Competition Authority decision no. 438 of 23 October, 1995  relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/856/92E - Kleerex Licensing Ltd/ICC Business Expansion Fund Ltd

Decision No. 438

Introduction

1.   Notification was made 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 an agreement between Kleerex Licensing Ltd (Kleerex L) and others and ICC Business Expansion Fund Ltd (ICCBEF).

The Facts

(a)  Subject of the Notification

2.   The notification concerns an agreement dated 15 February 1991 between Kleerex International Ltd, Carroll Products and Designs Ltd (Carroll), Kleerex Licensing Ltd (Kleerex L), Frank Carroll, Gerard Higgins, Aidan Mc Morrow, Industrial Credit Corporation plc (ICC) and ICCBEF under which Kleerex L agrees not to grant any licence in respect of intellectual property to any other party excepting Kleerex International Ltd and Carroll without the prior written consent of ICCBEF. 

(b)   The Parties Involved

3.(i)    Carroll is primarily engaged in R&D in relation to acrylic merchandising systems. According to its abridged financial statements filed with the Company's Registration Office the company is connected to the Kleerex International Ltd group of companies and Kleerex L through commonality of shareholders. Kleerex International is engaged in the manufacture within the State of acrylic merchandising products while Kleerex L is engaged in the exploitation of Carroll's inventions abroad. Messrs Carroll, Higgins, McMorrow were the owners and directors of the three related companies at the date of the agreement.
 
(ii)  ICC is a State owned bank engaged in the provision of banking services and in the investment of venture and development capital. ICCBEF is manager of a designated investment fund which subscribed for shares in Kleerex International Ltd. 

(iii)  Under separate agreements dated 15 February 1991, ICC subscribed for shares in Kleerex International Ltd, Kleerex L and Carroll. The fund managed by ICCBEF also invested for shares in Kleerex International. Those shares are registered in the name of Gokin Ltd. Gokin also subscribed for shares in Carroll.  The agreements relating to these share subscriptions are being dealt with separately.

(iv)   Under a licensing agreement, also dated 15 February 1991, Carroll granted Kleerex L an exclusive licence to manufacture or have manufactured within the territory certain products developed by Carrolls. The territory is defined as every country in the world apart from the State and the UK. Kleerex L was also granted rights to issue sub licences for these products within the territory. This agreement is the subject of the Authority's decision No. 437.     

The Notified arrangements

4.     The notified agreement was made on 15 February 1991 in the light of the licence agreement of the same date whereby Carroll had granted to Kleerex L a licence in respect of certain intellectual property rights. It provides that Kleerex L

"shall not grant any licence in respect of the intellectual property to any party other than Kleerex International Ltd and or Carroll without the prior written consent of ICCBEF, such consent not to be unreasonably witheld, provided that ICCBEF shall not be deemed to be acting unreasonably by requiring that

(i)  Kleerex L. shall not grant a licence to manufacture in Europe;

(ii) any licence granted by Kleerex L shall be subject to a restriction that such licence cannot be exercised within Europe;or

(iii) any proposed licence to be granted by Kleerex L shall be granted by Carroll and it is agreed and declared by all the parties hereto that each of them will do all acts and things as shall be necessary to effect the granting of such licence by Carroll."

Assessment

(a)  Section 4(1)

5.  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

6.  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".

7.   Kleerex International Ltd is engaged for gain in the manufacture and sale of acrylic merchandising products and is therefore an undertaking. Carroll is engaged for gain in research and development of products and Kleerex L is engaged for gain in the exploitation abroad of patents and inventions. They are therefore undertakings. Frank Carroll, Gerard Higgins, and Aidan Mc Morrow were the owners and directors of Kleerex Int and are also undertakings. ICC is engaged in the provision of banking services and in investment for gain and is also an undertaking. ICCBEF is engaged for gain as manager of a designated investment fund and is also an undertaking.  The notified agreement is an agreement between undertakings. The agreement has effect within the State.

(c)   Applicability of Section 4(1)

8.   Under the notified agreement Kleerex L effectively agrees not to licence certain intellectual property rights granted to it by Carroll in Europe without the consent of ICCBEF. The rights granted by Carroll to Kleerex L did not include the Irish and UK manufacturing rights which have been granted to a related company, Kleerex International Ltd. The notified agreement does not therefore have any direct effect on competition within the State.

9. In its decision No. 437 the Authority took the view that because of the extent of the common relationship between Kleerex International, Kleerex L and Carroll, they could not be regarded as undertakings independent of one another but rather as separate arms of the same undertaking. Unlike ICC, which invested in each of the three companies, ICCBEF subscribed for shares only in Kleerex International. If another arm of the undertaking was free to compete directly with Kleerex International in the Irish market  this could damage Kleerex International with the benefit going to other arms of the undertaking. This could jeopardise the ICCBEF investment. The Authority takes the view therefore that the notified agreement was necessary to safeguard the BES investment and therefore does not offend against Section 4(1).

The Decision

10.    In the Authority's opinion Kleerex International Ltd, Carroll Products and Designs Ltd, Kleerex Licensing Ltd, Frank Carroll, Gerard Higgins, Aidan Mc Morrow, Industrial Credit Corporation plc and ICC Business Expansion Fund Ltd are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified agreement is an agreement between undertakings.  In the Authority's opinion the notified agreement does not offend against Section 4(1) of the Competition Act, 1991.

The Certificate

11.     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 licensing arrangements agreement dated 15 February 1991, between Kleerex International Ltd, Carroll Products and Designs Ltd, Kleerex Licensing Ltd, Frank Carroll, Gerard Higgins, Aidan Mc Morrow, Industrial Credit Corporation plc and ICC Business Expansion Fund Ltd, notified under Section 7 on 30 September 1992 (notification no. CA/856/92E) does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority.

Des Wall
Member
23 October 1995