The Competition Authority is proposing to simplify the rules governing the treatment of the various agreements between suppliers, distributors and retailers of goods and services.
The new arrangements will apply to business agreements such as exclusive distribution and exclusive purchase agreements, franchising and selective distribution agreements - where a firm appoints distributors on the basis that they satisfy certain requirements.
The authority proposes to introduce a new category certificate which provides that such agreements are not anti-competitive where neither the supplier nor the re-seller have a market share in excess of 20 per cent.
It also plans a new category licence which would permit such agreements where the supplier or the re-seller have a market share of between 20 and 40 per cent. Although agreements between such firms could have some negative effect on competition, this is likely to be offset by efficiency gains, the authority believes.
Agreements which fall within these thresholds will not need to be notified to the authority for individual consideration, although agreements involving firms with market share above 40 per cent will have to be considered on a case-by-case basis.
However, certain restrictions will not be permitted in the approved agreements. The re-seller cannot be prevented from setting his own prices, for example.
The supplier is not allowed to set a minimum price but he will also be barred from setting a maximum price in case it leads to an understanding that this becomes the price at which the product must be resold.
However, suppliers can recommend prices to re-sellers provided they inform the re-seller that he is free to set his own price, there is no reference to the margins resulting from applying the recommended price, there is no requirement to display such a price and no measures are taken to secure adherence to such a price.
Neither will agreements be allowed to include any provisions which prevent customers purchasing products from re-sellers outside a designated territory. Restrictions which would apply after termination of an agreement are also banned.
However, the authority believes that some restriction on a franchisee competing with the franchised business following termination of an agreement may be justified, although the period involved will not be allowed to exceed 12 months. "These proposals clarify what you can and can't do and boil down the rules in terms of what you are not allowed to do into three or four core things. The same rules will also apply to a number of different activities," a spokesman for the authority said.
The authority has invited submissions from interested parties by September 30th. It is intended that the new category certificate and licence will take effect from January 1st, 1999, when the existing exclusive distribution category licence expires.
