92/427/EEC: Commission Decision of 27 July 1992 relating to a proceeding under Article 85 of the EEC Treaty (Cases IV/32.800 and IV/33.335 - Quantel International- Continuum/Quantel SA) (Only the French and English texts are authentic)

• Articles: 6

Article 1

The agreement and the protocol of 17 and 26 July 1985 between Quantel International and Quantel SA infringed Article 85 (1) of the Treaty inasmuch as they established a sharing of markets.

Article 2

The agreement and the protocol of 17 and 26 July 1985 did not fall within the scope of the block exemption of Regulation (EEC) No 418/85.

Article 3

of Regulation No 17

(55) Pursuant to Article 3 of Regulation No 17, the Commission may, by decision, find an infringement of the provisions of Article 85 and oblige the undertakings or associations of undertakings concerned to bring it to an end.

Notwithstanding the belated settlement agreement between QSA and QLI/C, which came about approximately one year after the sending of the statement of objections and renders an order to cease applying Article V of the protocol superfluous, the Commission considers it appropriate to adopt a formal decision in this case. Such a decision may be taken even after the parties have terminated the agreements in question, in particular when the Commission is informed after several months' delay and after the completion of the entire administrative procedure (Judgment of 17 October 1972 in Case 8/72, Cementhandelaren v. Commission (8)).

In any event, in order to avoid the occurrence of analogous or equivalent infringements in future, it is necessary to clarify certain points of law connected with the present case. These concern, first, the scope of Regulation (EEC) No 418/85 and, secondly, the limits on the ancillary restrictions of competition which may be admissible in the context of a deconcentration of undertakings. It is also appropriate to re-affirm that an agreement with the object of technologically and commercially isolating the common market or a substantial part thereof from a third country is caught by Article 85 (1) and is not eligible for exemption (Decision 85/618/EEC, Siemens/Fanuc (9)),

HAS ADOPTED THIS DECISION:

Article 3

This Decision is addressed to:

(a) Quantel SA,

Zone Industrielle de Courtaboeuf - BP 23,

F - 91941 Les Ulis Cedex;

(b) Continuum,

3150 Central Expressway,

USA - Santa Clara, California 95051. Done at Brussels, 27 July 1992. For the Commission

Leon BRITTAN

Vice-President

(1) OJ No 13, 21. 2. 1962, p. 204/62. (2) OJ No 127, 20. 8. 1963, p. 2268/63. (3) OJ No L 53, 22. 2. 1985, p. 5. (4) OJ No C 231, 12. 9. 1986, p. 2. (5) [1985] ECR 2545. (6) [1976] ECR 811. (7) [1966] ECR 299. (8) [1972] ECR 977. (9) OJ No L 376, 31. 12. 1985, p. 29.

Article 15

of Regulation No 17

(51) Although fines could be imposed in respect of acts taking place between the date of signature of the agreement (26 July 1985) and the date of its notification to the Commission (17 October 1989), it does not appear appropriate to do so in the present case, in particular because most of the products concerned in the protocol and the annexes thereto had not been placed on the market at the time of notification, their development having been delayed by both parties (see recital 38). The agreement therefore could only have had a very limited effect on the trade in these products.

The agreements' incompatibility with Article 85 (3)

(52) In the words of the Court of Justice (Joined Cases 56 and 58/64), Consten and Grundig v. Commission (7), the improvement in the production and distribution of goods, which is required for the grant of (individual) exemption, cannot be identified with all the advantages which the parties to the agreement obtain from it in their production or distribution activities, since the content of the concept of improvement is not required to depend upon the special features of the contractual relationships in question. This improvement must in particular show appreciable objective advantages of such a character as to compensate for the disadvantages which they cause in the field of competition.

The Commission points out that it was for QSA to demonstrate such advantages. In fact, neither in its notification nor in its reply to the statement of objections did QSA develop any argument along these lines, nor did it indicate to the Commission any objective factors such as might have enabled the latter to evaluate the agreements' effectiveness by reference to an objectively ascertainable improvement in the production and distribution of its goods which might have compensated for the disadvantages caused by a restriction of competition.

(53) The restriction of competition resulting from the application of Article V of the proposal thus constitutes a barrier to market entry by an economic operator as it has had the effect of excluding QLI/C from a substantial part of the common market for a considerable length of time. This distortion of competition is not compensated by any technical and economic benefit deriving from the agreement between the parties in developing, manufacturing and marketing the products concerned.

Article V of the protocol, which expressly provides for market-sharing, is in fact fully in the logic of the commercial separation of the two companies. The fact that QSA later declared that it was limiting the duration of that provision to five years is, moreover, not enough to resolve the difficulty raised by the provision, because it is one of absolute sharing of markets, while Article 4 (1) (f) of Regulation (EEC) No 418/85, which is the inspiration for the five-year period, is considerably more limited, allowing only an obligation not to pursue an active marketing policy, and that only in respect of the products resulting from the agreement, which in any event must be one of joint research and development.

(54) As to the question whether the notification of these agreements as modified unilaterally by QSA makes it possible to regard the agreement and the protocol of 17 and 26 July 1985 as fulfilling the conditions laid down by Article 85 (3) of the EEC Treaty for individual exemption. Although QSA has reduced the term of territorial protection from an indefinite period to a period of five years from the date on which the products were first put on the market, the Commission notes that the length of the term of protection for each product claimed by QSA in its notification would be tantamount to granting it territorial protection against QLI/C for a total term, depending on the product, of between eight and nine and a half years from the date of sale of the undertaking. This term is far longer than the term of protection generally considered appropriate following an acquisition (as a rule, from two to five years), while, as already indicated (see recital 42), the Court's case-law allows protection only in the latter event and not in the contrary case, i. e. protection of the seller against the purchaser. It must, therefore, be considered to be excessive, even in the context of Article 85 (3).

Article 85

(1). Such a geographical division of markets, even as between a third country (the United States) and the Community, is capable of affecting trade between Member States if products are thereby prevented from entering the common market which would otherwise have been distributed in more than one Member State (Case 51/76, EMI Records v. CBS (6)). This distortion of competition represents a serious infringement of Article 85 because, on a specific market, it contributes to the technological and commercial isolation of the common market from a third country, by preventing QLI/C from manufacturing and marketing those products.

(42) Article V of the protocol provides for a sharing of markets between the parties which is contrary to the very wording of Article 85 (1) (c). Even supposing that some degree of territorial protection may have been justified for a limited period after the sale of QLI to Laser Advances, i. e. a period which must be evaluated in the light of the circumstances of each individual case and may be from two to five years, in the present case such a restriction cannot, owing to its excessive duration, be considered necessary to ensure the transfer of the undertaking sold (Case 42/84, Remia). Moreover, in considering some protection to be sometimes justified in the context of the transfer of undertakings, the aim of the Commission and the Court has been to prevent the vendor, 'with his particularly detailed knowledge of the transferred undertaking', from being 'in a position to win back his former customers immediately after the transfer and thereby drive the undertaking out of business' (Remia, paragraph 19). These considerations do not apply in the present case as the agreement in question is designed to protect the vendor from the purchaser.

Appreciable effect on competition

(43) The agreement and the protocol are not covered by the Commission's Notice of 3 September 1986 on agreements of minor importance which do not fall under Article 85 (1). That Notice states that an agreement is deemed not to fall under the prohibition of Article 85 (1) if the participating undertakings have a combined market share of not more than 5 % and an aggregate turnover of not more than ECU 200 million. The turnover in question includes that of all undertakings which have a controlling interest in a party to the agreement, or in an undertaking controlling a party.

(44) As seen above, the market share ceiling is exceeded here, QSA alone having a market share of around 16 %. Furthermore, the aggregate turnover in this case far exceeds ECU 200 million, if the turnover of the controlling parent Sfena and its controlling parent Aerospatiale is taken into account, the latter alone having an annual turnover in the region of ECU 5 billion.

Accordingly, and contrary to QSA's submissions in its notification and in its reply to the statement of objections, the agreement's effect on competition is appreciable.

Regulation (EEC) No 418/85

(45) QSA has claimed to the Commission - in its replay to the transmission of the complaint lodged by QLI/C, in its notification and in its reply to the statement of objections - that the agreement and protocol of 17 and 26 July 1985 must be considered a research and development agreement, capable of benefiting from the block exemption provided in respect of such agreements by Regulation (EEC) No 418/85. This claim is not acceptable for several reasons.

(46) Regulation (EEC) No 418/85 applies to agreements entered into between undertakings for the purpose of 'joint research and development of products or processes and joint exploitation of the results of that research and development' (Article 1).

The specific purpose of the agreement and the protocol is not the implementation of an R& D programme by the two undertakings. It is clear from a reading of the share transfer agreement and accompanying protocol of 17 and 26 July 1985 (see recitals 30 and 31) that the purpose of the agreements was the transfer of a business and that the joint development provisions were purely ancillary to that sale. The products covered by the joint development provisions (Datachrom dye lasers, long-pulse solid-state lasers, Picochrom dye lasers) were all in varying stages of development by one or other of the parties at the time of the sale. It was normal to provide that the development of these products should be finished in the ways provided for under the parties' pre-existing relationship before the sale.

(47) With regard to other products (see recital 32), Article IV of the protocol states that 'they may become the object of common development. In such a case a specific agreement will be signed between QLI and QSA'. No such agreement has been notified to the Commission. The protocol cannot therefore be equated with a joint research and development agreement.

(48) Article 2 (a) of Regulation (EEC) No 418/85 also lays down as a condition for exemption that 'the joint research and development work is carried out within the framework of a programme defining the objectives of the work and the field in which it is to be carried out.'

The purpose of the Regulation, which is to encourage such activities by allowing - under certain conditions - costs and benefits to be shared, is not achieved in this case. Indeed, instead of increasing the research and development effort by combining the resources of the two parties to a common end, the agreement confines itself to determining the sharing of the benefits from work which thenceforth would be carried out independently by each party, according to the terms of the agreement itself. Thus, the intention is not a joint development, but merely to determine the conditions of separation of the two now-distinct undertakings and a sharing of the benefits from the work.

(49) Moreover, an agreement cannot be exempted if it contains clauses prohibited by the Regulation (Article 6). Two clauses in the agreements of 17 and 26 July 1985 fall into this category. In the first place, Regulation (EEC) No 418/85 permits only territorial restriction clauses which are limited to five years, whereas in this case the territorial division clause, as initially interpreted by QSA, was of unlimited duration, even if following the letter of 2 August 1989 it was unilaterally modified to limit its duration. In the second place, the agreement contained a field of use restriction between competitors (see recital 31) and a ban on even passive competition on the part of QLI/C; these, contrary to QSA's submission in reply to the statement of objections, are prohibited under Article 4 (1) (e) and (f) of the Regulation.

B. Article 85 (3)

The notification made by QSA

(50) The agreement was not notified to the Commission until 17 October 1989, more than four years after they came into force and after the Commission had informed QSA of the unfavourable light in which it viewed them. That notification, although belated, confers immunity from fines in respect of the period subsequent to notification (Article 15 (5) of Regulation No 17).

It must therefore be considered, first, whether fines should be imposed in respect of the period prior to notification and, secondly, whether the notification by QSA of the 1985 agreement is capable of changing the Commission's legal assessment thereof.