Competition Authority Decision of 4 June 1992 relating to a proceeding under Section 4 of the Competition Act, 1991

Notification No. CA/12/92 ‑ Athlone Travel Limited/Michael Stein Travel Limited.

Decision No. 3

Introduction

1.	Notification was made with a request for a certificate under Section 4(2) of the Competition Act, 1991 by Athlone Travel Ltd. in respect of the sale of the business of Blackpool Holidays to Michael Stein Travel Ltd., on 13 April 1992.

2.	Notice of intention to take a favourable decision was published in the Irish Times on 8 May 1992.  No submissions were received from interested parties.

The Facts

(a)	The Parties Involved

3.	Athlone Travel and Michael Stein Travel are tour operators and travel agents based in Ireland and engaged in the package tour/holiday business.  Blackpool Holidays was a trade name used by Athlone Travel for specialising in organising tours to Blackpool.  Athlone Travel had operated this business since May 1991 with outlets in Athlone and at 12 Upper O'Connell Street, Dublin.  Michael Stein Travel has its principal place of business at 77 Lower Camden Street, Dublin.

(b)	The Product and the Market

4.	The agreement concerns the sale of the business of tours to Blackpool.  Blackpool Holidays arranged for travel to and from Blackpool and accommodation there for its clients.  This service is a part of the overall package tour/holiday market in the sense that Blackpool is one out of a large number of places that consumers may choose to go for a holiday.  There are a number of other firms who compete in providing tours to Blackpool.  These include P.A.B. Travel, Quay Travel and Arrow Tours.  Travel agents would book trips to Blackpool for their clients through one of these tour operators.  In addition it is of course possible for consumers to arrange trips to Blackpool themselves, by purchasing boat or plane tickets directly and booking their own accommodation.  Blackpool has to compete, for example, with other British destinations and with package deals to sun holiday destinations.  It has been suggested by the parties that up to 10,000 people may go to Blackpool from Ireland.  In 1991 Blackpool Holidays arranged trips for approximately 800 people.

The Agreement

5.	The agreement for the sale and purchase of the goodwill of Blackpool Holidays was made on 23 March 1992.  Under the terms of the agreement Athlone Travel has agreed not to engage in the business of organising tours to Blackpool for a period of three years.  This provision is set out in clause 3.4 which states:

	'that the Assignor will not during the period of three years from the date hereof directly or indirectly carry on or be concerned or interested in the business to which the Goodwill in Ireland relates and the Assignor will use its best efforts to secure to the Assignee the benefit of the connection and custom thereof but not so as to be required to waive any expense in so doing.  It is agreed by the assignor that the restrictive covenant hereon is reasonable and necessary for the legitimate protection of the Goodwill hereby acquired by the Assignee'.

6.	The First Schedule to the agreement defines the term Goodwill as follows.

	'All the Goodwill attaching to the Business Blackpool Holidays including the Business and Trade Name "Blackpool Holidays" together with all the intellectual Property Rights belonging to the business Blackpool Holidays including, without limitation, the trade marks, registered designs, copyrights and business names in any part of the world and copyright in all drawings, plans, specifications, design and computer software owned by the Assignor and used in and for the purposes of the business and all know how and confidential information so owned and used.'

Assessment

(a)	Section 4(1)

7.	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 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

8.	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.'  The present decision involves two limited companies engaged in the business of selling package tours/holidays on the Irish Market.  They are both undertakings within the meaning of the Act.  The agreement for the sale and purchase of the business of Blackpool Holidays is an agreement between undertakings within the meaning of the Act.
(c)	Restraints on Competition

9.	In the Authority's view the only issue arising under the Competition Act in respect of this agreement relates to clause 3.4 which restricts Athlone Travel from re‑entering the market for tours/holidays to Blackpool.  The Authority has previously set out its views on such clauses in its decision on Nallen/O'Toole.  In that decision the Authority indicated that in the case of the sale of a business some restriction on the seller re‑entering the market was necessary in order to ensure the complete transfer of the goodwill of the business.  It stated that, provided the restriction was limited in terms of its duration, geographical coverage and subject matter to that: which was necessary for the complete transfer of the goodwill, then the restriction was not in breach of Section 4(1) of the Act.  In this respect the Authority's decision was in line with that taken by the European Commission in a number of cases under Article 85 of the Treaty of Rome on which Section 4 of the Competition Act is based.

10.	The Authority indicated that it would normally regard a time‑limit of two years as being adequate for the transfer of goodwill.  It went on to state, however, that it would accept a restriction of longer duration, where it could be shown that this was necessary to secure the complete transfer of goodwill.  In Nallen/O'Toole it accepted a restriction of three years.

11.	The present agreement involves a restriction for three years as in Nallen/O'Toole.  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.  The business is relatively small and claims to have had only 800 customers during 1991.  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 recapture quickly its former customers if it were to resume offering tours to Blackpool.  For these reasons it would appear that the period specified in the agreement is no more than is required to secure the complete transfer of the goodwill.

12.	The restriction is limited in terms of its geographical coverage and subject matter to that which is necessary for the transfer of the goodwill.  Clause 3.4 of the agreement requires that Athlone Travel not 'directly or indirectly carry on or be concerned or interested in the business to which the Goodwill in Ireland relates'.

The Decision

13.	Athlone Travel and Michael Stein Travel are undertakings within the meaning of Section 3 of the Competition Act and the arrangements in question constitute an agreement which applies within the State.

14.	The Authority believes that the present agreement cannot be considered to prevent, restrict or distort competition in the State or any part of the State.

15.	In the case of a sale of business, some restriction on the seller is essential in order to ensure the complete transfer of the goodwill for which the purchaser has paid.  A non‑competition clause in a sale of a business agreement which is limited in terms of duration, geographic coverage and subject matter to what is necessary to ensure the complete transfer of the goodwill of the business does not, in the Authority's opinion, prevent, restrict or distort competition.  The Authority believes that the non‑competition clause in the present agreement between Athlone Travel Limited and Michael Stein Travel Limited satisfies the above criteria and that it does not offend against Section 4(1) of the Competition Act, 1991.

The Certificate

16.	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 Athlone Travel Ltd. and Michael Stein Travel Ltd. (CA/12/92), for the sale of the business Blackpool Holidays, notified on 13 April 1992 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey
Member 
4 June 1992