Irish Competition Authority Decisions

1. Notification was made by Cadbury Ireland Limited on 30th September 1992 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 grant a certificate, a licence under Section 4(2) in respect of an Exclusive Distribution Agreement and an Ancillary Trademark Licensing Agreement.

2. The notification concerns an exclusive distribution agreement dated 13th May, 1986 between Cadbury Ireland Limited (Cadbury) and Premier Brands U.K. Limited (Premier). Premier manufactures a range of biscuits and chocolate flavoured products using Cadbury chocolate and/or other Cadbury ingredients sold in most cases under the Cadbury name and exports the manufactured goods to the State. Cadbury Ireland is the channel through which Premier has sought to establish the presence of its products in the State and has appointed Cadbury Ireland as its exclusive distributor for this purpose.

3. The Authority has considered it appropriate to conduct the assessment of this case in conjunction with a related agreement, notified as CA/523/92E. This notification, also made by Cadbury, concerns a Trademark/Licensing agreement between Cadbury Schweppes plc and Premier. The Authority concluded that the two agreements were inextricably linked and that the effectiveness of one depended on the execution of the other so as to warrant the simultaneous handling of the cases.

4. Cadbury Ireland Limited is a private limited company with registered offices at Malahide Road, Coolock, Dublin 5. The ultimate parent company of Cadbury Ireland Limited is Cadbury Schweppes plc. Cadbury manufactures, distributes and sells chocolate and chocolate-related products. Premier Brands (UK) Limited has registered offices at 19 Highfield Road, Edgebaston, Birmingham B15 3DU. Its parent company, Hillsdown Holdings Limited, is a conglomerate company whose business includes food, building and office supplies.

5. Cadbury Schweppes had a food division which it sold in 1986 to Premier Brands Ltd in the UK. This latter company was formed by the management team in this division to effect a management buy-out. Cadbury Schweppes also sold its shares in various companies to Premier in 1986. These companies were engaged in the manufacture and sale of chocolate flavoured products in the UK. In order for Premier to continue to manufacture the various products, it was necessary for Cadbury to licence the use of its trademarks to Premier. Cadbury also needed to retain a certain amount of quality control over the products in order to protect its goodwill and reputation in the marketplace. The trademark agreement however did not extend to Cadbury Ireland, which at the time of the sale to Premier maintained its rights to sell and distribute in the State, the products it had been sourcing from the foods division of Cadbury Schweppes.

6. The notifying party submitted to the Authority that the products which are the subject of this agreement are ‘all biscuits and all chocolate-flavoured products’ whether or not under the Cadbury name and ‘all cocoa-based beverages’ not under the Cadbury name manufactured from time to time by Premier Brands UK Limited. The notifying party concluded that there is a high degree of interchangeability between different brands of biscuits, chocolate-flavoured products and cocoa-based beverages.

7. The notifying party submitted that the market at issue is the manufacturing and distribution of the Products and not necessarily the sale at retail level of the Products. The notifying party believes that there are many sellers (i.e. manufacturers) of the Products in the State, that there are no significant barriers to entry and that there is strong competition from overseas sellers (from the UK, Europe generally and the US) [1].

8. The notifying party submitted that the product market was extremely competitive, evident from its highly disparate nature, divided into all biscuits, all chocolate-flavoured products and all cocoa-based beverages.

9. The Authority is of the view that the relevant market is not as broad as that of the Irish confectionery market, but neither is it as narrow as that of chocolate confectionery alone. The Authority is of the opinion that the relevant market is that of chocolate confectionery, biscuits and cocoa flavoured drinks.

10. Table 1 gives recent estimates of total turnover for the products in the State, Cadburys’ shares in the various product markets as well as, where available, competitors’ market share estimates. The variation in Cadbury’s market share ranges from a minimum of 5 per cent in the biscuits and chocolate flavoured drinks market, to a maximum of 50 per cent in the chocolate confectionery market.

Table 1

11. This Notification relates to a distribution agreement concluded on 13th May, 1986 between Cadbury and Premier. Cadbury is engaged in the manufacture, importation [2], distribution and sale of (among other products) the Products. Premier sought, for reasons of efficiency to appoint Cadbury as its distributor of the Products in the Territory. The distribution agreement remains in force in 1999.

12. Section 2 of the Agreement provides that Premier appoint Cadbury to be its exclusive distributor in the Territory for the sale of the Products and of such other goods and merchandise and under such trade marks as may be agreed between the parties from the date of the agreement. Premier will not appoint any other distributor of Products in the Territory during the term of this Agreement except that for transitional purposes only, Premier may during the period of three months prior to the termination of the agreement appoint Cadbury’s successor (if any) and allow such successor to make itself known as Premier’s future distributor.

13. Section 3.1 of the Agreement provides that the distributor will purchase all its requirements for the Products from Premier or Agent (Premier may appoint an agent for supply and delivery of the products. Such an agent must be approved by Cadburys). Cadbury must energetically promote the sale of the Products and must diligently and faithfully serve Premier as its distributor in the Territory and shall use its best endeavours to improve the goodwill in the Territory and shall use its best endeavours to promote the sale of the Products in the Territory. Section 3 (v) provides that Cadbury shall use its best endeavours not to do anything that may prevent the sale or interfere with the development of sales of the Products in the Territory.

14. Section 3(xi) provides that Cadbury must not without first obtaining the consent of Premier (such consent not to be unreasonably withheld) manufacture for the distribution in the Territory products similar to or which compete with any of the Products and this provision shall apply also to those such products which Cadbury manufactures, distributes or purchases at the date of the agreement. Section 3(xiv) provides that the Distributor must not outside the Territory and in relation to the Products seek customers nor establish nor maintain any distribution depot.

15. Section 4.1 provides that Premier shall during the continuance of this Agreement refer all enquiries it receives for sale of the Products in the Territory to the Distributor. Premier shall sell the Products in the Territory exclusively to the Distributor. Section 4.2 provides that Cadbury shall obtain the Products for sale in the Territory only from Premier or Agent and from no other persons.

16. Section 6.1 of the Agreement provides that orders shall be accepted at the price ruling at the date of receipt of order. Prices quoted to the distributor for any of the Products are subject to change by Premier at any time on service of reasonable notice in writing (which shall not be less than 30 days). All orders shall be subject to Premier’s standard Conditions of Sale current on the date of the order but in the event of conflict between those conditions and the express terms of this Agreement, the latter shall prevail.

17. Section 3(iii) provides that Cadbury must not treat or otherwise deal with the Products without the prior written consent of Premier and will supply Products only in the packages, form and set up in which they are supplied to the Distributor except as otherwise agreed in writing in advance by Premier. Section 14 provides that Cadbury must not at any time after the date hereof divulge any information in relation to Premier’s affairs or business or method of carrying on business and this Clause shall continue to have effect notwithstanding termination of this Agreement from any cause.

18. This Notification relates to a Trade Mark Licence Agreement concluded on 13 May, 1986 between Cadbury Ireland Limited and Cadbury Schweppes plc, Premier Brands Limited and Premier Brands UK Limited. Prior to the Agreement, Cadbury Schweppes plc was engaged in the manufacture, distribution and sale of (among other products) the Products. In April 1986 Cadbury Schweppes sold its shares in various companies to Premier. These companies were (and are still) engaged in the manufacture and sale of chocolate biscuits and chocolate flavour products. These products are sold under trademarks owned by Cadbury. In order for Premier to continue to manufacture the various products, it was necessary for Cadbury to licence the use of its trademarks to Premier. Cadbury also needed to retain a certain amount of quality control over the products in order to protect its goodwill and reputation in the market.

19. The notifying party submitted that the only two clauses in the ancillary Trademark Agreement relating to trade in the State are clauses 2.5 and 6.2.

Clause 2.5 of the Agreement provides:

“2.5 Nothing in this Agreement shall prevent or be deemed to prevent the manufacture in the Republic of Ireland and sale by Cadbury Ireland plc of packeted wafer biscuits or Irish Snacks (as defined in the Snacks Agreement [3]).”

Clause 6.2 of the Agreement provides:

“6.2 Save as provided in an agreement of even date herewith between Premier UK and Cadbury Ireland plc, each of Premier and Premier UK agrees not to, and Premier agrees to procure that no Subsidiary of Premier shall, solicit orders for the Biscuits or Chocolate Flavoured Products from the Republic of Ireland and each of such parties further agrees not to, and Premier agrees to procure that no Subsidiary of Premier shall, set up any branch or distribution depot for the sale of the Biscuits or Chocolate Flavoured Products in the Republic of Ireland.”

20. The notifying party claimed that the notified agreement benefits from exemption under the Commission Regulation (EEC) 1983/83 of 22 June, 1983 on the application of Article 85(3) of the Treaty to categories of Exclusive Distribution Agreements (the "Block Exemption Regulation").

21. This Agreement is essentially a trademark licence and production franchise agreement relating to the manufacture of the Products in the UK. There are only two clauses in this agreement which refer to Ireland, which were outlined in paragraph 19. The notifying parties submitted that there was nothing in these clauses that had as its object or effect the prevention, restriction, or distortion of competition and that a certificate should be issued in respect of the agreement.

22. 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”.

23. Section 3(1) of the Competition Act defines an undertaking as ‘a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service’. Both Cadbury and Premier are engaged in the production and distribution of goods for gain, and they are therefore undertakings within the meaning of the Act. The agreement is an agreement between undertakings. The agreement has effect within the State.

24. The Authority has carefully considered whether the agreement has as its object or effect the prevention, restriction or distortion of competition in the State in respect of the products in question. The Authority is of the view the current exclusive distribution arrangements are a result of the agreement between Cadbury Schweppes and Premier whereby Cadbury Schweppes effectively outsources the goods it previously manufactured in its food division to Premier. The only effect that this arrangement has on Cadbury Ireland is that it now sources the goods that it previously sourced from the food division of Cadbury Schweppes from Premier.

25. In the market for chocolate confectionery, the Authority notes that Cadburys is faced with two international rival competitors, namely Nestle and Mars, and that any attempt [to exercise market power] to eliminate competition would be dampened by the presence of both Nestle and Mars as rival competitors in the market.

26. The Authority also notes that there is a high degree of importation from overseas into the State: it is estimated that as much as 50% of cocoa drinks, biscuits and snacks by value and volume are imported from abroad. The Authority is therefore of the view that the potential for competition from imports is unlikely to decrease in the future.

27. The Authority has therefore concluded that the agreement as notified does not contravene Section 4(1) of the Competition Act.

28. The Authority is of the opinion that this agreement is essentially a trademark licence and production franchise agreement relating to the manufacture of the Products in the UK, but by virtue of the two clauses relating to trade in the State it comes within the realm of the Competition Acts. In the opinion of the Authority the agreement does not contravene Section 4(1) of the Competition Act.

29. In the Authority’s opinion Cadbury and Premier are undertakings within the meaning of section 3(1) of the Competition Act and the notified arrangement constitute an agreement between undertakings. In the Authority’s opinion the exclusive distribution agreement dated 13 May 1986 and the ancillary trademark/licencing agreement do 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 exclusive distribution agreement dated 13th May 1986 between Cadbury Ireland Limited and Premier Brands U.K. notified under section 7 of the Competition Act on 30 September 1992 (Notification No. CA/522/92E) and the ancillary trademark/licencing Agreement (Notification No. CA/523/92E), do not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority

Professor Patrick McNutt

Chairperson

[1] The notifying party submitted sellers from other EU Member States may freely export their products onto the geographical market in accordance with Article 30 of the EEC Treaty.