Irish Competition Authority Decisions

1. Notification was made of a standard agreement between Burmah Castrol (Ireland) Ltd., now called Castrol (Ireland) Ltd. (“Castrol”) and its customers of lubricant products for the loan of certain equipment. Castrol 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).

2. This notification concerns a standard agreement between Castrol and its commercial customers for the loan of equipment for use by the customer with Castrol branded lubricants.

3. Castrol is an Irish registered company engaged in importation and distribution in the State of various petroleum products. It is a subsidiary of Castrol Limited, a company registered in the UK.

4. The customers with whom the arrangements are entered into are commercial customers of petroleum products. They may be commercial users or undertakings reselling the product to such users or, to a lesser extent, retailers. These arrangements are not entered into with retailers.

5. The relevant product market for these notifications is lubricants, additives and brake fluids (collectively referred to as "lubricants").

6. The Authority has considered the broader motor fuels market in a number of decisions including: Irish National Petroleum Corporation Ltd/Purchasers of Petroleum, Decision No. 487, and Burmah Castrol (Ireland) Limited , Decision No. 507. Those decisions indicate that in the motor fuels market, Castrol has less than a 5% market share in any product market and less than 5% of the existing retail outlets. This market in Ireland is dominated by large integrated multinational companies such as Esso, Shell, Texaco and Statoil.

7. Here, the product market is limited to lubricants. In Ireland, lubricants are sold both through retail channels (which include petrol stations) as well as through commercial distribution channels. The Authority has examined the lubricants market previously in Burmah Castrol (Ireland) Ltd., Decision No. 361.

8. Unlike the motor fuels market, there is no publicly available information on market shares in the lubricants market updating the information contained in Decision No. 361. The Authority has confirmed that the market leaders in the motor fuels market are all active in the lubricants market and that lubricants are available throughout the State in a large number of retail outlets. We also have confirmed that Castrol have less than 25% of the market for lubricants in the State.

9. The notified agreement is a standard agreement between Castrol and its commercial customer whereby Castrol supplies equipment on loan to the customer for the dispensing of lubricants. The equipment includes heavy duty oil reels, pumps, meters and ancillary pipework and fittings.

10. The notified agreement contains a provision at Section 4 for the equipment to be used exclusively for products supplied by Castrol. The period of exclusivity is five years. After that period, the agreement provides for the commercial customer to purchase the equipment from Castrol at its written down value, which at the end of five years, provided that the customer has made all payments due under the agreement, is nil. Unlike agreements relating to the lubricants market notified to the Authority previously (Burmah Castrol (Ireland) Ltd., Decision No. 361), there is no requirement for the customer to purchase all, or any, of its requirements for lubricants from Castrol. Also, unlike the agreements dealt with by the Authority in Decision No. 361, the agreement notified here has a fixed five year term.

11. The applicant submits that the arrangements do not restrict, distort or prevent competition in the market within the meaning of Section 4 of the Competition Act, 1991.

12. The applicant states that the Authority in Decision number 361, (Burmah Castrol (Ireland) Ltd. - Hire purchase agreement and lubricating equipment loan agreement), “makes assumptions regarding the effect of the agreements the subject of that notification in arriving at its conclusion that the agreements in question contravene Section 4(1). It is accepted that there is no general presumption under the Competition Act either in favour of or against exclusive use of equipment obligations and that each case must be examined on its merits in the light of the prevailing economic circumstances. It remains to be shown whether in any individual case, the agreement does or does not contravene Section 4(1).”

13. The applicant also submitted arguments in support of the notified agreement being granted a licence. As the Authority has decided to grant these agreements a certificate, the arguments are not relevant.

14. In Decision No. 361, Burmah Castrol (Ireland) Limited, the Authority refused to issue a certificate or grant a licence to an equipment loan agreement and a hire purchase agreement relating to equipment used by customers of Castrol in the lubricant market. The agreements there were exclusive arrangements and had a term longer than five years. In Decision No. 507, CA/14/96 and CA/15/96, Burmah Castrol (Ireland) Limited the Authority granted a certificate to a similar equipment loan agreement and hire purchase agreement relating to equipment used by distributors of Castrol of motor diesel, gas oil and kerosene.

15. Section 4(1) of the Competition Act, 1991 states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention restriction or distortion of competition in trade 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, 1991 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.” Castrol and its commercial customers are persons engaged for gain in the supply and sale of lubricants in the State and are undertakings. The agreements are agreements between undertakings. The agreements have effect within the State.

17. This notification concerns an agreement between Castrol and its commercial customers for the loan of equipment for use by the commercial customer of lubricants supplied by Castrol. The agreements are distinguishable from the agreement which was notified to the Authority by Castrol and was the subject of Decision No. 361. The agreement notified here contains no provision preventing or penalising the distributor from dealing with a competitor of Castrol. Under the terms of the agreement, the customer is free to deal with a competitor of Castrol even during the term of the agreement. The only restriction is that the customer may not use the relevant equipment with any products other than those supplied by Castrol. Some customers of Castrol may obtain supplies of lubricants from competitors of Castrol while they trade with Castrol. Other customers who choose to deal with only Castrol at the time of entering into the notified arrangements may obtain supplies from competitors of Castrol at any time. Such competitors may offer such customers of Castrol more favourable commercial terms inducing them to switch and the Authority does not see anything in the notified arrangements restricting such competition for customers among lubricant suppliers. In these circumstances, the Authority does not consider that the notified agreement contravenes Section 4(1) of the Competition Act.

18. Furthermore, the Authority has considered the likely competitive effects of vertical trading relationships in this market. Castrol itself has a significant share of the relevant market and is acknowledged as the market leader, although it has a market share less than 25%. The Authority has identified five substantial national competitors active in this market. Lubricants are available throughout the State at a wide variety of retail and commercial outlets, including petrol stations, vehicle workshops and other wholesale and retail establishments. The equipment which is subject to the arrangements is freely available from a number of sources and the location of the equipment on site does not present problems of foreclosing other arrangements to rivals. In such a market, exclusive arrangements entered into by a firm such as Castrol with its customers do not raise any competition concerns either on an individual or cumulative basis. The Authority recognises that in other markets, exclusive arrangements relating to equipment sales may raise complex competition concerns. For example, the Commission has found exclusive equipment arrangements to restrict competition in the impulse ice cream market (See Scholler Lebensmittel, OJ L 183, 26 July 1993). In Scholler Lebensmittel, the Commission found that the supplier of the freezers had the largest market share in the relevant market, which was highly concentrated. The arrangements here are clearly distinguishable from such cases as the market, the firms subject to the arrangements here and the equipment at issue do not have the characteristics which would make an exclusive trading arrangement (whether it be distribution or purchase) restrictive of competition. Taking into account all the circumstances of the markets concerned, therefore, the Authority considers that the effect of the notified arrangements will not be to reduce competition and the notified agreement does not contravene Section 4(1).

19. In the Authority’s opinion Castrol and the commercial customers who are parties to the arrangements are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, as amended, and the notified agreement is an agreements between undertakings. In the Authority’s opinion, the notified agreement does not prevent, restrict or distort competition and thus does not contravene Section 4(1) of the Competition Act.

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 standard agreement between Castrol (Ireland) Limited and the commercial customers relating to the loan of equipment for use with lubricants notified under Section 7 of the Competition Act on 10 April 1996 (Notification No. CA/16/96) does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

William Prasifka

Member

27 May 1999.