Notification No. CA/651/92E ‑ PJD Investment Company/Fitzwilton Public Limited Company/P.J. Donohoe, Paul S. Power/Press‑O‑Matic Limited and Novum (Overseas) Limited

Decision No. 142.

Introduction

1.	An agreement between P.J. Donohoe and Paul S. Power (the vendors), PJD Investment Company, Fitzwilton plc (the purchaser), Press‑O‑Matic Limited and Novum (Overseas) Limited was notified to the Competition Authority on 30 September, 1992. The agreement provided for the sale of 80% of the shares in PJD Investment Company to the purchaser. The notification requested a certificate, or, in the event of a refusal to issue a certificate, a licence.

The Facts

(a)	The Subject of the Notification

2.	The notification relates to an agreement dated 26 April 1989, between the purchaser and P.J. Donohoe and Paul S. Power   whereby the vendors agreed to sell 80% of the shares in PJD Investment Company.The agreement also contained a non‑compete provision.

(b)	The Parties

3.	PJD Investment Company is an investment holding company. Fitzwilton plc is a limited liability company incorporated in the State. Press‑O‑Matic Limited is a subsidiary of PJD Investment Company and is involved in the business of the manufacture and sale of deep freezers under various brand names. Novum (Overseas) Limited is also a subsidiary of PJD Investment Company and is engaged in the export of domestic appliances. P.J. Donohoe and Paul Power were both directors and shareholders of PJD Investment Company.

(c)	The arrangements

4.	The notification related to a Share Purchase Agreement dated 26 April, 1989, for the sale of 80% of the shares in PJD Investment Company. Clause 8 of the agreement contained a non‑compete clause in which the vendors covenanted:

(i)  	Not to compete in the same business as the purchaser in the Republic of Ireland, China, Iraq, or any other country where the company or its subsidiaries were doing business for a period of five years from the date of the agreement;

(ii) 	Not to use or disclose any confidential information relating to the business or affairs of the company;

(iii)	Not to solicit any of the customers of the purchaser, for a period of five years from the date of completion; and

(iii)	Not to solicit any of the employees of the purchaser, for a period of five years from the date of completion.

Subsequent Developments

5.	The Authority expressed concern at the duration of the non‑compete clauses, on the basis that in general a two year non‑compete period is considered sufficient for the tranfer of good will in the sale of a business. This view was expressed by the Authority in General Semiconductor. In a letter to the Authority dated 7 September 1993, the parties agreed that the restrictive clauses, other than that in respect of confidential information would cease to apply from 1 October, 1993. In a subsequent letter dated 7 October, the vendors confirmed their acceptance of this change.

Assessment

(a)	Section 4(1)

6.	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 trade in any goods or services in the State or in any part of the State are prohibited and void."

(b)	The Undertakings and the Agreement

7.	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. "  The parties to this particular agreement are the vendors and Fitzwilton Public Limited Company. At the time of the agreement the vendors were the beneficial owners of Press‑O‑Matic and Novum, both limited companies engaged for gain in the manufacturing and distribution of refrigerators, freezers and associated products. The vendors were therefore undertakings. Fitzwilton plc is a limited liability company engaged for gain and is therefore an undertaking. The arrangements therefore constitute an agreement between undertakings.

(c)	Applicability of Section 4(1)

8.	The share purchase agreement itself was completed prior to 1 October 1991, the date on which the Competition Act came into force, consequently, this element of the agreement had been discharged by performance before the Act commenced. The property which was the subject of the agreement had been transferred. In the Authority's view, the prohibition in Section 4(1) only applies to a current or continuing contractual commitment or one entered into subsequent to the coming into force of the Act.

9.	The Authority considered that the duration of the restrictions in clause 8 exceeded what was necessary to secure the complete transfer of the goodwill of the business. In its view such restrictions would offend against Section 4(1) and would not satisfy the requirements for a licence under Section 4(2). It considered that the geographic scope of the restriction insofar as it applied to the State did not exceed what was necessary to secure the transfer of the goodwill. As the Authority is only asked to consider whether or not an agreement prevents, restricts or distorts competition within the State, the fact that the restrictions apply also to China and Iraq was not considered. 

10.	In letters to the Authority dated 7 September and 7 October, 1993, the notifying parties undertook to cease applying the restrictions with effect from 1 October, 1993. Consequently in the Authority's opinion the agreement no longer offends against Section 4(1). The  restriction on using or disclosing confidential information is unlimited in time. In the Authority's view such a restriction does not offend against section 4(1) provided it is not used to prevent the vendors competing in the market. If that were to happen the Authority would have to consider revoking the certificate under Section 8(6) of the Act.

The Decision

11.	In the Authority's view P.J. Donohoe, Paul S. Power and Fitzwilton plc are undertakings within the meaning of Section 3(1) of the Competition Act. In the Authority's opinion The Share Purchase Agreement, between P.J. Donohoe, Paul S. Power and Fitzwilton plc dated 26 April, 1989, as amended by the letters of 7 September and 7 October, 1993, does not offend against section 4(1).

The Certificate

12.	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 agreement of 26 April 1989, between P.J. Donohoe, Paul S. Power, PJD Investment Company, Fitzwilton plc, Press‑O‑Matic Limited and Novum (Overseas) Limited for the sale and purchase of 80% of the shares in PJD Investment Company (notification no. CA/651/92E), notified on 30 September 1992, under Section 7, and amended by the letters of 7 September and 7 October, 1993, does not offend against Section 4(1) of the Competition Act, 1991.

Patrick  Massey 
Member
27 October 1993.