COMPETITION AUTHORITY

Competition Authority Decision of 27 May 1999 relating to a proceeding under Section 4 of the Competition Act, 1991       

Notification No. CA/274/92E  -  Moulinex S.A./ Glen Dimplex/ Irish Sugar plc

Decision No. 556

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Competition Authority Decision of 27 May 1999, relating to a proceeding under Section 4 of the Competition Act, 1991.
								
Notification No. CA/274/92E  -  Moulinex S.A./ Glen Dimplex/ Irish Sugar plc
	
Decision No. 556

Introduction

1.	Notification was made by Moulinex S.A., Glen Dimplex and Siuicre Eireann cpt on 30 September 1992 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 a joint venture agreement.
 
The Facts

(a) 	Subject of the Notification

2. 	The notification concerns an agreement dated 20 June, 1989, under which Moulinex SA, Glen Dimplex and Irish Sugar plc established a joint venture company, GMX Limited (“GMX”).  The purpose of the joint venture is to manufacture certain electrical goods in Ireland. 

3. 	There have been three Supplemental Agreements to the joint venture agreement since 1992. The first (November 1992) concerned clarification of profit share, the second (December 1992) related to change of year-end within the Moulinex Group and the third (April 1994) was a Deed of Adherence concerning the transfer of the Glen Dimplex Holding in GMX from Ahona Ltd to GD Design Ltd., a wholly-owned company within the Glen Dimplex group.

(b) 	The Parties  

4.	Moulinex is the parent company of the Moulinex Group. Moulinex operates primarily as a manufacturer and supplier of small household appliances, supplying products worldwide, but primarily in Europe.  

5. 	Glen Dimplex also operates primarily as a manufacturer of household appliances and sells throughout Europe. Its brands include Belling, Burco, Dimplex and Morphy Richards.    
 
6. 	Irish Sugar is a sugar processor and is a wholly-owned subsidiary of Greencore Group Plc.  Greencore Group Plc is a major supplier of primary foods and related products, food ingredients and prepared foods to industrial and consumer markets.  Irish Sugar does not operate in the market for electrical components.

7.	The Annual Report and Accounts of GMX for the financial year to 31 March, 1995, show a turnover of £9,475,950 and gross assets of £13,126,250. Most of the components made by GMX are used by Moulinex in the manufacture of such products.   

(c) 	The Products and the Markets

8. 	Since its formation, GMX has manufactured and sold the following products:

	(1) Mechanical Timers for Microwave Ovens		(6) Mini Hachoir (Mini Chopper)
	(2) Motors for Krups(Limerick)			(7) Mixer Assembly
	(3) Motors for Barilla (Italy)				(8) Moulded Blades
	(4) Coffee Grinders					(9) Sundry Components Parts
	(5) Baby Chef (Mini Mixer)			             (10) Electric Kettles (since 1996 only).
 
9.	The vast bulk of GMX’ sales are to the Moulinex Group, which includes Moulinex S.A., Krups Ireland, Krups Germany and Swan.  In the 12 months to end-March 1996, for example, non-Moulinex-Group sales accounted for only 2% of total GMX sales. 
     
10.	At the time the agreement was made, none of the finished products manufactured by GMX for Moulinex competed with products supplied by Glen Dimplex.  However, GMX began to manufacture electric kettles at its plant in 1996 and, accordingly, from that point, was then producing a product for Moulinex which would compete with products from the Glen Dimplex range.

11. 	The parties claimed that GMX does not compete in a “market”, as such, its main purpose being the supply of components, and in recent years finished products, to its major shareholder.  The supply of finished products (mixers, coffee grinders, Baby Chefs and Electric Kettles) has only become prominent since 1995/1996.  The parties claim that, as GMX supplies the vast bulk of its output to Moulinex, it cannot be said to compete in any real sense in a “market” and they do not, therefore, consider it appropriate to speak of it having a “market share”.

 (d) 	The Notified Arrangements

12.	The notification concerns a Joint Venture Agreement (incorporating, at Schedule 7 thereto, a Licence Agreement between Moulinex and GMX for the licensing to GMX of certain patents owned by Moulinex and for the provision of know-how and assistance by Moulinex to GMX).  The crucial participation in the joint venture is by Moulinex - without access to its know-how and intellectual property rights, and the ready market it provides for GMX’ products, the joint venture would not have been possible.  The prime objective of the joint venture is to supply parts to Moulinex.  GMX is effectively controlled by Moulinex, since the Agreement gives the latter a majority of its voting rights.  GMX is, therefore, a subsidiary of Moulinex from the company law and accounting standpoints.

13.	Glen Dimplex’s contribution to the joint venture comprised (in addition to a minority shareholding) the provision of expertise on the development of a greenfield electrical goods factory, and its in-depth knowledge of the business environment in Ireland.

14.	Irish Sugar became involved in GMX as a result of its commitment to set up replacement industries in Thurles following the closure of its sugar plant there. Other than its investment in GMX, it has no involvement in the manufacture of electrical appliances or electrical components.

(f)	Submissions by the Notifying Parties

15.	The parties pointed out that none of the joint venture participants were actual or potential competitors in relation to the products to be produced by GMX at the time it was established, either vis-a-vis each other or vis-a-vis GMX. They claimed that, in fact, the opposite applied, and that the participants complemented each other, in that Moulinex had the technology, Glen Dimplex had the local knowledge, and Irish Sugar was the catalyst, providing the motivation and additional investment capital necessary to start-up a greenfield operation with no guarantee of success.  Consequently, they claimed that the joint venture itself fell outside the terms of Section 4(1) of the Competition Act.

16.	They also claimed that neither the arrangements, nor any aspects thereof, restricted the parties in their freedom to take independent commercial decisions.  Without prejudice to this, they drew the Authority’s attention to particular provisions of  the agreement -

	(i)  Section 4(c) granted Moulinex the right to purchase up to 100% of GMX’ 
		   products, and Section 8(d)(i)(G) imposed a reciprocal obligation on 
		   Moulinex to purchase certain percentages of GMX’ products;

	(ii)  Sections 8(b)(v) and (c)(v) imposed certain non-compete obligations on Irish 
		   Sugar and Glen Dimplex for a period of ten years from “Phase 1 
		   Commercial Start-Up” (which took place later in 1989);

	(iii) Section 9 required Moulinex to license, on a non-exclusive basis, certain 
		    technology and know-how to GMX (implemented by the Licence Agreement); 
		    and

	(iv) Section 14 imposed certain restrictions on the transfer of shares in GMX by 
		   the joint venture participants. 

	Arguments in Support of the Issue of a Certificate

17.	The parties claimed that, in general, neither the provisions noted above nor the agreements themselves had as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or any part of the State within the meaning of Section 4(1) of the Competition Act.  

18.	The parties referred to the way in which the EU Commission assesses joint ventures.  They referred to paragraphs 32 to 35 of the relevant EU Notice -particularly paragraph 34  - which give a general indication that joint ventures between non-competitors are unlikely to fall under Article 85(1) of the Treaty.  Paragraph 34 states that Joint Ventures which manufacture primary or intermediate products exclusively for their parents or undertake processing for one or more of their parents do not, as a rule, restrict competition.

19.	The parties pointed out that the joint venture in this case supplies intermediate and finished products to one of its shareholders, Moulinex.  In the case of components, such products are readily available to producers of appliances such as Moulinex and Glen Dimplex, both from producers in Europe and from low-cost producers in areas such as the Far East.  The parties claimed that the market for products such as the finished products supplied by GMX to Moulinex, most of which are sold throughout Europe, is a highly competitive one, with many producers and minimal barriers to entry.  The parties submitted that, applying the assessment of the EU Commission in paragraph 34 of the Notice, the Authority should not consider the notified Arrangements, nor this aspect of them, as restrictive of competition.
20.	When the parties subsequently advised the Authority that GMX had begun to manufacture electric kettles for Moulinex (i.e. a product competing with products from the Glen Dimplex range), they drew the Authority’s attention to the following - 

	(i)	The fact still remained that, with a few minor exceptions, GMX had, since 
		     its inception, had no real independent sales or marketing role, and functions 
		     primarily as a manufacturing outlet for one of its parents, i.e. Moulinex, to 
		     whom all the electric kettles were to be sold;

	(ii)  While Glen Dimplex had a seat on the board of GMX and owned a 
		    significant (minority) percentage of its issued share capital, it did not take 
		    part in the day-to-day management of the company, although it was 
		    provided with detailed financial information at regular board meetings 
		    which its representative attended;

	(iii) The markets for both electrical appliances, and components thereof, in 
	 	    Ireland and in the rest of Europe, were highly competitive, with many 
		    producers and minimal barriers to entry.

	Arguments in Support of the Grant of a Licence
21.	Despite their belief that it did not do so, the parties noted that the Authority might consider that the Agreement, or certain aspects of it, infringed Section 4(1), and they advanced a number of reasons why the Authority should, in that event, grant a Licence in respect of the Agreement for the purpose of Section 4(2) of the Act.  As these are not relevant to the decision, they are not reproduced here.
(g) 	Other Information
22.	The parties stated that the arrangements had not been notified to the EU Commission, nor had any notice been received of any proceedings before the Commission in relation to the arrangements.
23.	There were no submissions by third parties.

(h)	Subsequent developments

24.	In view of the fact that GMX was now itself manufacturing electric kettles for Moulinex, the Authority wrote to the parties in February 1999 seeking market data, and were advised that Moulinex had [  ]% of the world electric kettle market, while Glen Dimplex had less than [  ]%.  Moulinex’ share of the Irish market for the product was [  ]%, while that of Glen Dimplex was approximately [  ]%.

Assessment

(a) Applicability of Section 4(1)

25.	Section 4(1) of the Competition Act, 1991, 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 goods or services in the State or in any part of the State are prohibited and void”.

	The Undertakings and the Agreement

26. 	Section 3(1) of the Competition Act defines an undertaking as “a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of  a service”.  Moulinex and Glen Dimplex are both engaged for gain as manufacturers and suppliers of small household appliances, and are therefore undertakings.  Irish Sugar is engaged for gain as a sugar processor and is therefore an undertaking.  The parties are therefore undertakings and the agreement is an agreement between undertakings.  The agreement has effect within the State.

	Arrangements generally

27.	In the opinion of the Authority, co-operative joint ventures between actual or potential competitors would generally contravene Section 4(1) of the Act if they led to co-ordination on the part of the parties in the production of goods which either or both of them could produce themselves.  The arrangements in the present case are essentially for the provision of intermediate inputs (and, recently, of one finished good) to one of the parties only, i.e. Moulinex.  To this end, the restriction embodied in Section 4(c) of the agreement, which grants Moulinex the right to purchase up to 100% of GMX’s products, and Section 8(d)(i)(G) which imposes a reciprocal obligation on Moulinex to purchase certain percentages of GMX’s products, shows that the joint venture has been set up almost exclusively to be a supplier of mainly intermediate inputs to Moulinex.   

28.	The notified arrangement is described as a Joint Venture Agreement.  The classic definition of a joint venture agreement is one in which all parties have equal shares and rights.  In this case, however, one of the three participants, i.e. Moulinex, controls both the share voting rights of GMX and its Board.  Thus, the Authority is satisfied that the agreement is not a joint venture in the true economic or legal sense, but rather a greenfield start-up operation in Ireland by a French company, which involved substantial equity investment, but not control or participation, by either of the other two parties.    

29.	Essentially the agreement is one whereby Glen Dimplex and Irish Sugar have taken a minority interest in GMX.  In the opinion of the Authority, competition issues may arise where a firm even has a minority shareholding in a competing firm.  Such a shareholding may lead to a reduction in competition, particularly where the shareholders are competitors or potential competitors.  In this instance, GMX functions primarily as an intermediate input producer for Moulinex.  Furthermore, most of the products produced by GMX do not compete with products of Glen Dimplex.  To the limited degree that GMX does produce finished goods, i.e. electric kettles, both companies’ share of the electric kettle market is approximately [  ]% in the State. Electric kettles are available in the State from a variety of manufacturers.  They are an internationally traded commodity and Glen Dimplex and Moulinex account for [  ]% of the world market for electric kettles.  The agreement is limited to one manufacturing facility and has no effect on the operation of other facilities controlled by the parties.  

30.	If GMX were acting as a wholly independent entity, with responsibility for the sales and marketing of its own products and, in particular, for the price at which they were sold, the arrangements would give rise to concern.  However, in the circumstances where GMX acts primarily as an intermediate producer, the Authority considers that the acquisition by Glen Dimplex and Irish Sugar of a minority shareholding in GMX does not contravene Section 4(1) of the Act.  If the role of GMX were to change substantially, the Authority would have to consider whether this amounted to a material change in the circumstances on which its decision to grant a certificate is based, leading to a possibility of  revoking the certificate under Section 8(6) of the Competition Act, 1991.
 
31.	Under clause 3 of the licence agreement appended to the notified arrangement, it is clear that none of the know-how etc. granted to GMX by Moulinex is to be shared with any third party, including Glen Dimplex.  This precludes GMX being used as a vehicle to share intellectual property in a cartel-like manner.  In the light of these facts, the decision by Moulinex to source some of its kettles from GMX (as opposed to another quarter in the Moulinex Group) does not, in the opinion of the Authority, change the essential nature of GMX as a provider of intermediate inputs (and some finished goods) to its ultimate parent Moulinex.
 
The Decision

32.	In the Authority’s opinion, Moulinex S.A., Glen Dimplex and Irish Sugar are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, and the notified arrangements constitute an agreement between undertakings.  In the Authority’s opinion, the agreement dated 20 June 1989 does not contravene Section 4(1) of the Act.  Mr Massey has requested the recording of the fact of his dissent.

The Certificate

33.	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 between Moulinex S.A., Glen Dimplex and Irish Sugar plc dated 20 June 1989 notified under Section 7 of the Competition Act, on 30 September, 1992 (Notification No. CA/274/92E), does not contravene Section 4(1) of  the Competition Act, 1991, as amended.

For the Competition Authority 

Declan Purcell,
Member
27 May 1999