Competition Authority Decision of 20 January 1999 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/28/94 - Odenberg Engineering/Inspectron

Decision No 534

Introduction

1. 	Notification was made by Odenberg Engineering Ltd on 24 October 1994 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 issue a certificate, a licence under Section 4(2) in respect of a research and development agreement for electronic sorters for the food industry.
 
The Facts

(a) 	Subject of the Notification

2. 	Two agreements relating to one arrangement were notified. This notification CA/28/94 concerns a research and development (general services) agreement dated 8 April 1993 between Odenberg Engineering Ltd and Inspectron Limited initially effective from 1 June 1992 until 31 December 1993. Thereafter the agreement is automatically continued for periods of 12 months unless terminated by either party giving three months notice.

 (b)	The Parties Involved

3. 	The principal activities of Odenberg Engineering are the design, manufacture and sale of food processing machinery, chilling and freezing systems, cheese and other dairy manufacturing equipment and electronic sorters (electronic imaging and sorting equipment) for the food industry. Odenberg Engineering Ltd has its registered office at Sandyford Industrial Estate, Foxrock, Dublin 18. Inspectron Ltd (Mr John Mallon, Ms Yalonta Mallon and Mr Paddy O’Dowd as covenantors) has its registered office at Plassey Technological Park, Limerick. In the agreement entered into, Odenberg Engineering retain the services of Inspectron Ltd as ‘consultants’ in assisting the development of  electronic sorters for the food industry as described in the Appendix to the Agreement.

(c) 	The Products and the Markets

4. 	The parties claim that it is difficult to accurately define the market since the purpose of the research agreement is to actually create a market. However, in generic terms the market could be defined as including all manual, mechanical or electronic sorters of agricultural products for the food industry. The Authority is of the view that the relevant market is the market for electronic sorters of agricultural products for the food industry.

5. 	The parties claimed that there are other potential producers of electronic sorters for food products. They are not, however, aware of any relevant market studies.

(d) 	Structure of the Market

6. 	The EU turnover for Odenberg Engineering was [ ] for the year ended 31 December 1993. Odenberg Engineering sales in the goods affected by the agreement, electronic sorters, amounted to [ ] at end of 1993, declining from [ ] in 1992. The estimated market share of Odenberg Engineering in relation to sales of the products in the State was less than 1% in 1993. Inspectron has no market share in the relevant market.

(e) 	The Notified Arrangement

7. 	This notification concerns a general services Agreement between Odenberg and Inspectron. There is also a special projects Agreement between Odenberg and Inspectron which is the subject of a separate notified agreement, CA/31/94. These two agreements relate to one arrangement. Under the ‘general services’ agreement, Odenberg retains the services of Inspectron to carry out general services using their specialist expertise in conjunction with the supply of electronic know-how by Odenberg.

(f) 	Submissions by the Notifying Party

8. 	The parties do not believe that the agreements, or any aspects of the agreements, restrict the parties in their freedom to take independent commercial decisions.  Without prejudice to the foregoing the parties drew the Authority’s attention to some provisions of  the agreement.

(g)	General Services Agreement

9. 	There is a confidentiality clause (Section 6) during and for 2 years after termination of the agreement, concerning the financial arrangements and the technical or commercial co-operation arrangements, that such arrangements shall be kept confidential unless and until parties agree that it is part of the public domain; a clause (Section 7) on ownership rights to intellectual and other property right discoveries by the consultants while in the services of Odenberg, residing with Odenberg and a non-compete clause (Section 8) during and for  2 years after termination. 

(h) 	Arguments in Support of the Issue of a Certificate.

10. 	The parties claimed that, in general, neither the provisions noted above nor the agreement have 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.  

(i)	Arguments in Support of the Grant of a Licence

11. 	The Authority is of the opinion that the grant of a Licence does not apply in this particular instance.

(j) 	Submissions by Third Parties
12. 	There were no submissions by third parties.
 
  Assessment

(a) 	Section 4 (1)

13.	Section 4(1) of the Competition Act, 1991 states that “all agreements between undertaking, decision by associations of undertakings and concerted practices which have as their object or effect the prevention restriction or distortion of competition in trade in goods or services in the State or in any part of the State are prohibited and void”.

(b)	The Undertakings and the Agreement

14. 	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’. Odenberg Engineering and Inspectron Ltd. are corporate bodies engaged for gain in the design  and sale of electronic sorters (electronic imaging and sorting equipment) for the food industry. They are therefore undertakings and the agreement is an agreement between undertakings. The agreement has effect within the State.

(c) 	Conclusion

15. 	The notification is simply an R&D ‘general services’ agreement between Odenberg Engineering and Inspectron who with their expertise are capable of assisting Odenberg Engineering in the research, development and design of electronic sorters for the food industry.

16.  	The Authority normally considers that post-term non-compete clauses by their very nature are anti-competitive. In this particular case, however, the Authority is of the view that the post-term non-compete clause is necessary to protect the  intellectual property rights of Odenberg Engineering and that the provisions noted in Sections 6,7 and 8 are essential to facilitate the transfer of specialist know how and technology under the agreements, vide Decision no. 533, 20 January 1999.  The Authority views such transfer of technical know-how as essentially pro-competitive. The Authority is therefore of the opinion that these clauses in the agreement do not constitute restrictions on competition within the meaning of Section 4(1) of the Act.

(d)	The Decision

17. 	In the Authority’s opinion Odenberg Engineering and Inspectron are undertakings within the meaning of section 3(1) of the Competition Act and the notified agreement  constitutes an agreement between undertakings. In the Authority’s opinion the agreement dated 8 April 1993 does not contravene section 4(1) of the Competition Act.

The Certificate

18. 	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  dated the 8th April 1993 between Odenberg Engineering Limited and Inspectron Limited notified on 24 October 1994 (Notification No. CA/28/94), does not contravene section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority

Professor Patrick McNutt
Chairperson
January 20 1999