Net Book Agreements [1994] IECA 336 (10th June, 1994)

[ Home ] [ Databases ] [ World Law ] [ Multidatabase Search ] [ Help ] [ Feedback ] [ DONATE ] Irish Competition Authority Decisions You are here: BAILII >> Databases >> Irish Competition Authority Decisions >> Net Book Agreements [1994] IECA 336 (10th June, 1994) URL: https://www.bailii.org/ie/cases/IECompA/1994/336.html Cite as: [1994] IECA 336 [ New search ] [ Printable RTF version ] [ Help ] Net Book Agreements [1994] IECA 336 (10th June, 1994) Competition Authority decision of 10 June 1994 relating to a proceeding under Section 4 of the Competition Act, 1991. Notification Nos.: CA/23/92E - Net Book Agreement (Members Version); CA/24/92E - Net Book Agreement (Non-Members Version); CA/25/92E - Book Club Regulations 1985; CA/26/92E - Library Licence; CA/27/92E - Book Agent's Licence; CA/28/92E - Quantity Book Buying Scheme; CA/29/92E - National Book Sale Conditions; and CA/30/92E - Primary and Secondary School Licence, also collectively known as the Net Book Agreement. Decision No. 336 Introduction 1. Arrangements for the imposition by UK publishers of a minimum net price on most of their books sold within the State were notified to the Authority on 20 May 1992. The arrangements comprising 8 agreements in total are known as the Net Book Agreement and have operated in their present form since 1957. The notification requested a certificate, or in the event of a refusal by the Authority to grant a certificate, a licence. 2. The Authority issued a Statement of Objections to the notifying parties on 28 October 1993 informing them that the Authority intended to refuse to issue a certificate or licence to the notified agreements. An Oral Hearing was held on 10 May 1994. The Facts (a) The Subject of the Notification 2. The notification concerns an arrangement known as the Net Book Agreement (NBA). This is a voluntary agreement administered by the Publishers Association (PA), whereby UK book publishers impose a minimum net price on the sale of most of their publications in the U. K. and the Republic of Ireland. The notification also contains a number of ancillary agreements providing for limited exemptions from the provisions of the NBA for specified groups of book purchasers. (b) The Parties Concerned 3. The NBA is a voluntary agreement administered by the PA. The parties to it are a number of UK book publishing companies. The notification lists 197 publishers who are PA members and over 200 publishers who are not members of the PA who are party to either the members or non-members version of the NBA. (c) The Product and the Market 4. The notified arrangements are concerned with the retail sale of books to the general public and the sale of books by publishers to schools, book clubs, libraries and retail outlets. The products concerned are books of various types. To some degree each individual book title may be considered an individual product. Some consumers are interested in particular types of books, e.g. thrillers, while others may have a preference for a particular author. A DIY title is not a close substitute for a romantic novel. Nevertheless there is scope for a considerable degree of substitutability between book titles. It is possible, however, to distinguish between schoolbooks and other types of books as these categories cannot be considered to be close substitutes for one another. The Net Book Agreement is an agreement involving UK book publishers who are the chief suppliers of general books to the Irish market. The principal market involved therefore is that for the sale of books other than schoolbooks in the State. 5. A study of the Irish book market estimated that the total value of retail sales of books in 1985 was £56m, of which £16m (28.6%) was spent on schoolbooks [1] . It estimated that Irish publishers supplied 85% of the domestic market for schoolbooks and 12% of that for all other publications. Thus the non-schoolbook market was estimated at about £40m of which £35m was imported. Imported books accounted for 88% of the non-schoolbook market or 67% of all books purchased in Ireland. Total household expenditure on books other than schoolbooks was estimated at £25m. The study figures suggest a total retail value of £37.4m for imported books in 1985. According to the CSO book imports in 1985 amounted to £33.3m. [2] Allowing for mark-ups by domestic distributors and retailers, this suggests that the study estimates for book imports may be slightly on the low side. Whether this is because it underestimated imports' share of the market or the overall size of the market is unclear. Nevertheless even allowing for some error in the study figures it is clear that imports account for the majority of books sold within the State. Table 1: Estimated Market for Books 1985 £ million % Household expenditure - on school books 16.0 28.6 - on other books 25.0 44.6 Libraries (public and academic) 4.5 8.1 Other corporate expenditure 5.5 9.8 Expenditure by non-residents 5.0 8.9 Total 56.0 100.0 Source: Fishwick. 6. Book imports in 1991 amounted to £59.8m (Table 2), an increase of almost 80% on the 1985 figure. It is not possible to establish whether imported books' market share had risen in the intervening period. Nevertheless it is clear that imports continue to account for a large proportion of the Irish book market. Imports of books from Great Britain and Northern Ireland accounted for 79% of book imports in 1991. In sum the majority of books sold in Ireland are imported and the majority of imported books are published in the UK. Table 2: Book Imports by Country 1990 Country (£000) (%) (£000) (%) Great Britain 45,047 (75.3) 41,271 (75.9) Northern Ireland 2,121 ( 3.5) 1,980 ( 3.6) U. S. A. 7,493 (12.5) 4,268 ( 7.8) Other Cos. 5,138 ( 8.6) 6,892 ( 12.7) Total 59,799 (100) 54,411 (100) Source: CSO; Trade Statistics. 7. According to the 1988 Census of Services, there were 370 retail outlets involved in the sale of books and stationery with 1659 persons engaged. Total turnover of bookshops in 1988 was £79m according to the Census, of which Dublin outlets accounted for £35.7m (45.4%). [3] The number of bookshops had increased by 130 since the 1977 census. Of the 370 outlets, 111 were located in Dublin with the rest of Leinster accounting for an additional 102. This compares with the 1977 figure of 72 and 41 respectively. The province of Munster had 115 outlets in 1988 compared with 84 in 1977. Of the 1988 total 37 were located in Cork, 17 in Limerick and 8 in Waterford. Connacht had 31 bookshops compared to 25 in 1977. The Ulster counties of Donegal, Monaghan and Cavan had a combined total of 11 outlets which represented a decrease on the 1977 figure of 18. Table 3: Book and Stationery Retail Outlets No.of Outlets Gross Turnover 1977 1977 % % % % Leinster (57.6) 113 (47.1) 52.3 (66.5) 12.1 (66.5) Munster (31.1) 84 (35.0) 22.2 (28.2) 2.2 (28.9) Connacht 31 ( 8.4) 25 (10.4) 3.0 ( 3.7) 0.5 (2.6) Ulster 11 ( 3.0) 18 ( 7.5) 1.2 (1.5) 0.3 (2.0) State 370 (100) 240 (100) 78.6 (100) 18.1 (100) Dublin (30.0) 72 (30.0) 35.7 (45.4) 10.8 (59.6) Cork 37 (10.0) 24 (10.0) 10.5 (13.4) 2.4 (13.4) Limerick 17 (4.6) 9 (3.8) 4.1 (5.2) 1.0 (5.3) Waterford 8 (2.2) 7 (2.9) 2.2 (2.8) 0.4 (2.3) Galway (2.7) * 1.3 (1.7) * Total (49.5) 112 (46.7) 53.8 (68.4) 14.6 (80.6) * Figures not available Source: Census of Services (CSO) 1988 and 1977 8. Table 4 shows that the average size of retail bookshops in 1988 was almost 900 square feet. Overall average size in 1988 was 8% higher than in 1977. There were considerable regional variations. The average size of bookshops in Dublin was 1300 square feet compared with 700 square feet outside of Dublin. The average bookshop in Connacht/Ulster was less than half the size of the average Dublin shop, while the average Munster bookshop was only 60% as large. It is clear, however, that the average size of bookshops outside of Dublin increased over the 1977-88 period. Table 4: Average size of Book and Stationery Outlets (Sq-Ft) 1988 1977 Leinster 1013 1048 Munster 776 Connacht 360 Ulster 300 Dublin 1369 Rest of Ireland 592 State 825 Source: Census of Services (CSO) 1988 and 1977. 9. Libraries, both public and academic, account for a significant proportion of book purchases. It was estimated by Dr. Fishwick in his publication that, in 1985, libraries (both private and those operated by local authorities) accounted for 8.1% of total book sales representing an expenditure of £4.5m (Table 7). CSO figures show that expenditure on book acquisitions by public libraries in 1985 amounted to £3.2m. [4] By 1989 this figure had fallen to £2.3m but subsequently increased to £3m in 1991. The Arrangements 10. The Net Book Agreement, 1957, is an agreement between firms of publishers on the standard conditions of sale for net books published by them in the UK and Ireland. There are two net book agreements - one for members of the PA, the other for non members. The Net Book Agreement first came into force in 1900, following massive price cutting in the book trade. Its terms were revised in 1957 to bring it into line with the UK Restrictive Trade Practices Act, 1956. Net Book Agreement - members version 11. The basic clause in the Net Book Agreement, contained in clause (i), provides that, except in specified circumstances, net books cannot be sold at less than the net published prices. These prices are determined by the individual publishers. "(i) Except as provided in clauses (ii) to (iv) hereof and except as we may otherwise direct net books shall not be sold or offered for sale or caused or permitted to be sold or offered for sale to the public at less than the net published prices." A net book is defined in clause (vi) as a book which is published at a net price, i.e. at a price fixed by the publisher below which the net book shall not be sold to the public. 12. The exceptions to the requirement in clause (i) are set out in clauses (ii), (iii) and (iv) and refer to net books which have been in stock for a considerable time, second-hand books and net books sold to libraries, book agents, quantity buyers and authorised institutions. These clauses are as follows: ´(ii) A net book may be sold or offered for sale to the public at less than the net published price if (a) it has been held in stock by the bookseller for a period of more than twelve months from the date of the latest purchase by him of any copy hereof and (b) it has been offered to the publisher at cost price or at the proposed reduced price whichever shall be the lower and such offer has been refused by the publisher. (iii) A net book may be sold or offered for sale to the public at less than the net published price if it is second-hand and six months have elapsed since its date of publication. (iv) A net book may be sold at a discount to such libraries, book agents (including Service Unit libraries), quantity buyers and institutions as are from time to time authorised by the Council of The Publishers Association of such amount and on such conditions as are laid down in the instrument of authorisation. Such amount and conditions shall not initially be less or less favourable than those prevailing at the date of this Agreement.' These clauses are dealt with in more detail in other agreements which are described below. Enforcement 13. The publishers also agree, under the National Book Agreement, to appoint the Council of the PA to act on their behalf in relation to breaches of the standard conditions of sale of net books. In this respect, the Council collects information concerning breaches of contract by booksellers and keeps each individual publisher informed of such breaches. The publishers agree that they will enforce their contractual rights under the UK Restrictive Trade Practices Act, 1956, which refers to a statutory right to enforce a minimum resale price condition in respect of certain goods including books and to obtain an injunction to restrain breach of the conditions. The funds of the Association may be used to cover legal expenses in pursuing actions for breach of the standard conditions of sale. The PA stated that: ´In practice, there have been few if any cases of alleged breach in Ireland, any problems that might arise being resolved by explaining the conditions of sale to the bookseller and seeking assurances for the future. The NBA has a very high level of acceptance in the Irish book trade because of the clear benefits it gives to the public and to the book trade in Ireland.' Net Book Agreement, 1957 - non members version 14. This agreement is the same as the members version with one exception. Under the members version, the members of the PA who are signatories to the members agreement are indemnified by the Association in respect of the costs of action for reinforcement. No such provision is included in the non members agreement. Book Clubs Regulations 15. The stated objective of these regulations, set out in Clause 2, is to regulate the operation of book clubs in the public interest. Clause 6 states that: ´These Regulations shall apply to, and only to, titles the trade editions of which are published as net books. They shall not apply to the sale of net books at not less than the net price.' 16. By virtue of Clause 14, Book Clubs are required to notify the trade in advance of offering any books to members: ´At least four months before offering a title, book clubs shall send to the Publishers Association a list of all their forthcoming titles which the Publishers Association shall cause to be published forthwith in the trade press. This notification shall include the following details: (a) title; (b) author; (c) licensing publisher.' 17. Under Clause 17 every book offered by a book club has to have on the title page, cover and on the binding, its own imprint, crest or legend to indicate that it is a book club edition. The exceptions to this requirement are as follows: ´(a) in exceptional cases where there proves to be an inadequate supply of such copies bearing the book club imprint the trade edition may be used up to a maximum number of copies equivalent to 20 per cent of the order for the copies bearing the book club imprint. (b) when a book club does not have exclusive book club rights to a title, the licensing publisher may permit the use by book clubs of not more than a total of 5,000 copies of the trade edition or 50 per cent of the licensing publisher's print order (whichever is the lower).' 18. Book clubs must, under Clause 13, have the consent of the licensing publisher before disposing of surplus stock as remainders. Clauses 12 and 16 relate to the supply of books to members. In this connection a premium is a book offered as an inducement to join a book club. ´12. Book clubs shall supply book club choices only to registered members, and premiums only to persons applying to become members.' ´16. A title shall not be offered as a premium until at least six months after its first issue as a trade edition.' 19. Advertising restrictions on book clubs are contained in Clauses 15 and 18: ´15. Book clubs shall not make any announcement to the public or to members that a title is to be offered as a book club choice or as a premium until three months before the intended date of issue of the book club choice or of the premium as the case may be.' ´18. (a) In advertising book club choices or premiums, any comparison with the price of the trade edition issued by the licensing publisher shall be only in the following form: Publisher's price £x (Book Club) price £y (b) Advertisements and publicity material relating to the offer of a book club choice or premium shall not suggest or indicate in any way, in particular by the showing of an imprint, that the copies to be supplied by the club are physically identical with the trade edition.' 20. Members of book clubs are required under Clause 11 to purchase at least 3 books within a specified period of time, usually a year. ´11. Book clubs shall lay down a minimum period of membership which shall be not less than six months and members shall be required to purchase not less than three book club choices (excluding premiums) within the first year of membership, (or such shorter period as may be appropriate).' 21. The PA stated that the Book Club Regulations apply only to book club operations within the UK and have no application to trade in books between EC Member States. They apply only to titles the trade editions of which are published as net books. The PA also indicated that book club licences confer either exclusive or non-exclusive licences on a club allowing it to make and issue copies of the work. The book clubs have signed a ´concordat' limiting the duration and extent of exclusive licences so as to protect the interests of smaller clubs, with licensing publishers recommended by the Council of the PA not to license rights to book clubs which did not subscribe to, and honour, the concordat. Library Licence 22. The terms and conditions under which net books are supplied to libraries are detailed in a document entitled 'Library Licence'. Booksellers are entitled by virtue of condition (iv) of the Standard Conditions of Sale of Net Books, Net Book Agreement, 1957, to supply libraries with net books at a discount not exceeding 10% of their net published prices subject to the following conditions: ´1. Discount on net books may be allowed only in return for prompt settlement of invoices. 2. Discount may not be allowed on net books on which the Bookseller receives a discount of less than sixteen and two-thirds per cent plus five per cent. 3. Discount may be allowed only so long as the Library's total annual purchases of net books solely for the use of the library is not less than £100. 4. No consideration in cash or in kind, other than the granting of a discount permitted under this Licence, shall be offered or given by the Bookseller or sought or accepted by the Library in respect of or in connection with the supply of net books by the Bookseller to the Library. 5. Without prejudice to the generality of the last foregoing Condition, supplementary services (such as card-indexing, stamping, reinforcement of binding, the supply and fitting of plastic jackets etc.), if provided by or on behalf of the Bookseller to the Library, shall be charged and paid for at not less than the actual cost thereof to the Bookseller. 6. Books purchased under this Licence shall be purchased solely for the use of the Library and not for resale. 7. This Licence is revocable by the Council of the Publishers Association at any time but, unless revoked on account of a breach of the Standard Conditions of Sale referred to above, not less than three months previous notice shall be given.' Book Agent's Licence 23. Book agents are individuals not carrying on the business of selling books as their main activity, e.g. a school principal who maintains a small supply of books for sale to pupils. Under Clause (iv) of the standard conditions of sale, Net Book Agreement 1957, book agents may purchase net books at a discount. A book agent's licence may be granted where the book agent agrees to give the following undertaking: ´(i) not to offer for sale or to sell any new net book or books at less than the full net published price, either directly or indirectly or by way of settlement discount; (ii) not to ask for or to accept any allowance upon new net books except from the bookseller named upon this Licence or upon any endorsement thereof.' Once this undertaking is given, the book agent becomes authorised to purchase new books from a specified bookseller for resale to the public at the full published price. 24. The bookseller is authorised to allow the book agent an allowance not exceeding 50% of the retail discount given to the book seller by the publisher in respect of each new book supplied to the book agent. 25. The Licence may be revoked by the Publishers Association in the event of a breach of its terms and/or conditions. The licence may also be withdrawn by giving 3 months notice to the Licensee. Quantity Book Buying Scheme 26. A net book may be sold at a discount to quantity buyers under the standard conditions of sale of the Net Book Agreement. This scheme is designed to extend the large scale purchase of net books by individual and commercial enterprises. The scheme covers large single orders for net books of an aggregate value of £250 or more, regardless of the number of copies of any one title contained in the order. 27. The scale of discount allowable is as follows: (a) For an order for assorted titles worth £250 or more: Value of order Discount £250 - £349 5% £350 - £449 6% £450 - £549 7% £550 - £649 8% £650 - £749 9% £750 - and over 10% (b) For an order for a large quantity of one title (minimum 12), to a total value of £25 or more:- A flat 10 per cent discount. 28. Licences for the granting of discounts as set out above are issued by the Publishers Association subject to the following conditions: ´(a) The books must be required for gift or presentation in connection with the purchaser's business, or for philanthropic or propaganda purposes. The provision of a library, whether recreational or educational, for use by the purchaser's own employees, free of charge, would qualify. (b) The books are not to be offered for sale by the purchaser, nor is their use or distribution to be made subject by him to any charge or other consideration. (c) The order will be delivered in one consignment and paid for in cash on receipt. (d) No discount shall be allowable on books on which the bookseller himself does not receive from the publisher a discount of at least 25 per cent. The value of any such books shall be deducted from the total value of any order coming under this scheme before application is made for discount to be allowed. (e) Licences issued by the Publishers Association under this scheme shall apply to one order only and shall not be valid for repeat orders (although application may be made for fresh licences in respect of repeat orders that qualify on their own account).' National Book Sale 29. The Net Book Agreement provides that net books may be sold to the public at less than the net published price during the national book sale. In relation to national book sales, certain conditions apply and they must be observed by all participating publishers, wholesalers and retailer booksellers. Books available in these sales can be from one of three sources - bookseller's overstocks, publisher's overstocks and wholesaler's overstocks. The sale has a limited specified duration - in 1992, it lasted from 27 June to 25 July. Booksellers may participate in the sale for any length of time within the period of the sale. 30. Where retail booksellers have not ordered a copy of books within the preceding twelve months, they are allowed to sell these titles at a discount of 33% or more during the period of the sale [condition 2]. However, publishers have the right to exclude all of their titles from the sale but no publisher can exclude selected titles only. Similarly, books that are already reduced in price in accordance with clause (ii) of the standard conditions of the Sale of Net Books cannot be excluded [condition 3]. 31. Publishers taking part in the sale arrange for lists of their overstocks to be sent to a marketing company for mailing to licensed booksellers. Condition 5 provides for the terms on which publishers' overstocks should be offered: ´5. Publishers' overstocks shall be offered on the following terms:- at 50 per cent off the Sale Price, the Sale price being fixed by the publisher. Sale prices shall not be more than half the published price. Not less than three copies may be ordered of books of a Sale price of 50p or less.' 32. Booksellers are permitted, under condition 6, to fix their own prices for publishers overstocks during the last week of the sale. No advance announcement of the intended further reductions is permitted. Publishers' overstocks which remain unsold revert back to their original full price on conclusion of the sale. These books can be sold at any price in subsequent national sales by the bookseller without reference to the publishers. [condition 7]. Publishers are prohibited from issuing titles offered at reduced prices during the sale, at prices lower than those which obtained prior to the sale, for a period of six months after the sale period [condition 8]. Booksellers are restricted in accepting publications of a non-participating publisher at a reduced price for the sale [condition 9]. 33. Under condition 12, Wholesale booksellers are permitted to offer participating retail booksellers: (i) any title in their stocks, a copy of which has not been ordered or added to stock during the previous twelve months (provided it has not been excluded from the sale by the publishers under condition 3), and (ii) any title in their stock, which is not being offered as an overstock by publishers. Wholesalers fix the sale prices for their overstocks subject to the proviso that they cannot be more than half the published price [condition 13]. Prices of books to be included in the sale cannot be advertised at these prices more than 21 days in advance of the sale [condition 14]. Primary and Secondary School Licence 34. Under the standard conditions of Sale of Net Books, a net book may be sold at a discount to institutions such as primary and secondary schools subject to authorisation by the Council of the PA. The organisations who benefit under this arrangement are given a licence - the ´Primary and Secondary School Licence'. These organisations are described as principal licensees in the 'Terms of Licence' and Clause 2 sets out the requirements to be satisfied by a principal licensee: ´2. The requirements to be satisfied by a principal licensee are that it must be: (a) a primary and/or secondary school teaching a full curriculum to full-time students and accepted as such by the appropriate authorities; or (b) a local education authority responsible for schools as defined in (a).' 35. A subsidiary licensee may also benefit under the arrangement. Where the principal licensee is a local education authority, schools which satisfy the requirements of Clause 3 may attain subsidiary licensee status. ´3. The requirements to be satisfied by a subsidiary licensee are as follows: (a) it must be a school as defined in Clause 2(a) above; (b) it must be a school for which the principal licensee is responsible; (c) it must agree to be bound by the conditions of this licence and must communicate such agreement to the principal licensee; and (d) its name must be included in a list, to be provided to booksellers in accordance with Clause 7 below, in which the principal licensee certifies the school's compliance with (a) to (c) above.' 36. Certain procedures must be complied with before discounts can be granted. This provision is included in Clause 7 of the Terms of Licence: ´7. No discount shall be granted by a bookseller to a licensee pursuant to this Licence unless the licensee has first deposited with the bookseller: (a) a copy of this Licence; (b) where the principal licensee is a local education authority, an accurate list of names and addresses of schools certified by the authority to qualify as subsidiary licensees (which list shall be updated as necessary).' Clause 5 indicates how organisations benefit from holding a licence: ´5. The Licence permits (but does not require) a bookseller to supply net books to a licensee at a discount not exceeding 10 per cent of their net published prices, subject to the other conditions of this Licence and of the Standard Conditions of Sale of Net Books, but otherwise on such terms and conditions as may be agreed.' Clause 6 sets out the extent of the benefit available: ´6. The Licence permits such discounts to be granted only in respect of net books supplied to a licensee for use within the licensee's own school or schools (or, in the case of supply to a licensed local education authority, for use within the schools which are that authority's subsidiary licensees) for the purposes of primary and/or secondary education.' 37. Clause 13 provides that: ´Any breach of the conditions of this Licence constitutes a breach of the Standard Conditions of Sale of Net Books and, without prejudice to whatever other remedies may be available will render the Licence liable to immediate revocation.' The notification stated that such licences has not yet been applied in Ireland. The PA subsequently indicated that the school licences had never been used in Ireland. In a letter dated 25 May 1994 the PA indicated that, if the Authority were minded to grant a licence, the PA would seek to bring the arrangements into operation in Ireland as soon as possible. Directory 38. The Net Book Agreement was notified to the EC in 1973. This notification alluded to a directory consisting of a list of booksellers who confirmed, inter alia, that they were in receipt of the standard conditions of sale of net books and who gave an undertaking absolutely to observe these conditions. This directory was maintained by the Association. At the time of the EC notification, the Association stated that this listing was an information service to publishers and booksellers - it was not a recommendation by the Association to supply or not to supply a particular bookseller. The Association have indicated that the Directory was discontinued during the course of the proceedings with the EC Commission. (d) Submissions of the Parties 39. The PA submitted that the NBA operates to the benefit of the consumer by ensuring that booksellers are enabled to stock a wide range of books on varying subjects which, in the absence of the NBA, would not be available for reasons of economic viability. In support of this contention, the PA referred to the judgments of the UK Restrictive Practices Court in 1962, 1964 and 1968 which concluded that abrogation of the Net Book Agreement would lead to fewer and less well equipped book shops, higher prices and fewer available titles. It claimed that a 1989 investigation by the UK Office of Fair Trading into all relevant aspects of the NBA concluded that the judgments of the RPC in 1962, 1964 and 1968 were just as relevant in present circumstances and for this reason did not request it to reconsider the agreement. It was submitted that the judgment conferred the same benefits on Ireland as on the UK. The PA also submitted a copy of a letter from the Department of the Taoiseach dated 27 January 1987 which stated that the Minister of State for Arts and Culture would be concerned if Ireland, with its limited publishing industry, was to be denied the benefits of resale price maintenance for books. Reference was also made to a communication issued by the European Commission entitled "The European Dimension with regard to books" in which it was stated that the Commission had found that price fixing arrangements applying to books in member states were operating satisfactorily and that the majority of governments wished to see them continue. 40. A copy of proof of evidence of Mr. P. W. S. Andrews, Lecturer in Economics at the University of Oxford to the UK Restrictive Practices Court in 1962 was also submitted. Mr. Andrews, after a detailed analysis, concluded that under the NBA the consumer had the benefit of a larger number and more varied selection of book titles and at lower prices. It was submitted by the parties that if the NBA was not to continue, a situation would be created in which larger book stores would sell best-selling titles at discounted prices. This would have the effect of eliminating the smaller retailer from the market and also of increasing the retail price of the less popular titles which would become less readily available. It was also submitted that operation of the NBA had stimulated growth in book sales while keeping prices within general inflation levels. Output of titles had also increased. 41. The PA also submitted that the availability of a wide range of titles to meet different social needs, the value of libraries, the importance of books in education, were all of cultural and democratic importance to a country such as Ireland and that the continuance of the NBA was essential for the protection of such an arrangement,. Reference was also made to a resume of the case for resale price maintenance for books prepared by Dr. Fishwick, entitled ´The Economic Case for the Net Book Agreement.' Dr. Fishwick concluded that operation of the NBA was to the benefit of both publishers and consumers and that the benefits conferred were as applicable to Ireland as they were to the UK. (e) Overseas Cases 42. The Net Book Agreement as it operated between Ireland and the UK was also notified to the EC on 12 June 1973. The EC Commission initiated proceedings on 8 October 1986 and took a final decision on 12 December 1988 [5] . It found that the agreement offended against Article 85(1) and refused an exemption under Article 85(3). This decision was subsequently appealed. 43. The Commission found that the arrangements were agreements between undertakings although certain aspects were also deemed to be decisions of an association of undertakings. The Commission concluded that the arrangements had as their object and effect the restriction of competition within the EC [6] . The Commission found that once publishers had decided to impose a fixed resale price they were almost totally prevented from adapting the conditions governing its application and from offering more freedom than the agreements provide to resellers. The requirement to impose on resellers the standard conditions of sale specified in the agreements was also found to have a restrictive effect on price competition between booksellers as far as net books were concerned as they restricted the reseller's freedom to depart from the fixed resale price. The publication and application of a code of allowances was found to contribute to maintaining the net price system and to reinforce it. 44. The book club regulations were also found to offend as they involved restrictions on book clubs thereby restricting the possibilities for competition between booksellers and book clubs. The provisions relating to the ´annual book sale' were also found to contribute to maintaining the net price system and its restrictive effects as effectively as possible. Similarly the conditions for being mentioned in the directory of booksellers were found to have restrictive effects. The Commission decided that the restrictive effects were reinforced by the enforcement mechanism provided in the rules. 45. The Commission concluded that: ´...the agreements are not indispensable to the attainment of their objectives. Since an agreement, in order to be exempted from the prohibition contained in Article 85(1), has to fulfil all conditions of Article 85(3), the agreements cannot be exempted. It is therefore not necessary to examine whether the agreements meet the other conditions of Article 85(3).' [7] 46. The PA appealed the decision. [8] The Court of First Instance gave its judgement on 9 July 1992. Essentially it upheld the Commission decision. Most of the issues dealt with by the court were points of law and procedural issues. The appeal against the finding of an infringement of Article 85(1) was primarily on the grounds of the effect on trade between member states, i.e. the Commission view that the agreements were anti-competitive was not challenged. The PA subsequently appealed to the European Court of Justice. 47. The NBA has also been the subject of proceedings under the UK Restrictive Practices Act, before the Restrictive Practices Court [9] . The Court found that the NBA was not in breach of UK legislation. The UK legislation at the time permitted anti-competitive agreements where they could be shown to be in the public interest. The NBA had been amended following the introduction of the UK RPA in 1956. Essentially the amendment involved the publishers agreeing to take action against retailers who sold the book below the net price, with the costs of such actions being met by the association. Prior to 1957 the publishers boycotted retailers who breached the agreement. 48. The UK court took a very different view from that subsequently taken by the Commission and the Court of First Instance. It distinguished between maintaining retail price stability and price fixing. It also accepted the publishers' arguments that if price competition was allowed, specialist bookshops would have to lower prices on popular titles, they would not be able to cross subsidise back-up services, and the holding of stocks of unpopular titles. Consequently the number of specialist shops would fall, overall prices would rise and fewer books would be published. It also concluded that consumers benefited from the availability of a greater diversity of books. Further proceedings were taken in the UK under amended legislation in 1964 and 1968 but with the same result. 49. The Director General of Fair Trade (DGFT) may apply to the Court for leave to have its decisions reconsidered if there is prima facie evidence of a material change in circumstances relevant to the original reasoning of the Court in finding the agreement not to operate against the public interest. An investigation into the effects of the agreement was carried out by the DGFT in 1989 but it was decided at that time not to apply to the Court. On 23 November 1993 the DGFT announced that the NBA was to be examined again. Announcing this fresh review the DGFT stated inter alia that: ´There have been many changes in the general economic structure of the country and in the economics of book publishing and retailing during that time, and we must now consider the possibility that the Court would reach a different judgment today on the effects of the agreement.... An investigation into the effects of the agreement was carried out.....in 1989. It was decided then not to apply to the Court partly because it was expected that the Government would introduce new legislation in the near future to replace the Restrictive Practices Act and enactment of the new law would have required all restrictive agreements previously upheld by the Court to be reviewed.' [0] (f) Subsequent Developments 50. On 19 August 1992 the Authority wrote seeking clarification from the PA of its intentions in the light of the decision of the European Court of First Instance to uphold the EC Commission decision that the agreement infringed Article 85(1) and did not merit exemption. On 22 September 1993 the PA replied indicating that it was pursuing an appeal to the European Court of Justice. It also indicated that in the interim it had decided to suspend the operation of the NBA in Ireland and had advised publishers to make similar interim amendments to their conditions of supply. 51. On 28 October 1993 the Authority issued a Statement of Objections to the PA, indicating that it intended to refuse a certificate or a licence to the notified agreements. As the PA is based in the UK, and as it had to consult with its members prior to formulating its response, the Authority allowed it until 31 January 1994 to respond to the Statement of Objections. An Oral Hearing was subsequently held on 10 May 1994. 52. In their response to the Statement of Objections the PA argued that the Authority should not take a final decision in respect of the notified arrangements as these were the subject of an appeal to the European Court of Justice following the EC Commission's refusal to grant an exemption to the arrangements under Article 85(3). It claimed that if the Authority went ahead with its decision a conflict of jurisdiction might arise. It also claimed that the NBA was a very unrestrictive agreement and that even if it came within section 4(1), the minimal nature of the restrictions made it easier to justify under section 4(2). In addition the PA argued that all four of the criteria in section 4(2) were satisfied, that the NBA led to the wider availability of books at lower prices than would otherwise be the case and that it encouraged publishers to publish more books. The PA claimed that it therefore contributed to improving the production and distribution of books, that consumers benefited from a healthy book industry, that no less restrictive system had ever been proposed which would be workable in practice and offer such benefits and that no question of the elimination of competition could arise in respect of such an unrestrictive agreement. 53. The PA indicated that it stood by the submissions already made in support of the notified arrangements although it did not intend to restate them. It argued that one of the principal objects of the NBA was to promote the continued existence of a vibrant retail sector for books in Ireland and the UK with a wide range of booksellers selling a wide range of books at low prices. It argued that the distribution of books was dependent on a strong network of stockholding bookshops in Ireland and that the NBA was necessary for the continued existence of such bookshops. It also argued that, while Irish publishers were not party to the arrangements, they also benefited from them. 54. The PA conceded that it had failed to make the position with respect to the school licence clear in its notification. It indicated that such licences had never in fact been operated in Ireland and therefore had no actual or potential effects in Ireland. The PA claimed therefore that it did not come within the jurisdiction of the Authority and should not be the subject of any adverse finding. 55. The PA argued that the NBA was a voluntary arrangement in that no publisher was compelled to become a party to the agreement and any publisher could decide to opt out of the arrangements at any time. Similarly publishers were free in the case of every book published to decide whether or not to classify it as a net book and to decide independently what net price to set. It concluded that: ´As a matter of economic reality, the effect of the NBA is to enable publishers individually to practise resale price maintenance of their books, if and to the extent that, in their individual discretion, they choose to do so. ´If one is against publishers having the ability to practise resale price maintenance of their books (if and to the extent that they, in their individual discretion, choose to do so), then one will be against the NBA. If, on the other hand, one believes that, having regard to the unique characteristics of books, the existence of the ability in question results in major public interest benefits, then the case in favour of the NBA is overwhelming. In any event, that is the area within which, as the PA believes, the justifiability of the NBA falls to be debated.' The PA also pointed out that it was accepted by the UK Restrictive Practices Court and agreed between the parties to the court hearing that individual RPM would not survive without the NBA. 56. The PA stated that it did not dispute the general propositions of law and economics contained in the Statement of Objections but claimed that the Authority's objections failed to take into account the very special characteristics of the NBA, and the unique features of the book trade. It argued that all competition law analysis has to be related to the particular market in which the allegedly restrictive conduct takes place. The PA disputed that the arrangements involved an element of collective as well as individual RPM on the grounds that it was up to individual publishers to decide whether or not to net a book. The PA also claimed that the Authority had misunderstood certain aspects of the arrangements. In addition it submitted that it was wrong to argue that the NBA restricted price competition between books since the publisher in setting a net price had to take account of competition in the market. 57. The PA disputed the Authority's conclusions that all four of the requirements of section 4(2) were not satisfied. It claimed inter alia that the Authority had misunderstood certain aspects of the arrangements. It also argued that the fact that other authorities, such as the EC Commission, had found the arrangements to be beneficial implied that the Authority might have reached incorrect conclusions. The PA relied extensively on the conclusions of the UK Restrictive Practices Court in the 1962 case concerning the NBA to show that the arrangements were beneficial. The PA also included submissions from the Cle, the Irish publishers association and the Booksellers Association of Great Britain and Ireland - Irish Branch, in support of the continued operation of the NBA. 58. In support of its arguments the PA also submitted a report on the effects of the removal of RPM for books in a number of other countries specifically Australia, Belgium and Sweden. The author of the report, Dr. Fishwick stated that the observations on the first two countries were based mainly on research visits undertaken by himself, while those on Sweden were based on other published information. The study argued that the characteristics of books and the nature of the book market meant that price discounting would tend to be relatively limited in the absence of RPM. It was claimed that margins in Australia were relatively high but that within the last few years a new discount chain had entered the market capturing a significant market share. It was claimed that, as a result, discounting of popular titles was now widespread especially in outlets other than stockholding bookshops and that consequently, there had been a reduction in the number of bookshops, additional mark-ups on less popular titles, charges for special orders and fewer staff and less service. It was claimed that the abolition of RPM in Belgium had led to a decline in the number of bookshops as a result of discounting. In Sweden RPM for books was abolished in 1970. Traditional book shops had lost market share to other types of outlet. The report claimed that the abolition of RPM had a serious effect on the book trade on the basis that book sales over a period of time increased by less than in the UK. [1] 59. At the Oral Hearing on 10 May 1994 the representative of the PA restated many of the points already made in written submissions to the Authority. He indicated that in fact the PA accepted that the NBA offended against section 4(1) but argued that it satisfied the requirements for a licence. In particular he argued that the abolition of the NBA would, the PA believed, lead to a fall in the number of bookshops, reduction in stock holding, higher book prices and argued that such developments would be detrimental. He indicated that this was a view based on the PA's knowledge and experience of the industry. He was questioned regarding other studies which disputed the PA's claims and also as to whether the abolition of RPM in respect of books in other countries had been detrimental as the PA claimed. It was pointed out that a study of the NBA published by the Institute of Economic Affairs disputed most of the claims of the PA. [2] This study indicated that in recent years, in the absence of RPM, there had been a significant growth in book selling chains in the US carrying very extensive ranges of stock. He argued that this was only true of large cities. It was pointed out that the IEA study indicated that the abolition of RPM in France led to the opening of more bookshops in smaller towns and that these had closed following the re-imposition of RPM in 1981. He disputed these findings. [3] Assessment (a) Section 4(1) 60. 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 the 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 61. 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 parties to the PA agreements are book publishers based in the UK. The majority of these publishers are corporate bodies. The publishers are engaged for gain in the production and publication of books and are therefore undertakings within the meaning of the Act. 62. There are two Net Book Agreements, one for members of the PA and the other for non-members. These agreements constitute agreements between undertakings relating to the standard conditions of sale for UK published books within the State. They also constitute decisions of an association of undertakings. In addition to the two versions of the Net Book Agreement the PA has notified a series of related arrangements. These are: (a) the book club regulations; (b) the library licence; (c) the book agent's licence; (d) the quantity book buying scheme; (e) the primary and secondary school licence. These set out the conditions upon which publishers supply books to different categories of buyer. In addition the association has drawn up a set of conditions for a national book sale. Each of these documents constitutes an agreement between undertakings (the publishers), setting out the terms upon which net books may be sold below the net published price to certain categories of customer. These arrangements also constitute decisions of an association of undertakings within the meaning of section 4(1). 63. While the publishers who are parties to the agreement are based in the UK, the notified arrangements apply in respect of the sale of UK published books within the State. They affect the distribution and sale of UK published books within the State. As pointed out up to 80% of books sold in the State is imported from the UK. (c) Applicability of Section 4(1) Resale Price Maintenance. 64. Resale Price Maintenance (RPM) describes a practice whereby a supplier agrees to supply retailers on condition that they sell the goods at a price specified by the supplier. The arrangements notified involve a form of RPM. Such arrangements restrict the ability of retailers to determine their own prices. They also eliminate price competition between retailers for the suppliers' products, assuming that the supplier applies such arrangements to all retailers handling his products. 65. There is some disagreement among economists as to whether or not RPM is an undesirable practice. Over the past 25 years or so, the so-called ´Chicago school' economists have challenged traditional economic thinking concerning most forms of vertical restrictions [4] including RPM. Essentially their argument is that manufacturers will not impose vertical restraints such as RPM unless they increase output and hence profits. Specifically it is argued that RPM causes the retailer to devote greater efforts to selling the manufacturer's goods through promotional efforts and/or increased service, in the form of information about the product, instruction in its use, the holding of larger stocks and the like. It is argued that retailers would not provide such services in the absence of RPM since consumers would avail of such free services and then purchase the goods in question from lower cost outlets which would effectively ´free ride' on the services provided by others. According to the Chicago approach consumers benefit from increased service levels resulting from RPM and sales are increased resulting in greater output of the goods in question. Consequently RPM should not be seen as anti-competitive, but as a mechanism for increasing distribution efficiency to the benefit of consumers, retailers and suppliers. 66. The Chicago approach is, however, strongly challenged by other economists. Scherer and Ross [5] , for example, argue that relatively few products are susceptible to ´free riding' which RPM is supposed to prevent. Many consumers know what they want and do not need pre-sales service. Similarly consumers will only go to lower priced outlets, having availed of the free pre sales service provided in the more expensive outlet, in the case of goods which are expensive, and where the cost saving is significant. They also argue that it is not clear why RPM is necessary to cause retailers to provide a greater level of service anyway. Thus, in response to the Chicago claim that without RPM discount retailers would ´free ride', many would argue that a lot of products are not susceptible to free riding and that free rider arguments can only apply in respect of pre-sale services. 67. Scherer and Ross show that RPM may inhibit competition in a number of ways. It can inhibit the entry of discount outlets and thus prevent retailing innovations. Manufacturers who have relied on RPM in order to encourage product promotion by retailers and increase sales may be unwilling to dispense with such arrangements long after the need to promote new products has ended. Where many manufacturers engage in RPM it may be difficult for one to end the practice since retailers may simply cease stocking the firm's products. They conclude that, on balance, the evidence suggests RPM is likely to restrict competition and result in prices being higher and output lower than would otherwise be the case. 68. While economic theory suggests that there may be circumstances in which RPM may increase overall economic welfare, most goods and services do not appear to satisfy the necessary conditions for such a result. In addition other methods are available to induce greater efforts by retailers to sell the manufacturers' products. On balance therefore, economic arguments indicate that RPM is generally harmful and restricts competition. 69. RPM has been prohibited under the competition laws of most developed countries. Legislation which permitted RPM was repealed in the United States in 1976 and the Supreme Court has regarded RPM as a per se violation of the antitrust rules. [6] Legislation prohibiting RPM was enacted in Canada in 1951, in France in 1953 and in the UK in 1964. The UK Competition Act is generally neutral with respect to most forms of anti-competitive behaviour, in that it only prohibits practices which are shown to be against the public interest, and there is no presumption one way or the other as to whether practices are against the public interest. RPM, however, is specifically prohibited by statute. While the latter legislation allows for exemption, there have only been four requests for such exemption, and in only two instances, one involving the Net Book Agreement, has such an exemption been granted. 70. The Authority considers that the weight of evidence indicates that RPM is generally restrictive of competition. Consequently, in its view, agreements involving RPM will generally offend against section 4(1). Net Book Agreement - Members Version. 71. Clause (i) provides that, except in specified circumstances, net books cannot be sold at less than the net published price. Such net prices are determined by individual book publishers who must also decide whether or not to classify a particular book as a net book. The agreement provides that in certain circumstances a net book may be sold below the net price. These apply where the book has been in stock for some considerable time and to second hand copies of net books. In addition the agreement allows net books to be sold below the net published price to certain classes of customer subject to certain conditions, in particular relating to prices. 72. Individual RPM refers to a situation in which an individual supplier sets resale prices for his products. Collective RPM relates to a situation where a number of suppliers agree to set resale prices for their products. The agreement, according to the PA, is designed to enable publishers to operate a system of individual RPM. Thus it involves a mixture of individual and collective RPM. The Net Book Agreement eliminates price competition between retailers in respect of every book which has been designated a net book by its publisher. To the extent that each individual book title constitutes a unique product, price competition at the retail level is therefore eliminated in respect of any book designated a net book. The Authority believes that to some degree certain books are substitutes for one another. While some consumers will wish to buy a particular book by a particular author, others are looking for a particular type of book, whether a thriller or one on gardening, and will therefore choose from among the range of titles available in that particular category. As the majority of UK published books are net books, price competition between retailers in respect of different titles is also restricted. It is true that not all books of a particular type retail at a uniform price, but where books which could be considered substitutes are designated net books the possibility of retailers offering discounts on such books is eliminated and so competition is restricted between different titles. 73. Price fixing agreements have been consistently regarded as in breach of Article 85(1) of the Treaty of Rome. Bellamy and Child point out that: ´Since price is the main instrument of competition, Article 85(1)(a) expressly prohibits agreements, which "directly or indirectly fix purchase or selling prices or any other trading conditions." An agreement to fix prices by its very nature constitutes a restriction on competition within the meaning of Article 85(1).' [7] 74. The agreement requires the publishers to apply the standard conditions of sale on their resellers. This restricts price competition between retailers as far as net books are concerned by curtailing the freedom of resellers to depart from the fixed resale price by offering discounts in order to increase their sales. The agreement also restricts competition between publishers as all the publishers who are parties to the agreement must apply uniform terms in respect of the resale of all books designated by them as net books. In addition once a book is designated as a net book by a publisher, the publishers of rival titles can set their prices in the knowledge that the designated book will not be sold below the designated net price. Consequently the agreement reduces the element of uncertainty regarding a competitor's response to a firm's marketing strategy which is an essential feature of competitive markets. Allen and Curwen, for example, argued that: ´In general, given the existence of the NBA, we would expect publishers to price similar products as though they were operating a cartel. The fact that they can fix the price of a specific title at any level they wish is very far from what is meant by "conditions of free competition". In conditions of free competition there would be constant downward pressure upon prices in order to clear the market, so that over time prices, on average, would rise more slowly than elsewhere in the economy where free competition did not exist.' [8] While the Authority does not consider that the NBA necessarily amounts to a fully fledged horizontal price fixing arrangement, it nevertheless believes that it does go some considerable way towards reducing uncertainty regarding competitors' pricing decisions in the publishing industry and that such uncertainty is normally an essential part of the competitive process. As the vast bulk of UK published books are net books and these account for the majority of books sold within the State, price competition between retailers and between publishers is restricted in respect of a substantial part of the book market within the State. The net book agreement therefore has the object and effect of restricting competition in the market for books within the State. 75. The PA in its response to the Statement of Objections, claimed that: (a) the Authority had not made any criticism of the operation that is specific to its effects in Ireland but had instead made a general attack on the NBA; and (b) the sole ground for the Authority asserting jurisdiction in respect of the NBA was that it affects inter-State trade between the UK and Ireland and therefore has effects within Ireland. It argued that the Authority was wrong to assert jurisdiction in this way. The Authority rejects such claims. It is clear from the preceding paras that the Authority, in finding that the NBA offends against section 4(1), has based its decision on its assessment of the effects of the NBA on competition within the State. The Authority has never introduced the issue of inter-state trade. Section 4(1) of the Competition Act refers to agreements which prevent, restrict or distort competition within the State. The PA's claim that the Authority cannot assert jurisdiction over the notified agreement amounts to a claim that the Competition Act does not apply in respect of goods which are imported into the State. 76. The Authority's view that the NBA restricts competition is in accord with that of the EC Commission which stated in the case of the Net Book Agreement: ´Thus, the agreements and rules have facilitated and contributed to the maintenance or introduction of fixed book prices by a large number of publishers and continue to do so.' [9] The Commission found that the arrangements had the object and effect of restricting competition within the EC. This view was subsequently upheld by the Court of First Instance following an appeal by the PA. 77. In VBVB/VBBB v EC Commission the Court of Justice upheld an EC Commission decision that an agreement between two associations of publishers and booksellers, one based in Holland and the other in Belgium, that books could not be sold in Belgium or the Netherlands at prices below those fixed by the Dutch or Belgian publishers infringed Article 85(1). 78. Agreements between Dutch and Belgian publishers and booksellers involving RPM in respect of books were also the subject of proceedings in the national courts. The Amsterdam district court made an order on 26 May 1977 which provided that books published in the Netherlands, which had been bought abroad, could be sold at a price below that set by the publisher. This was confirmed by the Dutch Supreme Court on 18 May 1979 [0] . The Commercial Court in Brussels by order dated 18 June 1979, in a dispute between the Flemish Association and a department store chain, ordered the association to cease making the sale of Dutch language books conditional on the store being obliged to conform to the retail price fixed by the supplier. The Court found that the rules infringed Article 85(1) and it had not been shown that there was any great probability that the Commission would grant an exemption. 79. While the NBA does not require that the publishers designate any particular book or even the majority of their books as net books, in practice the publishers involved in the agreement do so designate the vast majority of books published by them. It was conceded that up to 75% of books published are designated net books. The publishers are free not to designate any particular book a net book. Having designated a book to be a net book, however, the publisher is bound to apply the standard conditions governing net books including the terms upon which discounts can be granted in respect of such a book i.e. the only circumstances in which a net book may be sold at below the specified net price are those specified in clauses (ii) to (iv) of the agreement. This aspect of the arrangements also restricts competition in the market for books within the State and offends against section 4(1). It is not sufficient to put the arrangements outside the scope of section 4(1) that publishers are not compelled to designate every book a net book. The purpose of the NBA, according to the PA, is to enable all book publishers to operate a system of RPM. 80. Again the EC Commission decided in respect of the Net Book Agreement that: ´Neither the freedom for publishers to decide whether to make a net book or not or to end the net character of the book or not, nor their freedom to determine the level of the net price prevent the agreements and implementing rules from being restrictive. The fact that, if a publisher decides to impose a fixed price for a book, he is then bound to impose almost wholly uniform condititions...upon resellers as to the discounts they may give to their customers, is sufficient to make the agreements and implementing rules restrictive.' [1] 81. The Authority notes that, in its appeal to the Court of First Instance against the Commission decision that the agreement infringed Article 85(1), the PA only sought to show that the agreement did not affect trade between member states and did not challenge the finding that it restricted competition. Indeed it was conceded at the Oral Hearing by the PA's representative that the arrangements offended against section 4(1). 82. Under the agreement the publishers have agreed to appoint the PA to act on their behalf in relation to collecting information concerning breaches of contract by persons selling or offering for sale net books, breaches of the agreement and keeping each publisher informed of breaches in respect of such net books as are published by him. This reinforces the extent of the restriction on competition contained in the basic agreement as it is designed to ensure more efficient surveillance of compliance with the agreements and rules. 83. The parties also agree to enforce such contractual rights if called upon to do so by the PA, provided that they are indemnified by the Association in respect of any costs of such action incurred by them or by the Council of the Association on their behalf. Under these provisions the parties agree to take action against any retailer who sells a net book below the net price where he has contractually agreed not to. The purpose of this provision is to ensure effective adherence to the net prices as specified by the publishers. While no individual contractual arrangement with any bookseller in the State has been notified to the Authority, any such agreement which required that the retailer not sell below the net price specified by the publisher would offend against section 4(1). The enforcement provisions are therefore designed to ensure adherence to arrangements which offend against section 4(1). For that reason the agreement by the publishers to enforce such agreements also offends against section 4(1). 84. The parties' submission concedes that the arrangements involve resale price maintenance but argues that such arrangements are beneficial in the case of books. In VBVB/VBBB v Commission the European Court of Justice found that: ´The special features of the book trade do not permit national associations of publishers and booksellers in two Member States to set up, in their mutual relations, a restrictive system whose effect is to deprive distributors of all freedom of action as regards the fixing of selling price up to the level of the final price to the consumer. Such an arrangement infringes Article 85(1)(a) which expressly prohibits all agreements which "directly or indirectly fix purchase or selling prices". Furthermore, where the system of resale price maintenance laid down in the agreement allows each of the two associations to control outlets as far as the last stage in the other Member State from the point of view of price-fixing and thus to make impossible the introduction of sales methods capable of allowing consumers to be supplied in economically more favourable conditions, the associations are also brought into conflict with Article 85(1)(b)'. [2] The parties' claim that RPM is beneficial in the case of books does not, therefore, prevent the agreement from offending against section 4(1). 85. Clauses (ii), (iii) and (iv) set out circumstances in which a net book may be sold below the net price. Under clause (ii) a net book may be sold below the net price if the bookseller has held it in stock for a period of more than 12 months from the date of purchase and he has offered it to the publisher at either the lower of cost price or the proposed reduced price and such offer has been rejected by the publisher. Clause (iii) allows the bookseller to sell a book below the net price if it is second-hand and more than 6 months have elapsed since publication. Clause (iv) allows for net books to be sold to libraries, book agents, quantity buyers and other institutions as are from time to time authorised by the Council of the Association on such conditions as are laid down in the instrument of authorisation. 86. While allowing the bookseller some scope to sell below the net price, these clauses seriously restrict the circumstances in which he may do so and generally set maximum levels of discount. They therefore also have the effect of restricting competition in the market for books within the State. By limiting the circumstances in which net books may be sold below the net price these clauses reinforce the RPM arrangements contained in clause (i). Consequently these clauses also offend against section 4(1). Nonmembers Version. 87. As already pointed out the non-members' version of the NBA is the same as the members' version save that there is no provision for indemnifying non-members in respect of the costs of court actions to enforce the terms of the agreement on booksellers. The nonmembers Version of the Net Book Agreement also offends against section 4(1) as its object and effect is to prevent, restrict or distort competition in the market for books within the State. Clauses (i), (ii), (iii) and (iv) which are identical to the corresponding clauses in the Members version all offend against section 4(1) as their object and effect is to restrict competition in the market for books within the State. The provision whereby publishers who are not members have agreed to appoint the PA to act on their behalf in relation to collecting information concerning breaches of the agreement by booksellers and keeping each publisher informed of breaches in respect of such net books as are published by him reinforces the extent of the restriction on competition contained in the basic agreement. Similarly the provision whereby the publishers have agreed to take action against any retailer who sells a net book below the net price where he has contractually agreed not to, also offends against section 4(1). Book Club Regulations. 88. The book club regulations set out the terms and conditions upon which the PA permit book clubs to sell book club editions of net books at below the net price. The PA argued that the Regulations apply only within the UK and that the Authority has no jurisdiction to examine such arrangements. Nevertheless the restrictions apply within the State to the extent that they prevent UK book clubs selling books within the State other than on the terms set out in the Regulations. They therefore offend against section 4(1) since they have the object and effect of preventing, restricting or distorting competition in the market for books within the State. The PA claimed that, while the regulations restricted the right of book clubs to sell books to individuals within the State, arguing that this offended against section 4(1) was akin to arguing that, because an Irish resident who travelled to the UK might buy a book there, which would be subject to the NBA, the NBA in the UK also offended against section 4(1). The Authority rejects this argument, as the actual restriction on book clubs selling to individuals in Ireland restricts competition within the State while the hypothetical situation described by the PA clearly does not. It is relevant that the EC Commission in its decision on the NBA found that the Book Club Regulations infringed Article 85(1) implying that they restricted the sale of books outside of the UK. In particular the restriction of offers to members (clause 12), the requirements that membership be for a period of six months and that members purchase at least three club choices within the first year (clause 11) are designed to restrict book clubs from competing with other booksellers in selling books to the general public within the State. The restrictions on advertising by book clubs (clauses 15 and 18) have the same objective. The requirement that every book offered by a book club has to carry the book club's crest or title and that book clubs may not supply copies of a trade edition (clause 17) has a similar objective. The requirement in clause 13 that book clubs must have the consent of the licensing publisher before disposing of surplus stock as remainders and the requirement in clause 16 that a title not be offered as a premium (introductory book) until at least six months after its first issue as a trade edition are further restrictions since they limit the commercial freedom of book clubs to compete with other booksellers within the State. The Library Licence. 89. The library licence sets out the terms upon which the PA permits booksellers to sell net books to the library specified in the licence at a discount to the net published price. It constitutes an agreement between the publishers and a decision by the Association which offends against section 4(1). 90. As each library licence specifies that only the bookseller named therein may offer a discount to a particular library, it restricts the ability of other booksellers to supply that library. The Association have argued that licensees are free to choose any supplier or suppliers they wish so long as such suppliers are prepared to supply then at a discount in accordance with the terms of the licence. The licence, however, names a specific bookseller. The existence of a network of library licences, each restricting the right to supply books to the named library at a discount to the bookseller named in the licence means that competition between booksellers throughout the State to supply libraries is restricted. The provision that booksellers may only give a maximum discount of up to 10% also restricts competition between booksellers. Indeed it was admitted at the hearing before the UK Restrictive Practices Court, that the object of this arrangement was to prevent specialist library suppliers undercutting bookshops in respect of sales to libraries. Several other provisions of the library licence also offend against section 4(1), namely: the requirement that booksellers may only offer a discount when they themselves have received a certain level of discount in respect of the books concerned, (clause 2); the requirement that discounts may only be allowed so long as the library's total annual purchases of net books solely for the use of the library is not less than £100, (clause 3); the requirement that booksellers may not provide any other consideration in cash or in kind, (clause 4); the requirement that booksellers may only provide services such as card-indexing to libraries provided they charge them no less than the cost price of such services, (clause 5). 91. Each of these requirements restricts competition between booksellers to supply libraries. They mean that libraries cannot obtain books on better terms than those specified in the licence from any other bookseller and remove any incentive for libraries to seek a licence to purchase from another bookseller. Bellamy and Child point out that: ´the prohibition of Article 85(1) covers not only "prices" in the narrow sense but also discounts, margins, rebates and credit terms. Other agreements which directly or indirectly restrict price competition include agreements not to submit quotations without prior consultation, not to deviate from published prices, not to make public any deviations from published prices, not to quote other than delivered prices, not to give other than cost related rebates, and not to sell "below cost". [3] ' 92. The provision of additional services either free or below cost, or offering other forms of consideration represents an alternative to offering discounts. Consequently booksellers could, in the absence of this restriction, compete for library business by offering such services free or at a low cost in lieu of any discount. The object of this provision is to ensure that booksellers do not offer any hidden discounts to libraries in this way, thereby exceeding the maximum discounts permitted under the licence. Such restrictions on competition also offend against section 4(1). The Book Agent's Licence. 93. The book agent's licence sets out the terms and conditions upon which the publishers have agreed to allow booksellers to supply net books to book agents. The agent's licence also offends against section 4(1) since it is designed to ensure that book agents will not sell net books below the net price. The fact that the Association may revoke the licence in the event of any breach of any of its terms and conditions ensures that book agents do not sell net books at less than the net published price. Thus its object and effect is to prevent competition between book agents and other booksellers. The licence also restricts competition between booksellers to supply book agents since the maximum discount which they may give to such an agent is fixed by the licence and since the agent is not permitted to seek or obtain any discount from any bookseller other than the one nominated in the licence. National Book Sale 94. The rules governing the national book sale set out the terms and conditions upon which the PA permit net books to be sold below the net price during the annual national book sale. The regulations relating to the national book sale also offend against section 4(1) as their object and effect is to prevent, restrict or distort competition in the sale of books within the State. In particular, by only allowing booksellers to offer books for sale during a specific period of the year and by limiting the range of books which may be sold at below the net published price to overstocks, the regulations limit the ability of booksellers to compete with one another by offering discounts on a broad range of book titles. 95. A number of the conditions applying to the national book sale also restrict competition and offend against section 4(1) namely; Condition 3 which enables individual publishers to exclude all of their titles from the sale as it enables publishers to prevent price competition in respect of their book titles; Condition 5 which allows publishers to fix the sale price of publishers' overstocks; Condition 6 which allows booksellers to set the price of publishers overstocks during the last week of the sale provided they may make no advance announcement of intended reductions; Condition 8 which restricts publishers from issuing titles offered at reduced prices during the sale at prices below those which obtained prior to the sale for a period of six months afterwards; Condition 9 which prevents booksellers from accepting publications of non-participating publishers at a reduced price for the sale; Condition 12 which restricts the titles which wholesalers may offer to participating retail booksellers; Condition 13 which allows wholesalers to set the price for their overstocks subject to the proviso that they cannot be more than half the published price; Condition 14 that prices of books to be included in the sale cannot be advertised more than 21 days in advance. The Quantity Book Buying Scheme 96. The quantity book buying scheme sets out the conditions upon which booksellers may give discounts in respect of the purchase by a buyer of a large quantity of net books. A scale of the discounts allowable is set out in the licence. The Quantity Book Buying Scheme also offends against section 4(1). In particular it restricts competition within the State by limiting the circumstances in which booksellers may offer discounts to customers purchasing net books in large quantities and by specifying the rates of discount which may be given in respect of such orders. This eliminates price competition between booksellers for this type of order. The restriction on offering any discounts in respect of books on which the bookseller has not himself received a discount of at least 25% (clause d) also offends against section 4(1) since booksellers should be free to decide for themselves which books they wish to offer discounts on. The requirement that such books may only be purchased as gifts or for presentations in connection with the purchaser's business or for philanthropic or propaganda purposes (clause a) and the ban on the purchaser offering such books for resale (clause b) are designed to restrict competition in the sale of books and offend against section 4(1). The Primary and Secondary School Licence. 97. The schools licence sets out the terms and conditions upon which the publishers have agreed to allow booksellers to supply net books to schools. The PA, in notifying the schools licence, indicated that it had not yet been implemented in Ireland. It subsequently indicated that the licence had never operated within Ireland but that if it were licenced by the Authority they would seek to introduce it. The school licence restricts competition between booksellers to supply schoolbooks by fixing the maximum discount which booksellers may give to schools (clause 5). The requirement that the licence be deposited with the bookseller before any discount may be given (clause 7), also restricts competition as it prevents the school from obtaining discounts from any other bookseller, thus placing other booksellers at a competitive disadvantage in terms of supplying books to a particular school. In addition the requirement that books be solely for use by the school for educational purposes (clause 6) is designed to ensure that schools will not resell net books below the net price and its object is to reinforce the restrictions contained in the Net Book Agreement itself. It is clear that its object is to restrict competition. Applicability of Section 4(2) 98. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which offends against Section 4(1) but which, ´having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not - (i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives; (ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.' 99. The PA claimed that the Authority, in its Statement of Objections, had argued that because the first requirement was not satisfied the other three were equally not satisfied. In making this argument the PA appear to be misreading the provisions of section 4(2). Firstly all four tests must be met before a licence can be granted. Secondly, however, the tests are not disjunctive, they are cumulative. Thus an agreement must first of all contribute to improving the production of goods or provision of services or to promoting technical or economic progress. If it does so, it must allow consumers a fair share of the resulting benefit, i.e. a fair share of the benefit which satisfies the first test. Similarly if it meets both of these requirements it must not impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives, and, finally, it must not afford the undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question. Clearly if an agreement does not satisfy the first test it cannot satisfy the second since there is no resulting benefit. Conversely, however, an agreement which satisfies the first test may well not satisfy the second, third or fourth test. 100. It was submitted by the PA that the various restrictions involved in the Net Book Agreement and associated arrangements satisfied the requirements for a licence. In particular it argued that the restrictions in the Net Book Agreement, by preventing discounting, enabled specialist bookshops to provide a comprehensive service to consumers which includes, inter alia , services such as ordering particular titles as well as general advice. In addition it was argued that preventing discounting allows bookshops to stock a wide range of less popular titles, thereby providing consumers with a wider choice of book titles. 101. In the absence of the price restrictions contained in the Net Book Agreement it was submitted that non-specialist shops and some discount booksellers would offer popular titles at reduced prices. This would force specialist booksellers to reduce their prices on such titles. The reduction in margins on popular titles would reduce the ability of specialist booksellers to provide back-up services such as ordering for which they do not charge. In addition they would have to recoup the loss in margin on more popular books by increasing their margins on less popular titles or by reducing their stock of such titles. The effect of this, it was claimed, would be to eliminate a number of smaller booksellers while reducing the range of titles currently available to consumers. 102. It was further argued that in the absence of RPM the risks involved in publishing books would be increased and this in turn would make publishers less willing to publish titles by new or less popular authors and on subjects which were of minority interest. Many of these arguments were advanced by the Association in the 1962 hearing before the UK Restrictive Practices Court and before the EC Commission and the Court of First Instance. In particular the PA has argued that the decision of the UK Restrictive Practices Court indicates that the NBA meets the requirements of section 4(2). The Authority does not accept this claim. In the first place there is a fundamental difference between Irish and UK legislation. Under the UK legislation it is necessary to establish that restrictive arrangements are not in the public interest. Under the Competition Act, the onus is on the parties to establish that the specific requirements of section 4(2) are satisfied. More fundamentally, however, the Authority does not believe that a decision based on the conditions prevailing in the UK book trade over thirty years ago is applicable to the conditions prevailing in the Irish market today. The PA claimed that the DGFT had re-examined the NBA in 1989 and had found that it was still in the public interest. In fact the DGFT announced in 1993 that the NBA was being re-examined because there had been significant changes in the book trade since 1962 and that the decision not to refer it back to the Court in 1989 was prompted, in part, by an expectation that UK legislation would change and that all restrictive agreements would have to be re-assessed in the light of new legislation. 103. Undoubtedly in the absence of RPM the price of some book titles at least would be reduced. The Authority accepts that some stores may well discount the more popular titles in order to increase their sales. It may be also that many non-specialist bookshops will offer such discounts while stocking only a limited range of books. The effect may well be to increase sales of such books. Consequently the abolition of RPM would to this extent benefit consumers, those retailers offering discounts, and authors who would benefit from an increase in sales of their works. The Authority agrees with the views of the EC Commission in the Dutch Books case that: ´It would be possible to reach fresh categories of purchaser by liberalizing price competition.' The Commission went on to dismiss claims that RPM in the case of books contributed to improvements in distribution or technical or economic progress. 104. The PA's case is that, in the absence of the NBA, there would be limited discounting of the most popular book titles. Shops would have to raise the prices of less popular book titles to counter such discounting. In effect this implies that RPM results in higher prices of popular book titles than would otherwise be the case, but that this permits cross-subsidisation of less popular titles and of back-up services provided by specialist booksellers. It is widely recognised in economic theory that cross-subsidisation results in a misallocation of resources since consumers do not bear the true cost of individual products. A misallocation of resources reduces efficiency and so cannot be claimed to increase technical or economic progress. The PA claim that in the longer run the effect of discounting would be to increase the risks in publishing thereby raising costs and leading to higher overall book prices. The Authority does not accept this argument. The economics of the publishing business have changed significantly due to technological developments over the past thirty years and it is no longer the case that producing shorter print runs will result in much higher book prices. 105. It may be that price discounting of books will result in a loss of business by specialist bookshops to other types of retail outlet, or that larger bookshops will gain at the expense of smaller ones. The purpose of the Competition Act is to protect competition not competitors. The essence of competition is that competitors will seek to take custom away from their rivals. At the heart of the view that competition is desirable is the judgment that such activity benefits consumers and enhances overall economic welfare. Consequently the fact that some competitors may be harmed by the elimination of a particular restrictive practice cannot justify the continuance of such a practice. To the extent that RPM prevents the emergence of new competitors and of innovative methods of retailing such as discounting, it cannot be said to result in any improvement in the distribution of goods or in the promotion of economic progress. The PA have argued that, as a result of the NBA, the number of specialist booksellers is greater than it would otherwise be, and that without it, many rural bookshops would close. It pointed to the increase in the number of bookshops between 1977 and 1988 as evidence of the favourable effects of the NBA. While the number of bookshops certainly increased over this period, much of the increase occurred in the larger urban centres. In contrast in the three Ulster counties the number of bookshops fell sharply. It was pointed out at the Oral Hearing that there was evidence that the abolition of RPM in France led to an increase in the number of rural bookshops there and that many of these subsequently closed following its re-imposition. The PA disputed this. 106. The claim that discounting will cause booksellers to reduce the range of titles covered also appears unrealistic. Rural bookshops are, as was noted earlier, considerably smaller than those in Dublin. By definition therefore they carry a far more limited range of stock and presumably concentrate on the more popular titles anyway. Consequently even if the argument regarding stocks was valid, it would only apply to some bookshops in Ireland. The validity of the argument itself is questionable. As the EC Commission noted in the Dutch Books case: ´As the holding of stock is the essential characteristic of a bookshop it would be illogical to consider reducing it; bookshops might usefully improve their efficiency by specializing.' [4] The abolition of the Net Book Agreement may result in the closure of some shops but these are likely to be replaced by new entrants. 107. The Authority does not believe that the abolition of RPM would have serious adverse effects on the availability of minority interest books. The price of such books may well increase reflecting the slower turnover and higher costs of stocking such titles. Those wishing to purchase such books will have to pay higher prices because they are no longer being subsidised by purchasers of more popular titles. The subsidisation of a minority of consumers by the majority cannot be regarded as efficiency enhancing or contributing to the promotion of economic or technical progress. 108. It may be that the abolition of RPM will mean that specialist booksellers will have to introduce specific charges to cover the cost of back-up services such as ordering titles which are out of stock. The Authority does not believe that the type of pre-sales services provided by book shops is conducive to free riding. In simple terms it does not believe that consumers will go into specialist bookshops in order to obtain detailed advice concerning a particular book and then go to a discount outlet to purchase it. Particular services such as ordering out of stock titles are not prone to free riding anyway. Indeed if consumers must pay a charge to order a book they are likely to come back and buy the book. Under the present system consumers may order a book but subsequently obtain it elsewhere in which case the first store has suffered a loss by ordering the book. 109. Nor is the Authority persuaded by the argument that the abolition of RPM in the Net Book Agreement will lead to fewer books being published. As already stated modern technological developments have greatly altered the economics of the book publishing industry. ´Desk-top publishing' technology has greatly eased the task of publishing books. The Authority notes that as a result of such technological advances many new small scale specialist book publishers have emerged in the UK in recent years. Many are engaged in publishing books which have a very limited minority appeal and which would not previously have been published by mainstream publishers. Desk top publishing has also enabled many authors particularly in the academic field to publish their own works. It has been claimed that the cost of producing a book using desk top publishing techniques may be as low as stg£1. The low cost of desk top publishing greatly reduces the risk of publishing minority interest books. The fact that new technology has enabled the publication of many titles which would not have been published by established UK publishing firms under the Net Book Agreement undermines the argument that in the absence of the NBA fewer books would be produced. It is advances in publishing technology rather than the NBA which have enabled an ever growing range of titles to be published. 110. The Authority notes that if an agreement fails to meet any of the requirements specified in section 4(2), a licence cannot be granted to it. The primary objective of the NBA is to establish a system of RPM in respect of UK published books in Ireland. RPM does not in the Authority's view contribute to improving the production of goods or provision of services or to promoting technical or economic progress. Consumers cannot therefore be said to share in such benefits and the restrictions cannot be regarded as indispensable to the achievement of such objectives. UK published books account for a substantial portion of books sold in Ireland. As most UK books are net books the restrictions contained in the NBA eliminate competition in respect of a substantial part of the relevant market. Consequently the Net Book Agreement, both members and non-members versions, do not satisfy any of the requirements for a licence set out in section 4(2) of the Competition Act. The primary aim of the remaining agreements is to ensure the effective operation of RPM. Thus they also fail to satisfy the requirements for a licence. 111. The PA argued that the Authority, in deciding that all four requirements for a licence were not met, had taken a view which was directly at odds with the EC Commission. In particular it claimed that the Commission accepted that the NBA produced benefits which were shared with consumers. On the contrary the Commission, as already noted in para 45, stated that ´...the agreements are not indispensable to the attainment of their objectives. Since an agreement, in order to be exempted from the prohibition contained in Article 85(1), has to fulfil all conditions of Article 85(3), the agreements cannot be exempted. It is therefore not necessary to examine whether the agreements meet the other conditions of Article 85(3).' [5] In the Dutch Books case the Commission specifically decided that a system of RPM for books failed all four tests for exemption under Article 85(3). These tests are the same as those contained in section 4(2). 112. The PA also claimed that the Authority was wrong in finding that the NBA failed the fourth test under section 4(2), arguing that competition was not eliminated by the NBA. The Authority wishes to point out that the specified test is whether the arrangements afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question. As UK published books account for the vast bulk of books sold within the State, and, as the overwhelming majority are net books, the Authority believes that net books constitute a substantial part of the products in question, and that price competition, which is particularly important in the case of books, is eliminated by the NBA in the case of the majority of imported books. 113. The book club regulations are designed to prevent book clubs competing with other booksellers by delaying the offering of books at reduced prices to the general public and by imposing restrictions designed to limit book clubs ability to sell books. Their object is to reinforce the restrictions contained in the Net Book Agreement itself. Consequently in the Authority's view the Book Club Regulations do not satisfy any of the requirements for a licence set out in section 4(2) of the Competition Act. 114. The library licence specifies the terms and conditions including the maximum discounts which booksellers may provide to libraries approved by the PA. The Authority does not believe that the restrictions contained in the library licence, in particular the setting of maximum levels of discount and the requirement that books be purchased from a particular bookseller contribute to improving the production of goods or provision of services or to promoting technical or economic progress. Such restrictions provide no benefit to consumers and cannot be regarded as indispensable to the achievement of such objectives. Again as the restrictions apply to the majority of books sold within the State, they eliminate competition in respect of a substantial part of the relevant market. Consequently the Library Licence does not satisfy the requirements for a licence set out in section 4(2) of the Competition Act. 115. The book agent's licence sets out the terms and conditions upon which booksellers may supply book agents approved by the PA. The arrangement is designed to prevent book agents from selling books below the net published price, while it also specifies the maximum discounts which they may be given by booksellers. As with the restrictions contained in the NBA itself, the Authority does not believe that the Book Agent's Licence satisfies any of the requirements for a licence set out in section 4(2) of the Competition Act. 116. The quantity book buying scheme limits the circumstances in which booksellers may offer discounts to customers purchasing net books in large quantities and specifies the rates of discount which may be given in respect of such orders. It restricts the offering of discounts in respect of books on which the bookseller has not himself received a discount of at least 25% and provides that such books may only be purchased as gifts or for presentations in connection with the purchaser's business or for philanthropic or propaganda purposes, while preventing the purchaser offering such books for resale. In the Authority's view the purpose of such restrictions is to maintain the RPM provisions in the Net Book Agreement itself. The quantity book buying scheme does not satisfy any of the requirements for a licence set out in section 4(2) of the Competition Act. 117. The rules governing the national book sale set out the terms and conditions upon which the PA permit net books to be sold below the net price during the annual national book sale. While the rules permit net books to be sold below the net published price in certain limited circumstances, their main object and effect is to greatly restrict competition in the market for books, and to reinforce the restrictions contained in the Net Book Agreement. Consequently the rules governing the National Book Sale do not satisfy any of the requirements for a licence set out in section 4(2) of the Competition Act. 118. The primary and secondary school licence fixes the maximum discount which booksellers may give to schools, prevents the school from obtaining discounts from any other bookseller and is designed to ensure that schools will not resell net books below the net price. Its object is to reinforce the restrictions contained in the Net Book Agreement itself. Consequently the Primary and Secondary School Licence does not satisfy any of the requirements for a licence set out in section 4(2) of the Competition Act. 119. The PA argued in its reply to the Statement of Objections that the Authority had failed to specify the reasons for finding that the Book Club Regulations the Library Licence, the Book Agents Licence, the Quantity Book Buying Scheme, the National Book Sale and the Primary and Secondary Schools Licence failed to meet the requirements of section 4(2). Again the Authority rejects this claim. As pointed out in the preceding paras the Authority believes that the restrictions contained in all these arrangements are essentially designed to underpin the system of RPM for books. Consequently as RPM for books does not meet the requirements for a licence, these related arrangements equally do not satisfy such requirements for the same reasons. 120. The PA requested the Authority to defer its decision pending the outcome of its appeal against the EU Commission decision to the European Court of Justice. At the time the notification was made, the PA had indicated that it wanted a speedy decision to influence the Court of First Instance. No action may be taken against the notified arrangements under the Competition Act until the Authority has taken a decision. The Authority does not believe that it should extend the protection against court action afforded by the Act by deferring a decision. The Decision 121. In the Competition Authority's opinion the book publishers, who are party to the notified arrangements, are undertakings as they are engaged for gain in the production of goods. The Net Book Agreement (1957) Members Version is an agreement between undertakings. Similarly the Net Book Agreement (1957) Non Members Version is an agreement between undertakings. The Authority is also of the opinion that the Book Club Regulations, the Library Licence, The Book Agent's Licence, the Quantity Book Buying Scheme, The Rules for the National Book Sale and the Primary and Secondary School Licence constitute agreements between the members of the Publishers Association setting out the terms on which members and non-members, who are signatories of the Net Book Agreement, will sell books to certain groups and/or permit certain reductions on the price of net books, and that these arrangements also constitute agreements between undertakings. The various arrangements also constitute decisions of an association of undertakings. Further, in the Authority's opinion each of these agreements has as its object or effect the prevention, restriction or distortion of competition in the market for books within the State insofar as they provide for a system of resale price maintenance in respect of UK published books and impose other restrictions on both publishers and book sellers in respect of the discounts they may offer in respect of books and certain other services. It therefore refuses to issue a certificate in respect of the notified agreements listed below. The Authority considers that the agreements do not satisfy any of the requirements of Section 4(2). Consequently the Authority refuses to grant a certificate or licence in respect of the following notifications: CA/23/92E - Net Book Agreement (Members Version); CA/24/92E - Net Book Agreement (Non-Members Version); CA/25/92E - Book Club Regulations 1985; CA/26/92E - Library Licence; CA/27/92E - Book Agent's Licence; CA/28/92E - Quantity Book Buying Scheme; CA/29/92E - National Book Sale Conditions; and CA/30/92E - Primary and Secondary School Licence; also collectively known as the Net Book Agreement, notified under section 7(2) of the Competition Act on 20 May 1992. For the Competition Authority Patrick Massey Member June 1994. 1. The Market for Books in the Republic of Ireland - Francis Fishwick, MA (Econ) PhD, Reader in Managerial Economics at the Cranfield School of Management. [2. Central Statistics Office Trade Statistics, December 1986. ] 3. Some of these stores may specialise in stationery although it is likely that there would be relatively few of those. Consequently the figures from the Census of Distribution for book and stationery stores probably provide a good indication of the number of retail book outlets. In addition some shops included in other categories of the Census may also sell some books e.g. newsagents. The Authority has not attempted to reconcile this figure with those contained in the Fishwick study. 4. Although this is somewhat lower than the Fishwick figure, the latter includes private libraries. 5. Case no. 89/44/EEC, OJ L22/12, 26.1.89. 6. point 50. 7. At para 86. 8. Judgement of Court of First Instance 9 July 1992, [1992] 5 CMLR 120. 9. Judgement of UK Restrictive Practices Court, 30 October 1962. 10. Office of Fair Trading, Press Release of 23 November 1993. 11. In the Authority's opinion such a conclusion is highly tenous. 12. W. Allen and P. Curwen, (1991); 'Competition and Choice in the Publishing Industry', Institute for Economic Affairs, London. 13. The Authority also notes that the Australian Trade Practices Commission has recently recommended that restrictions on parallel importing of books should be abolished having rejected arguments that price competition in the book trade would prove harmful. 14. A vertical restriction is one applied by a firm at one level of the production/distribution chain to one operating at a different level. Generally these apply between manufacturers/ suppliers and retailers. 15. F. M. Scherer and D. Ross, (1990); 'Industrial Market Structure and Economic Performance', 3rd edition, Houghton Mifflin, New York, p.550. 16. This view was restated in Sylvania where the court distinguished between RPM and other forms of vertical restraint. 17. C. Bellamy and G. Child, (1987); 'Common Market Law of Competition ', 3rd edition, Sweet and Maxwell, London, at para. 4-002. 18. op. cit., p.25. 19. point 62. 20. Nederlandse Jurisprudentie 1979, no.480. 21. point 52. 22. point 9. 23. ibid. at para. 4-003. 24. VBVB and VBBB v Commission, p.40. 25. At para 86. © 1994 Irish Competition Authority BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII URL: https://www.bailii.org/ie/cases/IECompA/1994/336.html