COMPETITION AUTHORITY

Competition Authority Decision of 22 February  1999   relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/24/95 - Cahill May Roberts Ltd/ Guerlain Ltd.

Decision No: 538

Price 	£0.50
	£0.90 including postage

Competition Authority Decision of 22 February  1999   relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/24/95 - Cahill May Roberts Ltd/ Guerlain Ltd.

Decision No: 538

Introduction 

1	Cahill May Roberts Limited (CMR) notified an agreement under which Guerlain Limited (Guerlain) appoint CMR as a distributor in the State for Guerlain cosmetics on 20  June 1995, under Section 7 of the Competition Act, 1991 with a request for a certificate under Section 4(4) or, in the event of refusal by the Authority to issue a certificate, a licence under Section 4(2).

The Facts

(a) Subject of the Notification 

2	The  arrangements notified relate to the stockholding, physical distribution, invoicing and account collection by CMR of Guerlain cosmetics.  The agreement sets out the terms and conditions governing the relationship between CMR and Guerlain.

(b) The Parties Involved

3	Guerlain is a UK based company engaged in the distribution of luxury perfumes, cosmetics and toiletries.  CMR is an Irish company engaged in the distribution of pharmaceutical, healthcare and allied products.  The ultimate parent of CMR is Gehe AG, a German based company engaged in the selling and distribution of healthcare products, pharmaceutical products, and the provision of environmental and distribution services throughout Europe.

(c) The  Product and the Market

4	The products the subject of this notification are skin care and cosmetic products.  The parties argue that the products compete in the luxury end of the market against such brands as Lancome, Clinique, Chanel, Christian Dior, Clarins, Vichy, RoC and L'Oreal.  The products are sold to the ultimate consumers in retail outlets such as department stores and retail pharmacies.

5	The parties estimate the size of the market in the State for skin care and cosmetic products to be £100 million.  The value of the products subject to the arrangements notified here would constitute only a small share of the overall market, less than 1%.  CMR also distribute products for skin care and cosmetics on behalf of a number of companies other than Guerlain.  The total market share of CMR (including Guerlain) in this market is less than 5%.	

6	There are no barriers to entry into the skin care and cosmetics products market in Ireland and a variety of distribution channels exist.

(d)  The Notified Arrangement
7	Under the contract notified, Guerlain appoints CMR as its exclusive agent for cosmetic products in  Ireland.  Under the agreement all title to the products remain with Guerlain until sold to customers.  CMR is compensated for its services by a commission paid by Guerlain.

8	CMR performs stockholding, physical distribution, invoicing and account collection services under the agreement.  CMR can only  supply products to Guerlain approved stockists and will not actively seek sales outside the State.	

(e) Submissions of the Parties

9	The notifying party only submitted arguments in support of a request for the granting of a licence.  As the Authority deems the agreement to be eligible for the grant of a certificate, the arguments are not relevant and are not repeated here.

(f) EU Position Regarding Commercial Agents

10	Agency agreements are not subject to a block exemption. The EU Commission issued a notice on Exclusive Dealings with Commercial Agents in 1962 but this notice is now regarded as legally obsolete. The EU Commission has indicated its intention to prepare a revised Notice on this matter but this has not yet been finalised. The EU Court of Justice considered the question of agency in the Suiker Unie case, where it stated that “If such an agent works for his principal he can in principle be regarded as an auxiliary organ forming an integral part of the latter’s undertaking bound to carry out the principal’s instructions and thus, like a commercial employee, forms an economic unit with this undertaking.” The EU Council Directive on Self Employed Commercial Agents (86/653/EEC) was adopted on 18 December 1986 and was implemented into Irish law from 1 January 1994 by way of Statutory Regulation SI No. 33 of 1994. A commercial agent is defined in the Directive as “ a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person, hereinafter called the principal, or to negotiate and conduct such transactions on behalf of and in the name of the principal.” The Directive outlines rights and obligations for commercial agents and principals.

Assessment

(a)  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.” Guerlain and CMR are each a body corporate engaged for gain in the transaction of consumer products. The agreement is an agreement between undertakings having effect within the State.

(c) The Applicability of Section 4(1)

13	In the Category Certificate/Licence in Respect of Agreements between Suppliers and Resellers (Decision No. 528), the Authority sets out the types of distribution agreements which it deems not to contravene Section 4(1) and those which contravene Section 4(1) but meet the standard for a licence in Section 4(2).  As to those agreements for reselling which do not offend Section 4(1), they include agreements where the parties to the agreement each have less than 20% of the relevant market and the agreement does not contain certain blacklisted clauses relating to: resale price maintenance, absolute territorial protection or post term non-compete.  Selective distribution arrangements which restrict the reseller from selling outside an authorised network of approved dealers is not a blacklisted provision. The notified agreement contains no clauses blacklisted in the Category Certificate and the parties to the agreement have less than 20% each of the relevant market.  However, the notified agreement does not benefit from the Category Certificate since CMR does not take title to the products and therefore the agreement is not one for reselling. 

14	The Authority considers the Category Certificate relevant to its assessment of the notified agreement.  Here, CMR has undertaken a distribution function on behalf of Guerlain, performing many obligations which are typically performed by an independent distributor who resells product.  However, CMR is not compensated as an independent distributor but as an agent.  It does not buy and sell product on its own account and retain the margin, as an independent distributor; rather, it receives a commission directly from Guerlain.  The Authority does not consider this distinction in the notified agreement to render inapplicable the analysis of vertical distribution agreements set out in the Category Certificate.  As noted above, the notified agreement contains no clauses blacklisted in the Category Certificate and the market share of the parties are underneath the relevant 20% threshold.  On this basis and for the reasons set out in the Category Certificate, the Authority does not consider that the notified agreement contravenes Section 4(1).

15	This decision is consistent with previous Authority decisions on agency. The Authority has stated, in its decision on the Conoco consignee agreement that the relationship of principal and agent does not in itself contravene Section 4(1), and that certain restrictions which are necessary to that relationship also do not offend.  Here, it is noted that the agreement notified contains no provisions which the Authority deems to contravene Section 4(1) if it were contained in an agreement between a supplier and an independent distributor who resells.

(d) The Decision

16.	In the Authority’s opinion Guerlain and CMR are undertakings within the meaning of Section 3 (1) of the Competition Act, 1991, as amended, and the notified agreement is an agreement between undertakings.  In the Authority’s opinion, the notified agreement does not prevent, restrict or distort competition and thus does not contravene Section 4(1) of the Competition Act.

The Certificate

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 Guerlain Ltd and Cahill May Roberts Ltd notified under Section 7 of the Competition Act on 20 June 1995 (Notification No. CA/24/95) does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

William Prasifka
Member 
22 February 1999