which they were obliged to pay.

71. The Irish Retail Newsagents Association (IRNA) represented 1,500 outlets nationwide. Irish newspapers were sold in 7,500 outlets and Irish and English Newspapers were sold in 5,000 outlets. Only about 2,000 of the 7,500 outlets were the traditional type newsagent with news, lotto, light grocery and tobacco. IRNA said that their members had problems with INML concerning the collection of a deposit from new retailers, which could be as high as £1,000 and it was, in effect, a non-returnable payment. When new newsagents commenced business, they paid the deposit to INML, who in turn used this money to refund the previous newsagent. They said that the distribution of news (papers and magazines) in general was highly complicated and unsatisfactory. The £1,000 deposit was paid by new entrants only and it was related to bad debt prevention. The publishers attempted to recover bad debts from new agents, if the previous ones left bad debts. All new agents had to have a weekly direct debit too. Only those agents who were in business for a long time did not have a direct debit facility.

72. They said that newspapers were sold in 7,500 outlets nationwide (in 1973 the figure was about 6,000)and most places who wanted to sell newspapers now were doing so. Thee criteria used now was less rigid. The distribution of newspapers had changed considerably with some volumes very small, as low as 3-5 copies only. The sale of news by Dunnes and Quinnsworth had been perceived to be a threat, but in reality, that was not so. In some locations, it had decimated the sale of local newspapers. Dunnes and Quinnsworth did not open at 7.00 am in the morning, or on Sundays, or in the evening or during bank holidays, generally. The publishers usually put pressure on new agents to open up on bank holidays.

73. Retailers usually had a standing order for supplies from the publishers with a 5% level of returns. The Irish Independent was somewhat more flexible, but the level was still less than 10%. The newsagents were obliged to send back returns each week, i.e. the masthead of the paper with the bar-code on it, to obtain credit for them. They maintained that it should be open to retailers to sell newspapers higher or lower than the cover price, but it was not happening. They did not sell lower because this would cut into their own margins. Margins were normally 23-25% of the cover price of the paper, exclusive of VAT. There were no examples of newsagents who sold below the cover price. The newsagents were never told in advance about any proposed promotions. The retailers only get 3p for handling the voucher and the newspaper. The margin on the Irish Independent was 24%, most newspapers had high margins. The gross margin for a newsagency business overall was 18%. There was a lot of waste on magazines and if this was taken into account, then the margin was only 17%. The handling of newspapers and magazines was also expensive, with stocks being delivered at 5.00 am, so the newsagent had to be there to accept delivery. There were also delivery charges for some newspapers and magazines which had to be borne by the newsagent.

74. They stated that newspaper sales in Europe and Ireland were on a downward swing. Those at the lower end of the market were holding their own because of the low prices. The price of Irish newspapers had continued to increase. There was intense competition from the British newspapers. It was impossible to compete with the price of British newspapers since they were prepared to give them away. The differences between the UK market and the Irish market included more home deliveries in the UK; there were not as many newsagents per head of the population in the UK, consequently volume sales were considerably higher; some newsagents in the UK specialised in home deliveries only and used their shop only to store the newspapers. There were problems with getting papers delivered here and it was expensive to pay at the end of the month (instead of daily). There was a charge for home deliveries in the UK in the region of £1 - £2 per week.

75. 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.

76. 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.' Independent Newspapers Marketing Ltd is engaged in the production and supply of goods, in this case newspapers, for gain. The retail outlets, newsagents, etc. are engaged for gain in the sale of these 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 agreements between the company and the retailers are agreements between undertakings. The relevant geographic market is the State.

77. The arrangements involve three forms of standard distribution agreement for certain newspaper titles published by Independent Newspapers. These newspapers are supplied to a wide variety of outlets including traditional newsagents, petrol station forecourt outlets and street vendors. The agreements apply only to retail outlets which have signed agreements for supply and they do not apply to street vendors who are supplied under separate arrangements. The arrangements constitute part of a selective distribution system for the newspaper titles. Selective distribution agreements may or may not be anti-competitive and a careful assessment of the facts is required in each case. Where such criteria are adopted unilaterally by a supplier the question of an agreement or concerted practice between undertakings does not arise. The position changes, however, where refusal to supply an outlet is the result of an agreement or an understanding with existing retailers. Such arrangements clearly protect existing retailers against the emergence of new competitors and are contrary to section 4(1). Where refusal to supply decisions are based on quantitative rather than qualitative factors, it implies that the object and the effect is to limit the number of retailers in order to protect existing outlets and implies a tacit understanding or concerted practice between the supplier and those retailers. The same would apply where qualitative criteria were not applied uniformly.

78. The Authority has received a number of complaints concerning the refusal by newspaper publishers to supply new outlets. It is clear from the figures given in Table 4 that the level of refusals to grant supplies can be relatively high. INML argued that outlets were selected solely on the basis of objective qualitative criteria as opposed to quantitative criteria designed to restrict the number of outlets. The Authority accepts that criteria such as creditworthiness, opening hours and the nature of the premises are qualitative. INML also stated that factors such as the number and size of existing authorised retailers in the locality were also taken into account. The application form also asks that applicants state why they consider a newsagency to be necessary in their area, how close their premises are to the nearest existing newsagency along with a detailed sketch map showing the location of the premises and the nearest existing newsagent. INML also stated that not all dealers who satisfied the criteria were admitted to the system as its stability would otherwise be endangered and it would not be possible to ensure rapid delivery nor the operation of the returns system. They stated that their decision to limit the number of outlets approved did not prevent other newspaper distributors from approving outlets. In the Authority's opinion this indicates that the criteria do involve limiting the number of outlets supplied in an area. They therefore prevent new retailers entering the relevant newspaper markets in competition with existing retailers. Given that Independent Newspaper titles account for such a large share of the various markets in which they operate, a refusal to supply can seriously impair a retailers ability to enter the market for the sale of newspapers. The arrangements therefore offend against section 4(1).

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

80. Clause (s) of the new agreements require the newsagent to lodge a sum of money with the company as security for payment of the account. No particular sum is specified in the terms and conditions, but a submission from an individual mentioned a figure of £700. This figure could be seen as substantial if the weekly sales of the newspapers were small and consequently the amount due to the company would also be small. If the sum required as security varied from one applicant to another, then there was the possibility of discrimination in the application of the company's terms and conditions. INML have indicated that they accept a bank guarantee in lieu of such a deposit. The Authority accepts that INML is entitled to protect itself against the risk of default. This provision does not offend against Section 4 (1) of the Act.

81. Clause (h) requires that unsold copies be sorted and ready for collection when INML's agent calls. Clause (i) sets a maximum allowance for unsolds at 5% of gross supplies, while enabling INML to specify a minimum supply with no unsolds allowance. The provision of newspapers on a sale or return basis is designed to enhance sales. Newspapers are an extremely perishable product. Unless sold within a few hours of delivery they are unlikely to be sold at all. Newspapers can be purchased on impulse by consumers. Thus having supplies available in retail outlets leads 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 is 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 provides an incentive to retailers not to discount on the cover price, the Authority believes that its object and effect is to enhance newspaper sales rather than to restrict competition. Consequently, in its opinion, such a provision does not offend against section 4(1).

82. The setting of a minimum level of supply may help ensure that it is economically viable for the publishers to supply new outlets. In such circumstances the inclusion of minimum orders is not anti-competitive provided that the level of such orders is not out of line with supplies to existing retailers within the area. The Authority would be concerned were the minimum order level to be set at a higher rate as this would, in its view, represent an attempt to exclude retailers. In the Authority's opinion, therefore, such provisions are not anti-competitive and do not offend against section 4(1).

83. Clause (j) provides that the publications must be sold at the cover price only while clause 2 provides that the retail price remain solely within the discretion of the Independent Newspapers Group of companies. In effect this provision requires all retailers to sell the newspaper at the price specified on the masthead. It therefore amounts to full scale resale price maintenance (RPM). The Authority has 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)’. [19]

RPM describes a practice whereby a supplier agrees to supply retailers on condition that they sell the goods at a price specified by the supplier. Such arrangements restrict the ability of retailers to determine their own prices. They also eliminate price competition between retailers for the suppliers' products when, as in this case, it applies to all retailers handling his products. It is virtually unknown for newspapers to sell at other than the cover price throughout the State. It is clear that the provision is designed to prevent price competition in respect of Independent's newspaper titles and that it has that effect. These account for a substantial proportion of Irish daily, evening and Sunday newspaper sales. It is also relevant that the Irish Times used also include provisions for RPM in its agreements with retailers, but has withdrawn this provision following objections by the Authority [20]. While not all other newspapers have not notified their agreements the indications are that RPM is practised widely in the newspaper trade. Thus in the Authority's view such arrangements have the object and the effect of preventing, restricting or distorting competition. This provision therefore offends against section 4(1).

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

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

86. RPM has 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.

87. The Authority's view is 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. [21]

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).

88. Clause (j) further provides that the newspapers may not be sold to a third party for re-sale except by prior agreement in writing. Furthermore any retailer becoming aware that another retailer is re-selling supplies is required to immediately inform INML. Clause (k) restricts the sale of the titles to the address noted in INML records. The Authority considers that such restrictions are designed to support the quantitative restrictions on the number of outlets selling the newspaper titles which are a fundamental part of the arrangements. The Authority believes that the object and the effect was to limit the number of retailers selling the titles and that it therefore restricted competition in the retailing of newspapers. It therefore offends against section 4(1). INML offered to withdraw these requirements and instead simply require retailers to notify them of the locations where newspapers were sold. This would also remove the anti-competitive effect of the selective distribution arrangements.

89. Clause (q) provides that no application for a transfer of a newsagency will be considered unless the previous newsagents account has been paid in full. INML have argued that this provision is necessary. There have been complaints about this provision. Where an individual or company purchases a newsagent business from an incumbent they are purchasing the liabilities as well as the assets of the business. If they do not wish to be liable for outstanding debts it is up to them to take the appropriate steps to ensure that these have been discharged as part of the purchase arrangements. It appears, however, that this provision has also been used to force retailers acquiring a newsagency business which had been in liquidation to pay monies owed by the liquidated entity. The Authority believes that such a requirement amounts to making the conclusion of contracts subject to acceptance by other parties of supplementary obligations which by their nature have no connection with the subject of such contracts. Consequently the Authority believes that this provision offends against section 4(1). INML also proposed to remove this requirement.

90. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which offends against Section 4(1) but which, ´having regard to all relevant market conditions, contributes to improving the production of goods or provision of services 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 undertakings 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.'

91. INML have argued that it is necessary to limit the number of outlets which sell its titles in order to maximise the efficiency of its nationwide distribution system. The Authority accepts that were it to greatly expand the number of retail outlets selling newspapers this could greatly increase the costs of distribution without necessarily increasing sales of the titles to any significant degree. Thus imposing limits on the number of retailers may produce efficiency gains. In the absence of these distribution costs would be higher and prices to consumers might well also be higher. As against this by restricting entry the arrangements protect existing retailers. To some extent therefore the arrangements will protect inefficient retailers from competition. Thus greater distribution efficiencies will be offset by reduced efficiency at retail level. Restrictions on entry will also involve some harm to consumers since it restricts choice. Restricting entry by setting a quantatitive limit on the number of retailers in any given area is not indispensable to the efficient operation of the distribution system. Requiring new applicants to take minimum supplies, again provided these are not out of line with the average for outlets within the area would reduce the risk. Similarly new outlets could be required to take supplies on a firm sale basis. The arrangements as notified do not satisfy all the requirements for a licence.

92. INML have claimed that, in the case of newspapers, RPM should be permitted. They claimed that in the absence of RPM newspapers would be cheaper in the larger urban areas but would be vastly more expensive in remote rural areas where the costs of distribution were much higher. The Authority does not accept such arguments. In fact it finds them rather misleading. It is undoubtedly true that the cost of distributing newspapers is much higher in remote rural areas than in urban ones. The costs of such distribution are borne by the publishers not by the retailers. It is therefore wrong to argue that, in the absence of RPM, higher distribution costs would mean that retailers in rural areas would have to charge a much higher price than at present. INML sells to all newsagents at the same price irrespective of their location. Provided that this continues to be the case there appears to be no reason why consumers in rural areas would face much higher prices for newspapers as a result of the abolition of RPM. If INML believe that rural consumers should not be disadvantaged or required to pay much higher prices for their newspapers then it can help bring about this result if it does not differentiate between retailers in its charges. The abolition of RPM would not require the INML to charge different prices to different outlets.

93. INML also claimed that retailers in remote areas could try and increase their margins due to the absence of alternative outlets within the locality. The Authority believes that this would meet strong consumer resistance and would prompt other outlets to enter the market driving prices back down.

94. In these circumstances the Authority does not believe that RPM in the case of newspapers contributes to improving the production of goods or provision of services or to promoting technical or economic progress. It follows therefore that there is no resulting benefit to be shared with consumers. The production, distribution and sale of newspapers through a wide range of outlets is a benefit but the Authority believes that provisions for RPM are not indispensable to the attainment of those objectives. As other Irish newspaper publishers also operated a system of RPM the arrangements afforded undertakings the possibility of eliminating price competition in respect of virtually all newspapers. In the Authority's view none of the requirements for a licence have been satisfied. As noted in para 85, RPM may facilitate collusive behaviour at either the supplier or retail level and the Authority believes that it would therefore allow undertakings the possibility of eliminating price competition in respect of a substantial portion of the relevant products.

95. The views of the European Court of Justice in Binon v. AMP are relevant in this context. In its decision the Court stated that:

´If, in so far as the distribution of newspapers and periodicals is concerned, the fixing of the retail price by publishers constitutes the sole means of supporting the financial burden resulting from the taking back of unsold copies and if the latter practice constitutes the sole method by which a wide selection of newspapers and periodicals can be made available to readers, the Commission must take account of these factors when examining an agreement for the purposes of Article 85(3).' (Para 46).

The Court cannot grant an exemption under Article 85(3) since that power is reserved to the Commission. Nevertheless the Authority interprets the Court's view as implying that the Commission ought to grant an exemption provided it is established that RPM ´constitutes the sole means' of supporting the sale or return system. In the Authority's view RPM is not necessary for the operation of sale and return and INML have not shown otherwise. Indeed the abolition of RPM may well reduce the cost to newspapers of operating a sale or return arrangement.

96. The Authority also notes that Independent Newspapers have engaged in selective price discounting. On occasion consumers in certain outlets in South Dublin City have been offered vouchers giving 50p off the cover price of the Irish Independent. In addition consumers in certain parts of North Dublin have been offered direct delivery of all three of the titles involved in this notification at a discount on the cover price. Such actions are at odds with the arguments advanced in support of having a uniform price throughout the country. Independent Newspapers have used selective discounting to try and increase their circulation. Such behaviour is perfectly acceptable provided it is not predatory. However, it serves to undermine claims that uniform adherence to the cover price is essential for the efficient distribution of newspapers.

97. In the UK there is no exemption for newspapers from the prohibition on RPM. The absence of an exemption from the prohibition on RPM has not proved detrimental to the distribution of newspapers in the UK and the Authority can see no reason why it should prove so within the State.

98. Clauses (j), (the publications must be sold at the cover price only and a ban on resale to third parties) and (k) (the publications must be sold from designated premises only) also serve to reinforce the system of preventing entry at retail level. The Authority does not believe that they contribute in any way to technical or economic progress. There is therefore no benefit to consumers and such provisions cannot be regarded as indispensable.

99. The Authority also believes that clause (q) (ban on assignment of agreement to a third party) does not contribute to technical or economic progress, does not benefit consumers and is therefore not indispensable.

100. Independent Newspapers Marketing Limited 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 Independent Newspapers constitute an agreement between undertakings. In the Authority's opinion the restrictions on entry inherent in the distribution system restrict competition and therefore offend against Section 4(1). The Authority also believes that clause (j) of the agreements prevents price competition among retailers while clauses (j), (k), (q) and (s) of the agreements restrict competition and therefore offend against section 4(1). The agreement does not satisfy the requirements for a licence under section 4(2). The Authority has therefore refused to issue a certificate or to grant a licence to the standard, new agency and transfer of agency agreements (CA/375/92E, CA/376/92E and CA/1139/92EX) of Independent Newspapers Marketing Limited, notified on 30 September 1992 under Section 7 of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

15 April 1997.

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¹⁷ “ Fair Trading” Consumer & Competition News from The OFT, issue no. 12 Autumn 1995; issue no. 13 Spring 1996.

²¹. SA Binon & Cie v. SA Agence et messageries de la presse.