Irish Competition Authority Decisions

1. Notification was made on 28 February 1995 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2), in respect of Supplemental Licence Agreement between Stellar International Limited/Dotinga Investments B.V. and Celtic International Insurance Limited.

2. The notification concerns a Supplemental Licence Agreement between Stellar International Limited (Stellar)/Dotinga Investments B.V. (Dotinga) and Celtic International Insurance Limited (Celtic) relating to the licensing by Stellar to Celtic of a method for programming a computer (the Invention) and a computer programme (the Program) to generate quotations for motor insurance and the communication of such quotations for potential customers.

3. Celtic International Insurance Company Limited has its registered offices at Celtic House, Salthill, Galway. The Ultimate Parent of Celtic is Eureko B.V. Eureko B.V. is a holding company with interests in a number of companies involved in the financial services industry, mainly insurance. Eureko Ireland is a holding company for Celtic and Friends Provident. Celtic is involved in the business of non-life insurance. At the end of 1997 Celtic sold its commercial insurance lines business to Hibernian. Celtic is still involved in the car and household insurance sectors. As of the 27 April 1998, Friends Provident was rebranded as Friends First.

4. Stellar International Limited is an investment company with registered offices at 15 St Mary’s Road, Galway. The parties stated that the ultimate parent of Stellar is Jaques. Dotinga Investments B.V., a wholly owned subsidiary of Stellar, has its registered office at Stravinskylaan 1725 1077, Amsterdam, The Netherlands. The group’s main business is software development and licensing. Stellar International Limited is the sole shareholder in Dotinga which is in turn owned by Jaques (an unlimited liability company). Stellar’s turnover in Ireland during the financial year ending 31st December 1992 was nil. For the financial year ending 31st December 1993 its turnover was [ ]. Celtic’s turnover in Ireland during the financial year ended 31st December, 1992 was IR£19,864,000. The parties claimed that neither Celtic, Stellar nor Dotinga [1] control any other company in the relevant market (as defined) in the State.

5. The parties claimed that there is a significant number of sellers on the Irish computer software market. The parties stated that their belief was that it was not only Irish companies but also overseas software houses and writers who could and do operate in this market. The parties claimed that it is therefore impossible to quantify the exact number of participants but they believed that was correct to say that was a very large number. The parties claimed that the buyers would be mainly those persons (legal or natural) who require computer programs in the non-life insurance sector. This would include not only existing but also potential insurers. The parties further claimed that the potential market is the world because of the easy availability of programs from elsewhere in the world, particularly, the USA.

6. The parties claimed that the relevant market is the market for the production of computer software as applied to insurance quotes in the motor insurance industry and that the relevant Territory is the world. The Authority considers that the relevant (upstream) market is the market for the provision of computer programmes to obtain insurance quotes in the motor car insurance trade (in the world). As there are many potential buyers of such programmes and many different providers, and potential providers, of such programmes the market is global and is characterised by effective competition worldwide.

7. The relevant (downstream) market is the market for the provision of motor insurance in the State [2]. The motor insurance market in the State is estimated by the Irish Insurance Federation [3] to be of the order of IR£732.7m in 1997. The IIF claims that motor insurance accounts for 50.4% of the total gross premium income of non-life insurers. Direct telephone sales, the segment that Celtic deal in, has been a growing proportion of the market but the major players have moved into this segment which has squeezed the smaller players. Celtic’s market share is estimated at 2.13%.

8. The Licensor (Stellar) is the proprietor of a computer program which facilitates the generation of quotations for motor insurance and the communication of such quotations for potential customers. The Licensor is the inventor of an invention consisting of a method for the programming of a computer, by means, inter alia, of which the above-mentioned program was written and in respect of which a patent application has been made and is pending in the Republic of Ireland and patents have been granted in Belgium and South Africa. The Licensor granted to the Licensee a licence to use and to sub-license the use of that program on the terms set out in an agreement between them dated 26th May, 1993 (the “Original Agreement”). The Licensor and the Licensee have now agreed that the Original Agreement shall be amended by substituting the terms of the Agreement hereby notified in place of the 26th May 1993 agreement.

9. The Arrangement (signed on 28th July, 1993) relates to a computer program in the non-life insurance sector. Stellar, the Licensor, is the proprietor of a computer program which facilitates the generation of quotations for motor insurance policies and the communication of such quotations by the computer operator to potential customers. The licensor is the inventor of an invention consisting of a method for the programming of a computer, by means, inter alia, of which the aforementioned computer program was written. Similar inventions and programs exist and are utilised by other insurance companies and insurance brokers.

10. The parties drew the Authority’s attention to provisions which may restrict the parties in their freedom to take independent commercial decisions. Clause 2 provides for a grant of a licence of the use of the Invention, the program and the Trade Mark (each of these terms are defined in the Agreement). Clause 2 provides:

“1.1 In consideration of the mutual covenants by the parties hereto the Licensor hereby grants to the Licensee a Licence to use the Invention, the Program and the Trade Marks in the Territory.

2.2 The Licence granted pursuant to Clause 2.1 shall continue for thirty years from the date hereof unless terminated by either party in accordance with Clause 6.”

Clause 3.1.2 provides that Dotinga and Stellar shall not give its consent pursuant to the Existing Licences to the granting by the Existing Licensees of sub-licences for the use of the Invention or the Program in the Territory without the prior written consent of Celtic.

11. The parties drew the Authority’s attention to the fact that the selection of clause 2 is without prejudice to the Agreement as a whole and the attention of the Competition Authority is drawn to the Agreement as a whole.

12. The Applicant submitted that the Arrangement does not violate Section 4(1) of the Act. The parties claimed that the arrangements did not have the object or effect of preventing, restricting or distorting competition within the state to any appreciable extent and the parties further claimed that they were not abusing any dominant position. The parties claimed that the notified arrangements did not so much prevent, restrict or distort competition but facilitated the establishment of more competition in the relevant markets by allowing for the spread of new technology and developments from the Licensor to the Applicant. There were similar products available and given the significant number of software houses, the Applicants believed, that similar programs could be developed for other insurers if they were to commission a software house to do so. Similar products/programs are available in other countries and could, in the opinion of the Applicants, be licensed into Ireland.

13. The parties claimed that there was no significant distortion of trade and there was likely to be a possible increase in trade by virtue of creating an environment for creating new products. The Applicants believed that similar products/programs are available should competitors wish to acquire them. The parties submitted that where an arrangement does not have an appreciable affect on trade in Ireland then the Authority may issue a Certificate. The parties claimed that the Licence of software in this case would not adversely affect competition in the software market because of the high and continued supply of software to the market. The parties believed that the Agreement did not appreciably affect trade in the State and thus argued that the Competition Authority is entitled to grant a Certificate (see Optical Fibres OJ 1986 L236/20).

14. The parties submitted detailed arguments in support of the granting of a Licence. However, the Authority is of the opinion the grant of a Licence does not apply in this particular instance.

15. Section 4(1) of the Competition Act states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in goods or services in the State or in any part of the State are prohibited and void”.

16. Section 3(1) of the Competition Act defines an undertaking as "a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service".

17. Celtic is engaged for gain in the operation a non-life insurance concern and is therefore an undertaking. Stellar is engaged for gain as an investment company and is therefore an undertaking. Dotinga is a wholly owned subsidiary of Stellar and is engaged for gain in the business of software development and licensing and is therefore an undertaking. Thus, the notified arrangement is an agreement between undertakings.

18. Computer software development is a form of R&D. There are relatively low entry barriers into this market which primarily relies on human capital skills for software development. In the field of software development, developers, according to the OECD, would prefer if current patent protection was broader than it currently is and they would, in all likelihood, realise that long patent protection will not stop competitors producing better products in the interim. The establishment of (patent) rights over R&D, in this case, the Invention and the Program, confers an intellectual property right on Stellar which is necessary to encourage Stellar, as an innovator, to undertake the R&D necessary in order to produce new software tools and applications.

19. The Authority is of the opinion, that intellectual property rights, IPRs, do not necessarily confer market power. Essentially the dynamic gains from innovation are consistently found to outweigh any static losses (conferred by the patent rights). This view was articulated in Decisions No’s 502 to 505 and 506. In the majority of instances there are substitutable processes or goods which enable competitors to compete. Further to this, the incentives for others to undertake R&D and innovation, to develop a better product are high, but as long as entry barriers for innovation are not prohibitive, any market power enjoyed will be short lived.

20. As has been demonstrated in the economics literature, in most instances, it is socially beneficial for a company to licence the use of its intellectual property to third parties. Stellar (on its own account and through Dotinga) has many such licences. Celtic has the licence for the Invention and the Program for the world outside of Africa, the Indian sub-continent and the People’s Republic of China. Celtic is free to sub-licence the intellectual property in any manner it wishes.

21. In the motor insurance market in the State, Celtic with an estimated market share of 2.13% is clearly not in a position to use its IPRs over the Invention and the Program in a manner contrary to Section 4(1) of the Act. In this, the Authority considers that the impact of the arrangement on the motor insurance market in the State is not anti-competitive and does not contravene Section 4(1).

22. In the Authority's opinion Dotinga, Stellar and Celtic are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified Supplemental Licence Agreement is an agreement between undertakings. In the Authority's opinion the notified agreement does not contravene Section 4(1) of the Competition Act.

23. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Supplemental Licence Agreement dated 28 July 1993 between Stellar International Ltd, Dotinga Investments B.V. and Celtic International Insurance Company Ltd. notified under Section 7 on 28 February 1995 (Notification No. CA/6/95) does not contravene Section 4(1) of the Competition Act.

[1] Dotinga’s total turnover in Ireland through the various companies was nil for the year ended 31st December, 1992.

[2] As we can see from Table 1, the motor insurance sector market is moderately concentrated with a CR4 of 57.95% and a HHI of 1,313. Friends First (formerly Celtic) command a market share of 2.13% in the market for motor insurance, with a premium income of IR£15m.

[3] The Irish Insurance Federation (IIF) Fact File for 1997 indicates that there are 20 firms in this market, a number that has been falling in recent years due to consolidation