Competition Authority publishes new Category Certificate and Licence 'in respect of agreements between suppliers and resellers'

The Competition Authority today (Thursday December 11th 1998) published its new Category Certificate & Licence [Decision No. 528] 'in respect of agreements between suppliers and resellers'. The Decision applies to vertical agreements between undertakings which operate at different stages in the supply chain in respect of the same product or service, whereby one party supplies the products concerned to the other for resale. It therefore includes, for example, agreements between manufacturers, importers and suppliers (referred to collectively hereafter as 'suppliers') on the one hand and distributors, wholesalers and retailers on the other (referred to collectively hereafter as 'resellers'). The vertical agreements concerned include exclusive distribution, exclusive purchasing, franchising and for the first timeselective distributions and non-exclusive distributions. Changing economic circumstances no longer justify different treatment of many vertical agreements.

The genesis of the Decision, is the expiration, at the end of this year, of the Authority's existing Category Licence for Exclusive Distribution which provided the Authority with a window of opportunity to review its treatment of vertical restraints under the Competition Acts. The Authority has been aware for some time that existing Category Licences are unsuited to the task of ensuring the legal certainty of contractual relations in an economic context where distribution structures and techniques are changing quickly.

The new Category Certificate/Licence is more in tune with modern business practices, delivers a greater degree of legal certainty. and in many respects reflects the attempt by the Authority to respond to the new environment of business agreements. The Category Certificate/Licence represents a major change in the Authority's approach to non-price vertical restraints. A new, more economic "effects-based" approach is adopted which will facilitate a relaxation of form-based requirements, ensuring that less agreements are covered by Section 4.

In the Authority's opinion, the following restrictions are likely to have an adverse effect on competition and therefore contravene Section 4

a) Resale price maintenance (RPM) clauses. b) Clauses which provide absolute territorial protection. c) Post-term non-compete clauses. An exception is made in the case of franchise agreements for durations not greater than one year.

The Authority has concluded, in the case of various forms of non-price vertical restraint, that, as a general rule, where the relevant market share held by both parties to the agreement is below 20%, the agreement is not anti-competitive. However, in markets where such arrangements between suppliers and resellers are the norm, so that a large part of the products in question are supplied for resale on the basis of such agreements, certain types of arrangements may restrict competition. In particular, where all, or the majority, of potential resellers have entered into exclusive purchase commitments, such arrangements could prevent new suppliers from entering the market by blocking access to all or most of the possible resellers, resulting in the foreclosure of the market.

The Authority has identified the market for liquefied petroleum gas (LPG) supplied for resale in cylinders as a market where foreclosure problems arise. It believes that exclusive purchase agreements for such cylinder LPG also result in a degree of market foreclosure and therefore contravene Section 4(1). The Authority has therefore decided to exclude exclusive purchase agreements for the resale of LPG in cylinders from the ambit of the new Category Certificate and Licence. This sector is currently covered by an existing Category Licence, which will expire on 30 September 1999. The Authority intends to re-examine the LPG market before the expiry of the existing LPG licence.

Copies of the Category Certificate and Licence are available at the Authority offices at Parnell House, 14 Parnell Square, Dublin 1, or by telephoning 01- 804 5401.

Check out the Competition Authority's WebSite http://www.irlgov.ie/compauth