Competition Authority

Competition Authority Decision of 21 November 1994 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/26/93

Betco Marketing Ltd/Holland Sweetener Co. VOF

Decision No. 376

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Competition Authority Decision of 21 November 1994 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/26/93 - Betco Marketing Ltd/Holland Sweetener Co. VOF

Decision No. 376

Introduction

1.	Notification was made on 24 June 1993 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 Agency Agreement between Holland Sweetener Company (HSC) and Betco Marketing Ltd (Betco).  Notice of intention to issue a certificate was published in the Irish Times on 14 October 1994.  No submissions were received by the Authority.

The Facts

(a)	Subject of the notification

2.	The notification concerns an agreement dated 19 April  1993 whereby HSC, as principal, appoints Betco to be its sole agent for the sale of Aspartame in Ireland.

(b)	The parties involved

3. 	Betco Marketing Ltd, which was established in 1991, is an Irish company based in Cork with an issued share capital of £100. Its turnover in 1993 was £279,000.  In addition to the sole agency agreement with Holland,  Betco also holds a sole agency from Cerestar UK Ltd, which comprises 95% both of Betco's activities and turnover, and a sole agency from Rotterdamsche Margarine Industrie (Romi).  The products involved in the 3 agencies are stated not to be in competition with one another.

HSC is a Dutch company based in Maastricht which is engaged in the manufacture of Aspartame.  HSC is a 50/50 joint venture, founded in 1985 for the manufacture of Aspartame, between DSM of the Netherlands and TOSOH Corporation of Japan.

(c)	Products & Relevant Markets.

4.	The product which is the subject of the notified agreement is Aspartame which is a nutritive, intense sweetener and flavour enhancer with a taste close to sugar.  Betco's sales of Aspartame for 1993 represented only a small proportion of the Irish market for Aspartame and other artificial  sweeteners.  The principal Irish users of Aspartame, mainly soft drink manufacturers, purchase their supplies of Aspartame directly from a number of foreign based manufacturers, including HSC.

5.	Under the notified agreement Betco Marketing Ltd has been appointed sole agent for the marketing and sale of Aspartame in Ireland.  The relevant market is, therefore, the State.

(d)	The Agreement

6.	The notified agreement is an agency agreement dated 19 April 1993 under which HSC appoints Betco to be its sole agent in Ireland (the Territory) for the sale of Aspartame (the Product).  HSC undertakes not to appoint any other agent or distributor for the product in the territory and, save for the exceptions provided, to sell exclusively through Betco (Article 1.2).  Unless HSC agrees, the agency appointment does not extend to sales to multinational companies, companies purchasing mainly for resale outside the territory, companies in which the DSM Group have an interest or companies where conflicts with Betco exist. HSC also reserves the right to accept/execute orders from clients in the territory without the intermediary of Betco. The agreement became operative on 1 January 1993 and had full effect until 1 January 1994 and continues indefinitely thereafter subject to the right of either party to terminate it on 6 months' notice with effect from a year end. 

Article 1.3 of the agreement provides that "During the term of this agreement agent shall not:

a.	accept orders for the Product for sale outside the Territory;
b.	offer for sale or be in any way involved in the sale or supply of the Product of any other supplier, either within or outside the Territory
c.	sell any other individual intense sweetener or blends comprised of these intense sweeteners;
d.	manufacture the Product or any other individual intense sweeteners or blends comprised of these intense sweeteners and shall not hold an interest in or be concerned in the manufacture of the same unless approved by HSC in writing;"

Article 3 provides that the product will be sold at prices determined by HSC and that title will remain with HSC until passed to the customer. 

Article 4 sets out the agent's obligations viz. to look after HSC's interests and promote sales, to provide detailed data on the Irish market, potential customers and competitor developments and report any extra territorial orders. The agent is required to store product for the consignment business under prescribed conditions, not to interfere with the product packaging, maintain records and supply to HSC its annual accounts.  The Agent shall not be entitled to enter any commitment on behalf of HSC or make any offers or accept orders on behalf of HSC without their prior consent.  HSC is obliged to provide price schedules, marketing back up and technical support. It is agreed to jointly consult and to prepare an annual marketing plan.       

Article 5 provides for Betco's remuneration by way of a percentage commission on each category of sales.

Article 7 provides that 
"(a)		Any information disclosed by either party to the other in writing marked with the designation "Confidential" will be maintained by the other in strict confidence except that this obligation shall not apply to information which:
	1)	is already known to the disclosee or is subsequently communicated to it by third parties not in violation of the discloser's rights, or
	2)	is publicly known or subsequently becomes publicly   known without the fault of the disclosee.  .........
(b)		The obligation of confidentiality in (a) above shall be observed during the continuance of this agreement and for 3 years thereafter......."
(e)	Submissions of the Parties

7.	Betco Marketing Ltd. has submitted that the notified agreement is an agency agreement for the sole and exclusive agency of Betco to HSC. Betco maintains that the agreement will not prevent, restrict or distort competition in the State or in any part of the State.  According to Betco the agreement merely restricts who HSC can appoint as its agent for the sale and marketing of Aspartame and also regulates Betco's obligations and rights under the agreement.  Betco maintains that the restrictions in the agreement which are imposed on the parties are necessary to attain the objectives of selling Aspartame in the Republic of Ireland by means of a sole agent. The purpose of the restrictive covenants in the agency agreement is not to eliminate competition in Ireland vis-a-vis the sale of Aspartame but to regulate the actions necessary to achieve the objective of selling the product in Ireland via a sole agent.

8.	Betco also claimed that agency agreements are subject to a block exemption under Article 85 of the Rome Treaty.  It added that the (EU) Council stated "that in its view contracts made with commercial agents in which those agents undertake for a specified part of the territory of the Common Market to negotiate transactions on behalf of an enterprise or to conclude transactions on behalf of an enterprise whether in their own or the enterprise's name are not covered by the prohibition contained therein".

9.	On the question of other agencies Betco has indicated that:
	"(i)	The three Agency Agreements with Cerestar, Rotterdamsche and Holland Sweetener Company are the only agencies held by the Company. Notification has been made to the Authority in respect of each Agreement.

	(ii)	The products covered by the Agency Agreements are non-competing products.  The Agency Agreement with Holland Sweetener Company is for Aspartame which is a specific type of sweetener commonly used in soft drinks.  The Agency Agreement with Cerestar covers starches and different types of sweetners e.g. Glucose which are complementary to the Aspartame supplied under the Holland Sweetener Company Limited Agency Agreement.  In addition some small quantities of edible oils are sold on behalf of Cereol a Cerestar Group Member under that Agency Agreement.  The types of oil supplied are sunflower oil, rape seed oil and ground nut oil which are complementary to the oils supplied under the Rotterdamsche Agency Agreement i.e. palm oil and coconut oil.

	(iii)	Betco Marketing Limited does not engage in any other business apart from these agencies."

EU Position Regarding Commercial Agents

10.	The situation regarding the application of EU Competition law in relation to commercial agents has been set out in the Authority's decision no. 374 (Cerestar/Betco). 

Assessment

(a)	Applicability of Section 4(1)

11.	Section 4(1) of the Competition Act 1991 prohibits and renders void 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.

(b)	The Undertakings

12.	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".  HSC is a body corporate engaged for gain in the production, supply and distribution of sweeteners. Betco is a body corporate engaged for gain in the provision of a service associated with the same goods, i.e. the marketing and promotion of the sale of the goods in the State.  The Authority considers that both companies are undertakings and that the notified agency agreement is an agreement between undertakings.  The agreement has effect within the State.

Commercial Agent

13.	The relationship between HSC and Betco has been summarised in para. 6.   Betco has argued that the agreement is a commercial agency agreement and that the agreement does not offend against Section 4(1).

14.	Given the terms of the agreement and the relationship between HSC and Betco, the Authority considers that Betco, is an intermediary between HSC, the principal, and the purchaser of the goods and is, therefore, a commercial agent of HSC. For the reasons indicated in the Authority's decision in relation to Cerestar/Betco the Authority considers that the agreement between HSC and Betco insofar as it creates an exclusive agency relationship between the principal and the commercial agent, does not offend against Section 4(1).  

15.	The Authority also stated in its decision on Cerestar UK Ltd/Betco Marketing Ltd that even though the basic arrangement of commercial agency might not offend against Section 4(1), certain clauses in the agreement might occasionally do so.  In the Authority's opinion many of the clauses in the notified agreement, which might otherwise raise issues under the Competition Act, arise from this basic arrangement and therefore do not offend against Section 4(1).  These include the arrangements for the exclusivity of Betco's appointment, the territorial restrictions on marketing and the setting of prices and contract conditions by HSC.

16.	Article 7 of the notified agreement provides that any information designated as confidential disclosed by either party to the other will be maintained by the other in strict confidence and this obligation is to be observed during the continuance of the agreement and for 3 years thereafter. Effectively the information involved would be technical and commercial information concerning the business of HSC which has been provided by the principal to the agent to enable the agent to act in the capacity of intermediary and Irish market intelligence and internal information on Betco's affairs supplied by Betco to HSC under the agreement.  It does not include information in the public domain or information otherwise learnt by either party.  Such information from HSC belongs to the principal and is not the agent's information. Similarly information from Betco belongs to Betco. The information is supplied to each other in the context where the agent is in a position of trust more similar to that of an employee rather than that of an independent trader. During the continuance of the agreement such a confidentiality requirement seems quite justified to avoid the possibility of the essential loyalty of the agent to the  principal and the responsibility of the principal to the agent from being compromised and would not, in the Authority's opinion offend against Section 4(1).
17.	The confidentiality requirement lasts for 3 years after the agency terminates and the Authority would be concerned that a clause of this nature should not be used to prevent Betco from competing with HSC after the agency agreement has been terminated.  However in this instance Betco is engaged in the business of the provision of agency services i.e., sales promotion of HSC products, rather than in the production of and trading in the products manufactured by HSC.  If Betco wished to enter the market in competition with HSC, following the termination of its agency with HSC, it would seek to do so as a agent for competing products. Betco would not need to be able to use or disclose confidential technical information relating to HSC's processes or costings to compete fairly in such an event.  Similarly HSC already supplies larger companies in Ireland outside the agency and a restriction on the use of confidential information supplied in the past by Betco would not prevent HSC competing in the Irish market after the agency agreement terminates.  The confidential information in this instance is akin to technical know how. EU Regulation 556/89 which relates to Know How Licensing agreements permits restrictions on post term use of technical know how as long as the information has not fallen into the public domain.  This is in the case of a licensee who operates on a much more arms length basis to the licensor than that of an agent to a principal.  The Authority therefore concludes that the operation of this clause would not have the object or effect of preventing Betco competing with HSC or HSC with Betco if the current agreement terminated. In the Authority's opinion therefore, none of the provisions in the notified agreement offend against Section 4(1).

The Decision

18.	Holland Sweetener Company VOF and Betco Marketing Ltd are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified agency agreement is an agreement between undertakings.  In the Authority's opinion the notified agreement between HSC and Betco does not offend against Section 4(1) of the Competition Act, 1991.

The Certificate

19.	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 Agency Agreement between Holland Sweetener Company VOF and Betco Marketing Ltd dated 19 April 1993 and notified on 24 June 1993 under Section 7 (notification no. CA/26/93) does not offend against Section 4(1) of the Competition Act 1991.

For the Competition Authority.

Des Wall
Member.
21 November 1994