Notification No. CA/364/92E ‑ Sigma Wireless Communications Limited/Motorola Ireland Limited

Decision No. 143

Introduction

1.	An agreement between Sigma Wireless Communications Limited (Sigma) and Motorola Ireland Limited (Motorola) containing a non‑compete clause, pursuant to the purchase and sale of certain assets and exclusive distribution rights of Motorola was notified to the Competition Authority on 30 September 1992.  The notification requested a certificate or, in the event of a certificate being refused, a licence.

The Facts

(a)	The Subject of the Notification

2.	The notification relates to an asset purchase agreement dated 1 July 1991 between Sigma and Motorola whereby Sigma purchased Motorola's distribution business in Ireland. The agreement was initiated by Motorola's parent company, Motorola Limited (U.K.) (Motorola U.K.) which decided to remove the Irish distribution rights from its wholly‑owned subsidiary. The agreement contained non‑compete provisions.

(b)	The Parties

3.	Sigma is a limited company registered in the State.  It is a subsidiary of Sigma Communications Group Limited and is engaged in the sale and distribution of mobile communications products such as cellular phones, paging equipment, etc.  Motorola UK forms part of Motorola Inc., a worldwide group of companies based in Chicago, Illinois engaged in the manufacture and supply of advanced electronic and communications systems.

(c)	The Arrangements

4.	The notification relates to an agreement, dated 1 July 1991 whereby Sigma acquired Motorola's Irish distribution business from Motorola (Ireland) Ltd., a wholly‑owned subsidiary of Motorola U.K.  Clause 9 of the agreement requires the vendor to adhere to the exclusivity provisions of certain exclusive distribution agreements entered into at the time of the sale, for a period of two years from the date of completion.  In effect this meant that Sigma acted as Motorola's exclusive distributor in Ireland for that period.  In addition the vendors were prevented from soliciting employees of the business for a similar period of time.  These provisions expired on 1 July 1993.

Assessment

(a)	Section 4(1)

5.	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

6.	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.'  Sigma is a limited company registered in the State engaged for gain in the sale and distribution of mobile communications products.  It is therefore an undertaking within the meaning of the Act.  Motorola (Ireland) Limited was engaged for gain in the manufacture and supply of advanced electronic and communications systems and was also an undertaking within the meaning of the Act.  The arrangements constitute an agreement between undertakings.

(c)	Applicability of Section 4(1)

7.	As the sale of assets was completed prior to 1 October, 1991, the date on which the Competition Act came into force, 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.  As the merger or sale element of the 1991 transaction was discharged prior to the commencement of the Act, that aspect of the arrangements does not come within the scope of Section 4(1).

8.	Clause 9 required the vendor to adhere to the terms of the agreements under which it appointed Sigma as its exclusive distributor for a period of two years. This represents a form of non‑compete clause. The business which was sold was the vendor's distribution operation within the State.  Consequently this requirement was necessary to secure the transfer of the goodwill of the business and did not offend against section 4(1).  The restriction on the vendors soliciting Sigma staff was also necessary to secure the transfer of the goodwill of the business and similarly did not offend against section 4(1).

The Decision

9.	In the Authority's opinion, Sigma Wireless Communications Limited and Motorola Ireland Limited are undertakings within Section 3(1) of the Competition Act and the notified arrangements for the purchase and sale of certain assets and exclusive distribution rights of Motorola to Sigma constitute an agreement between undertakings. 

10.	The Authority believes that as the sale element of the transaction was discharged prior to the commencement of the Competition Act, the agreement for the purchase and sale of certain assets and exclusive distribution rights of Motorola does not come within the scope of Section 4(1) of the  Act.  As the restrictions in the agreement were necessary to secure the transfer of the goodwill of the business being sold, the agreement did not offend against section 4(1).

The Certificate

11.	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 for the purchase of certain assets, between Sigma Wireless Communications Limited and Motorola Ireland Limited (notification no. CA/364/92E), notified on 30 September 1992, under Section 7, did not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey
Member
27 October 1993