Notification No. CA/14/93 ‑ Viva Travel/McDonald Travel.

Decision No. 34

Introduction

1.	An agreement for the sale by Grainne McDonald Travel Limited (McDonald Travel) of the assets and goodwill of a travel agency business located in Dun Laoghaire to Viva Travel Dun Laoghaire Limited (Viva) was notified to the Competition Authority on 14 April 1993.  The notification requested a certificate under section 4(4), or failing that, a licence under Section 4(2) of the Competition Act.

The Facts

(a)	The Subject of the Notifications

2.	The notification relates to an agreement, dated 7 January 1993, between Viva Travel Dun Laoghaire Limited, John and Mary O'Donoghoe, William Murphy and Grainne McDonald Travel Limited, for the sale by McDonald Travel of the assets and property, including goodwill, of its travel agency business located at Dun Laoghaire, to Viva.  The agreement included certain non‑compete provisions.  The parties indicated in a letter dated 27 July 1993 their intention to amend the non‑compete provisions after the Authority had expressed some concern regarding their duration.

(b)	The Parties

3.	McDonald Travel and Viva are travel agents based in Ireland and engaged in the travel agency business.  McDonald Travel has operated the business concerned in Dun Laoghaire for about 13 years and continues to trade from a premises in Dame Street in Dublin City.  Viva is a new firm entering the market.  Messrs. William Murphy and John O'Donoghoe are directors of McDonald Travel while Ms. Mary O'Donohoe was a guarantor on foot of the company's lease of the premises in Dun Laoghaire.

(c)	The Products and the Market

4.	The agreement concerns the sale of a travel agency business.  The relevant market is that for travel agency services.  The Authority considers that the market for such services is largely a localised one, with travel agents, particularly those located outside of centre city areas, attracting customers from the immediate vicinity of the business.  It is true that consumers in the Dun Laoghaire area may very well compare the services offered by a local travel agent with those of agents located in Dublin city.  Consumers in other parts of Dublin city or of the country generally are unlikely, however, to go to an agency located in Dun Laoghaire when shopping around.  Thus, while to some extent the business is competing with others located in Dublin city, the Authority believes that the relevant geographical market is Dun Laoghaire and its environs.

(d)	The Arrangements

5.	The arrangements provide for the acquisition by Viva of Mc Donald Travel's Dun Laoghaire business.  Under the terms of the agreement as notified, McDonald Travel and Mr. and Mrs. O'Donohoe and Mr. Murphy undertook not to:

	(i) engage in a travel agency business in Dun Laoghaire or within a five mile radius for a period of five years;

	(ii) advertise that Grainne McDonald Travel has moved to Dame Street and the name is not to be used in advertising, except in respect of particular customers for a period of 15 months;

	(iii) advertise, market or attempt to solicit clients of the business or any individuals who were clients within the previous two years, for a period of two years.

(e)	Submissions of the Parties

6.	Viva argued that the restriction contained in the agreement was necessary to enable them, as a new entrant to build up the business to the extent that they would be in a position to compete fairly with any competing business that McDonald Travel might open in Dun Laoghaire.  They pointed out that McDonald Travel was a commercial concern with considerable experience in the relevant line of business and that, were it to be allowed compete with Viva immediately, this would be unfair.

(f)	Subsequent Developments

7.	The Authority expressed some concerns regarding the duration of the non‑compete clause in the agreement, whereupon the parties agreed to shorten the duration of the restriction on being engaged in a travel agency business in Dun Laoghaire or within a radius of five miles from five years to three.  Viva argued strongly that under the circumstances three years was the minimum period of restriction required to secure the transfer of the goodwill of the business.  They pointed out that McDonald Travel had operated in Dun Laoghaire for 13 years, that it continued to trade from Dame Street and that the vendors could easily re‑open in Dun Laoghaire in the absence of a non‑compete clause.

Assessment

(a)  Section 4(1)

8.	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

9.	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.'  McDonald Travel and Viva are both corporate bodies engaged in the provision of travel agency services for gain, and are therefore undertakings.  The arrangements constitute an agreement between undertakings.

(c)	Applicability of Section 4(1)

9	In the Authority's view the only issue which arose under section 4(1) related to the non‑compete clauses.  The sale of business itself is, if anything, pro‑competitve, since it enables a new firm to enter the market.  The Authority's views on non‑compete clauses in such agreements have been set out in a number of decisions.  Provided the restriction does not exceed what is necessary for the protection of that goodwill in terms of its duration, geographic coverage and subject matter, then it does not, in the Authority's opinion, offend against Section 4(1).  In General Semiconductor, the Authority indicated that it considers a period of two years to be generally adequate for such purposes.

10.	The restrictions on engaging in the travel agency business in Dun Laoghaire or within a radius of five miles are not offensive in terms of subject matter and geographic scope.  The duration of the restriction was five years from the date of completion.  This is considerably longer than what the Authority normally considers adequate to secure the transfer of the goodwill.  The parties subsequently agreed to reduce the duration of the restriction to three years.  While this still exceeds what the Authority considers adequate in most cases, in this instance it believes such a period is justified.  Viva is a new entrant to the market, consumers only deal with a travel agent infrequently, and McDonald Travel could still compete, to some extent, from their Dame Street premises.

11.	The Authority has previously certified a three year non‑compete clause in the case of a similar business for similar reasons in Athlone Travel.  In allowing a three year non‑compete clause in that instance it stated that:
	
	`the Authority believes that a period of three years is justified in this case for similar reasons to those outlined in Nallen/O'Toole.  Consumers tend to purchase the products in question infrequently perhaps once a year.  In addition personal contact with customers is an important factor in the business....In addition although Athlone Travel only began operating tours to Blackpool in May 1991, it is still active in the travel business.  It might therefore be relatively easy for it to quickly recapture its former customers if it were to resume offering tours to Blackpool.  For these reasons it wouldappear that the period specified in the agreement is no more than is required to secure the complete transfer of the goodwill.'

12.	The restrictions on advertising McDonald Travel's move to Dame Street for 15 months, and on soliciting former customers for up to two years, do not offend against section 4(1) since they do not go beyond what is necessary to secure the transfer of the goodwill of the business.

The Decision

13.	In the Authority's opinion, McDonald Travel and Viva are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition by Viva of the Dun Laoghaire business of McDonald Travel, constitute an agreement between undertakings.  The Authority believes that in the light of the amendments proposed to clause 9(l) in the letter of 27 July 1993, the restrictions in the agreement are no more than is necessary to secure the transfer of the goodwill of the business to Viva.  The agreement of 7 January 1993 for the acquisition of the Dun Laoghaire business of McDonald Travel by Viva between Viva Travel Limited, Grainne McDonald Travel Limited, Mr. and Mrs. O'Donohoe and Mr. Murphy, as amended by the letter of 27 July 1993, does not, in the Authority's opinion, offend against Section 4(1) of the Competition Act, 1991.

The Certificate

14.	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 7 January 1993 for the acquisition of the business of McDonald Travel Dun Laoghaire between Viva Travel Limited, Grainne McDonald Travel Limited, Mr. and Mrs. O'Donohoe and Mr. Murphy, (notification no. CA/14/93), notified on 14 April 1993 under Section 7, as amended by the letter of 27 July 1993, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey
Member
24 September 1993.