2000/484/EC: Commission Decision of 29 June 2000 relating to a proceeding pursuant to Article 81 of the EC Treaty (Cases IV/36.456/F3 - Inntrepreneur and IV/36.492/F3 - Spring) (notified under document number C(2000) 1591) (Only the English text is authentic)
Date: 2000-06-29
Institutions: European Commission
Subjects: beer, competition law, exclusive distribution agreement, inter-company agreement, property leasing

1.8.2000

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Official Journal of the European Communities

L 195/49

COMMISSION

COMMISSION DECISION

of 29 June 2000

relating to a proceeding pursuant to Article 81 of the EC Treaty (Cases IV/36.456/F3 — Inntre-
preneur and IV/36.492/F3 — Spring)

(notified under document number C(2000) 1591)

(Only the English text is authentic)

(2000/484/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation No 17 of 6 February
1962, first Regulation implementing Articles 85 and 86 of the
Treaty (1), as last amended by Regulation (EC) No 1216/
1999 (2), and in particular Article 2 thereof,

Having regard to the applications for negative clearance and
the notifications for exemption submitted on 27 March 1997
by the Inntrepreneur Pub Company Limited and The Inntrepre-
neur Beer Supply Company Limited and on 29 April 1997 by
Spring Inns Limited pursuant to Articles 2 and 4 of Regulation
No 17,

Having published a summary of
fication pursuant to Article 19(3) of Regulation No 17 (3),

the application and noti-

After consulting the Advisory Committee for Restrictive Prac-
tices and Dominant Positions,

Whereas:

I. THE FACTS

A. INTRODUCTION

(1)

On 27 March 1997, the Inntrepreneur Pub Company
Limited (hereinafter ‘IPCL’) and The Inntrepreneur Beer
Supply Company Limited (hereinafter ‘TIBSCO’) notified,
pursuant to Article 4 of Regulation No 17, the standard

(1) OJ 13, 21.2.1962, p. 204/62.
(2) OJ L 148, 15.6.1999, p. 5.
(3) OJ C 133, 30.4.1998, p. 23 for both cases for the situation after

28 March 1998.

(2)

(3)

(4)

form tenancy agreements (hereinafter ‘the Leases’) used
for the letting by IPCL and related companies of on-
licensed premises (4) in the United Kingdom. The Leases
are in the form used as from 1 January 1997, incorpor-
ating a Deed of Variation and Purchasing Agreement.

On 29 April 1997, Spring Inns Limited (hereinafter
‘Spring’) notified pursuant to Article 4 of Regulation No
17, the Leases used for letting by Spring and related
companies of licensed premises in the United Kingdom.
The Spring Leases are also in the form of the lease used
by IPCL, that is, as used from 1 January 1997, incorpor-
ating a Deed of Variation and Purchasing Agreement.

By letter of 23 February 1998, the notifying parties
added The Grand Pub Company Ltd (hereinafter ‘GPC’)
as a party to both notifications and completed these
notifications with information as to the operation of the
Leases after 28 March 1998.

The notifying parties have requested negative clearance
of the Leases, or confirmation that the agreements could
benefit from the application of Commission Regulation
(EEC) No 1984/83 of 22 June 1983 on the application
of Article 85(3) of the Treaty to categories of exclusive
purchasing agreements (5), as last amended by Regula-
tion (EC) No 1582/97 (6), or
individual exemption
pursuant to Article 81(3) of the Treaty. That Regulation
contains in its Title II special provisions for beer-supply
agreements.

(4) On-licensed premises are those which are licensed to sell alcoholic
beverages for consumption on and off the premises as opposed to
off-licensed premises such as supermarkets which are licensed for
off-premises consumption only.

(5) OJ L 173, 30.6.1983, p. 5.
(6) OJ L 214, 6.8.1997, p. 27.

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(5)

(6)

(7)

(8)

(9)

Journal of

For the period before 28 March 1998 two notices (1)
were published in the Official
the European
Communities pursuant to Article 19(3) of Regulation No
17. The parties, IPCL and Spring, have agreed to an
exemption comfort
letter by letter of 23 November
1999; that letter was issued on 24 January 2000. The
Commission published an Article 19(3) notice pursuant
to Regulation No 17 concerning the situation after 28
March 1998, when the beer supply structure changed.
By letter of 23 November 1999, the notifying party
informed the Commission that it requested a decision
for the period after 28 March 1998. This Decision there-
fore only concerns the situation after 28 March 1998.

with individual brewers contained a restriction on GPC's
sourcing policy such as exclusive purchasing obligations,
minimum purchasing obligations,
‘must stock’ obliga-
tions or non-compete obligations. The lessees can buy
any of the brands included in the GPC price list. On 1
November 1999, GPC had 18 beer supply agreements
with brewers.

The lessees

B. THE PARTIES

(12)

The other parties to the actual agreements, that are
based on the Leases, are individuals or their companies
who, in general, have an interest in only one on-licensed
establishment.

GPC

C. THE MARKET

On 21 September 1997, GPC, a company set up by the
Japanese investment bank Nomura, entered into an
agreement to acquire the IPCL and Spring pub compa-
nies. Under that agreement, GPC acquired an option to
call (and the vendors, an option to put) the share capital
of IPCL and Spring. That option was exercised on 27
March 1998.

(13)

Following the exercise of the option, IPCL, Spring and
the new nominated supplier under the Leases, Supply
Line, are wholly-owned subsidiaries of GPC and as at 29
March 1998 GPC or its subsidiaries are the beneficial
owner of the premises subject to the Leases.

On 27 March 1998, the IPCL estate comprised some
2 898 on-licensed premises or pubs. Of these 2 286
IPCL houses were let on long leases, principally of 20
years duration and 612 houses were let on shorter term
agreements of less than three years or temporary agree-
ments of even shorter duration.

On 28 March 1998, 851 Spring houses were let on long
leases, principally of 20-year duration, and 555 houses
were let on shorter term or on temporary agreements.

(10) GPC entered into an agreement to sell 310 pubs to
Scottish and Newcastle plc. Completion took place on
29 March 1998. Following this sale, the GPC estate
numbered 3 996 pubs. On 1 November 1999, the GPC
estate numbered around 1 000 pubs.

The United Kingdom on-trade beer market has changed
significantly over the last decade. The 1989 Monopolies
and Mergers Commission's (hereinafter ‘MMC’) report on
the supply of beer and the resulting legislation were
important factors in these changes. The 1989 MMC
report
into the supply of beer led to a number of
recommendations being made which were aimed at
relaxing the traditional tie (exclusive purchasing obliga-
tion and non-competition obligation) between brewers
and pubs. Most of the MMC's recommendations were
implemented, mainly by the Supply of Beer (Tied Estate)
Order 1989 and the Supply of Beer (Loan Ties, Licensed
Premises and Wholesale Prices) Order 1989 (hereinafter
imposed the
‘the Orders’). The Tied Estate Order
following changes on ‘national brewers’, that is, brewers
with an estate of more than 2 000 on-licensed premises:

— their tenants/lessees would be free of tie for non-beer

drinks and low-alcohol beers,

— their tenants/lessees would have the right to buy one
cask-conditioned ale (a beer with fermentation in the
cask) (2) from a source other than the brewer/land-
lord, that is, the guest beer clause, and

— they were only allowed to tie a certain number of
pubs. This forced them to sell or free of tie about
11 000 of
then estimated 60 000 United
the
Kingdom pubs.

Demand factors

(11) GPC notified its ‘upstream’ beer supply agreements with
brewers for use after 28 March 1998 to the Commission
on 9 February 1998 (Case IV/36.916/F3). This case was
closed by the Commission after the issue of a negative
clearance comfort letter to GPC on 11 March 1998.
None of the then 15 notified brand supply agreements

(14)

Beer can be sold through the on-trade, for example,
pubs, hotels and restaurants, or through the off-trade,
for example, supermarkets and off-licences. In addition,
imports brought into the United Kingdom by private
individuals on which duty has been paid, mainly from

(1) OJ C 374, 10.12.1997, p. 11 for Case IV/36.456/F3 — Inntrepre-
neur; OJ C 61, 26.2.1998, p. 3 for Case IV/36.492/F3 — Spring.

(2) The United Kingdom Government extended the scope by also allo-

wing for one bottle-conditioned beer from 1 April 1998.

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Calais, are estimated to have accounted for almost 5 %
of total beer consumption in the United Kingdom in
1998. The proportion of sales volume accounted for by
the on-trade was around 68 % in 1998. With the excep-
tion of Ireland, this remains the highest proportion in
the Community.

(15)

Consumption of draught beer accounted in 1998 for
61 % of total consumption. This is also, with the excep-
tion of Ireland, the highest figure in the Community.
United Kingdom pubs also offer a bigger choice of
draught beers than elsewhere in the Community, with
an average of 6,5 brands per pub.

Supply factors

Brewing

(16)

In 1998, the remaining four national brewers, Scottish &
Newcastle, Bass, Carlsberg Tetley Brewing and Whit-
bread, commanded 78 % of the United Kingdom beer
market in terms of supply. The Herfindahl-Hirschmann
index (hereinafter ‘HHI’), used to help describe market
concentration,
for the United Kingdom beer market
stood, on the basis of the market shares of the national
brewers, at 1 678 (1) in 1996. With an HHI between
1 000 and 1 800, the market is described as ‘moderately
concentrated’. The increased price competition at the
wholesale level, which can be associated with the emer-
gence of pub companies (see recital 18), has led to the
regional
recent consolidation at brewing level, as
brewing companies,
in particular, have attempted to
achieve necessary economies of scale. In 1999, there
were five regional brewers (2).

Wholesaling

(17)

The Orders caused the sale of part of
the national
brewers' tied estates. This was expected to lead to an
increase in the free trade and to a greater role for
traditional wholesalers. However, in 1995/96 traditional
wholesalers
some 6 % of
distribution, compared to 5 % in 1985. The national
brewers still dominate the wholesale sector, with a share
of distribution similar to their share of production. As
regional brewers do not require the services of tradi-

still only accounted for

this, combined with the
tional wholesalers either,
general decline in sales of beer and the increased effi-
ciency of national brewer-wholesalers, has resulted in
marginal growth in the traditional wholesale sector.

(18)

The pubs that were sold by the national brewers were
purchased mainly by retail pub chains or by regional
brewers. In general, pub chains either have their own
wholesaling operations or are supplied directly by the
brewers.

Retailing

(19)

In the United Kingdom, the retail sale of beer and other
for consumption on the premises
alcoholic drinks
requires a justices' (local courts of law) licence. Three
distinct classes of licences are currently in operation (3):

— full on-licences: premises where a person can buy an
alcoholic drink, without being a resident or having a
meal. There are approximately 83 100 full on-
licences in issue, of which around 57 000 (4) are
pubs. The remainder include hotels and wine bars,

— restricted on-licences: premises where it is a condi-
tion on buying a drink that the customer is either a
resident or having a meal. Covers some 32 300
private hotels and restaurants,

— clubs: of which a person has to be a member before
buying a drink. Covers some 31 500 outlets, mainly
jointly owned by their members.

(20)

The following table indicates how beer was sold through
the different retail channels in 1997: (a) the tied estate of
the brewers, (b) the managed estate of the brewers, (c)
the tied estate of non-brewing pub companies (including
IPCL and Spring), (d) the managed estate of non-brewing
pub companies, (e) loan-tied premises and (f) untied or
free premises. The 1997 data are from the Brewers and
Licensed Retailers Association (hereinafter
‘BLRA’),
including estimates for non-members.

Table 1: UK on-trade beer consumption

(a)

(b)

(c)

(d)

(e)

(f)

1997

10,0 % 17,2 % 11,4 % 8,3 % 18,1 % 35,0 %

(1) The Commission does not have precise information on the market
shares of the other United Kingdom brewers. Nevertheless,
it does
not estimate that the HHI for all brewers would reach the 1 800
‘highly
mark as
concentrated’.

from which a market

considered to be

is

(2) Defined in the MMC report as brewers which ‘have a business
which is mainly, but not necessarily wholly, concentrated in a single
region of the United Kingdom’. The number of regionals is defined
taking the number of owned pubs and production volume for the
smallest regional

in the MMC report as a benchmark.

(3) The licensing system is slightly different in Scotland.
(4) Other publications have estimated the number of pubs at 61 000.

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(21)

(22)

The 10 % figure for sales going through the tied estates
of the brewers in 1997 includes the tied purchases of
the lessees and the cask-conditioned beer
the
tenants and lessees of the national brewers purchase, at a
discount, from their landlord-brewer (1). The figure does
from another
not
supplier.

include purchases of guest beer

that

The 18,1 % figure for loan-tied premises' volume in
1997 includes the total volume that a loan-tied pub
operator buys from the supplier with whom he has a
loan tie. This volume may exceed the tied quantities
foreseen in the loan agreement.
is, however, not
known what part of the 18,1 % represents purchases in
excess of the loan-tied quantity. The 18,1 % figure does
not include ‘free’ purchases of a loan-tied pub operator
from other suppliers.

It

(23) While Table 1 gives an idea of the throughput in the
on-trade by describing the ownership situation of the
premises, it can also be noted that if one refers to the
category of on-licensed premises, 70 % of beer is sold
through the estimated 57 000 pubs, 20 % through clubs
and 10 % through restaurants, hotels, wine bars and so
forth with full or restricted on-licences (1995 data).

(24)

(25)

The Orders also reduced the restrictive scope of loan
ties, by allowing their termination at any moment in
time by the tenant on three months' notice. The Orders
also introduced the guest beer right for publicans with
trade loans from the national brewers. From information
supplied by the BLRA (following a specific survey under-
taken in 1996), it appears that the usual period of a loan
is five or 10 years, and the average actual
length is
almost four years. Thirty-one brewers had some 37 000
loans outstanding at
the survey period
(almost 35 000 at the start) with over the year almost
8 000 new loans entered into and over 5 000 repaid.
The value of the loans repaid during the period exceeded
the value of the new loans made (to existing or new
customers); some 2 % of the outstanding capital was
written off as bad debts. The average value of a loan is
around GBP 30 000.

the end of

There appear to be two types of loans, relatively small
ones (a value of almost GBP 5 000 at the start of the
period, but only an average value of
than
GBP 2 000 at the end of the survey period) which are
they
often made available to small
appear to be very volatile. On the other hand, there are

free-trade pubs;

less

(1) This is also sometimes called a guest beer, although the legal defini-
tion of a guest beer refers to the purchase of a cask-conditioned
beer from another supplier (see recital 13).

the

loans,

much larger loans to large volume outlets such as clubs
(average value around GBP 60 000) and these are
usually non-exclusive. However, the purchasing obliga-
tions are usually for a specific quantity of beer. No
estimate was made by the BLRA as to the volume split
for small/big loans, the number of the non-exclusive
volume-percentage
(big)
total on-trade
accounted for by such non-exclusive loans, or
the
percentage of total throughput of the relevant premises
accounted for by the quantity of beer stipulated in such
loan ties. No information was given as to the proportion
of
loans which the publican pays back with money
loaned to him by another brewer (in exchange for a new
loan tie). Beer volumes sold through loan ties have
reduced in the last couple of years and, for the years
1994 to 1997,
loan repayments has
exceeded the value of new loans.

the scale of

Competition between brewers

(26) At the wholesale level, the major brewers have some
guaranteed sales through their tied and managed estates.
The brewers have to compete to supply the remainder of
the market,
through individual agreements with free
houses (with or without loan ties) and supply agree-
ments with pub chains and other brewers (with or
without ‘ties’ such as minimum purchasing obligations,
non-compete and must-stock obligations). The competi-
tive parameters are mainly price and brand strength,
although the brewers also try to gain sales by offering
other benefits such as promotional support.

Market entry at brewing level

(27)

The main hindrances to entry at this level are the need
to secure outlets for supplies and to have access to a
distribution system. A new entrant has
to secure
supplies to free houses, pub chains or to the brewer's
estates as part of their portfolio of beers or (in the case
of a national brewer) as a guest beer. Possession by
competitors of well-known brands may hinder entry, or
expansion of existing brewers. This may be more impor-
tant in lagers, which are normally marketed nationally,
and where economies of scale in advertising may make
small-scale entry less viable. The difficulties involved in
small-scale entry may be increasing as the advertising
spend for
increased
substantially over the last couple of years, even on a
brand basis.

lager brands has

the national

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(28)

The need to secure outlets has been reduced since the
implementation of the Orders, owing to the reduction of
the proportion of the market subject to ties and to the
emergence of pub companies.
It is easier for a new
entrant to enter supply agreements with a chain rather
than with individual pubs. Whereas it is relatively easy
to set up a distribution system limited to the supply of
the wholesale depots of the other brewers and/or whole-
salers, it is more difficult to reach the individual retail
outlets.

(29) Most

licensing

foreign producers of beer (mostly lager) have
chosen to enter the United Kingdom market by entering
agreements with existing
into exclusive
national brewers whereby the beer is brewed in the
United Kingdom and sold as part of the national brew-
er's portfolio of brands. These foreign lagers have often
been marketed as premium brands and supported by
substantial advertising spending. However, there is one
example where a brewer has come into the United
Kingdom market directly. Anheuser Busch has recently
become a brewer in the United Kingdom, taking over
the former Courage brewery in Mortlake to produce the
Budweiser lager.

Market entry at retail level

(30)

(31)

Pubs compete only with others in their locality. Broadly
speaking, each area has a local price for a certain type of
package, which comprises the total pub ‘offer’ (facilities,
ambience) and not just the price of beer.

Entry barriers in the retail market are relatively low. The
only one of any significance is the presence of licensing
laws, which can prevent new pubs from being opened
unless there is a need for them. This law is not applied
strictly throughout the United Kingdom, but where it is,
it can result in entry within that locality being difficult.
the United Kingdom,
Moreover,
licences are now being refused mainly on public order
grounds. However, a particular pub company has
succeeded in opening over 100 pubs on greenfield sites
in recent years.

in some areas of

Changes in arrangements between pub tenants and
their landlords

(32) Historically, pubs were let by means of

‘traditional’
short-term pub tenancies. Brewers retained responsibility
for the fabric of the building and its fixtures and fittings
and tenants were responsible for selling beer supplied by
the landlord plus other drink and food. Following the

(33)

(34)

MMC report, pub tenants in England and Wales were
provided with security of tenure (1) by being brought
within the Landlord and Tenant Act 1954. However,
well before the MMC's recommendation, the first long
full repair and maintenance leases, which provided some
security of tenure and the ability to assign the lease,
were offered.

D. THE AGREEMENTS

For leases granted after 28 March 1998, GPC use (a) the
‘standard variable term lease’,
long fully repairing and
insuring leases for terms between 10 and 30 years, and
(b) the ‘variable term agreement’ for a term of between
three and five years. Both incorporate a Purchasing
Agreement and a Deed of Variation.

incorporates

The Purchasing Agreement sets out the discount struc-
ture. The Deed of Variation (a)
the
Purchasing Agreement in the existing lease, (b) intro-
duces a new beer tie but allows GPC to vary the tie so as
to tie by brand, (c) removes the minimum purchasing
obligation and the penalty for shortfall that were in the
existing leases issued by IPCL and Spring before 1
February 1997,
the
Purchasing Agreement to be considered for rent reviews
after 31 March 1998, (e) introduces the opportunity for
the lessees to have the rent review determined by an
expert for a fixed fee, and (f) allows the lessees to call for
a rent review if the Purchasing Agreement is terminated;
such a review could be downwards, but not to a level
below the rent prior to the time of entering into the
Purchasing Agreement.

(d) allows the arrangements of

(35)

The Leases issued after 28 March 1998 do not contain a
guest beer provision. However, they do contain a tie for
cider, no-alcohol and low-alcohol beers.

Beer tie

(36)

The lessee agrees to purchase all specified beers that he
requires for sale in the property only from the company
‘Specified beers’ means the following
or its nominees.
types of beer: light, pale ale or bitter, export or premium
ale, mild ale, brown ale, strong ale (including barley
wine), bitter stout or porter, sweet stout, lager, export or
premium lager, strong lager, ‘diet pils’ (or premium low
carbohydrate beer),

low carbohydrate (or ‘lite’ beer).

(37)

The brands or denominations of the specified beers type
are indicated on the company's price list. The company
may as often as it wishes add, substitute or delete brands
or denominations from a specified beers type on the
price list.

(1) Except for a limited number of specified reasons, i.e. the owner of
the pub wants to use the outlet for his own purposes as a managed
house, in which case the lessee receives compensation fixed by law,
the parties can negotiate a new agreement. In the absence of a new
agreement, the United Kingdom courts will renew the agreement on
similar terms to the existing agreement with the exception of the
rent and the duration which cannot exceed 14 years.

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(38)

it

Except for the guest beer provision, the lessee shall not
sell or expose for sale in his pub any specified beer not
supplied by the company or any unspecified beer unless
(a)
is packaged in bottles, cans or other small
containers; or (b) it is in draught form and the sale of
that beer in draught form is customary or is necessary to
satisfy
lessee's
demand
customers (1).

from the

sufficient

a

(39)

The lessee must not advertise on the property goods
which are not supplied by the company except in the
same proportion that
those goods bear to the total
turnover of the lessee in the property.

II. LEGAL ASSESSMENT

ARTICLE 81(1)

1. The relevant market

1.1. The relevant product market

(42)

(40)

Justice of

The relevant product market includes, in principle, all
goods or services which are perceived by the consumer,
on the grounds of their characteristics, price or intended
purpose, as being reasonably interchangeable with each
the European
other (2). As the Court of
Communities stated in the Delimitis judgment (3),
‘the
relevant market is primarily defined on the basis of the
nature of the economic activity in question, in this case
the sale of beer. Beer is sold through both retail channels
and premises for the sale and consumption of drinks.
From the consumer's point of view, the latter sector,
comprising in particular public houses (4) and restau-
rants, may be distinguished from the retail sector on the
grounds that the sale of beer in public houses does not
solely consist of the purchase of a product but is also
linked with the provision of services, and that beer
essentially
consumption in public houses
dependent on economic considerations. The specific
nature of the public house trade is borne out by the fact
that the breweries organise specific distribution systems
for this sector which require special
installations, and
that the prices charged in the sector are generally higher
than retail prices.’

is not

(41)

In view of the specific licensing system in the United
it has to be clarified which sections of the
Kingdom,
three distinct classes of on-licences (see recital 19) form
the relevant product market of
‘public houses and
restaurants’. In this respect, reference is made to para-

(1) Subject to some further formalities.
(2) Case 27/76, United Brands, ECR [1978], 207, paragraph 12.
(3) Case C-234/89, Stergios Delimitis v Henninger Bräu, ECR [1991]

I-935, paragraph 16.

(43)

restricted on-licences, have

graph 43 of the Commission notice concerning Regula-
tions (EEC) No 1983/83 and (EEC) No 1984/83 on the
application of Article 85(3) of the Treaty to categories of
exclusive distribution and exclusive purchasing agree-
ments (5) where it is stated that ‘the concept of “prem-
ises for the sale and consumption of drinks” covers any
licensed premises used for this purpose. Private clubs are
also included.’ This is understandable as all these outlets,
including also the
in
common that the drinks are purchased for consumption
on the premises and that there is an important service
element provided for. The Commission recognises that
beer price in clubs, being in December 1994 some 82 to
83 % of
is lower than that
charged in pubs (6). However, this reflects to a large
extent the fact that these clubs operate on a non-profit
base. It remains the case that,
in view of the service
element, the price in clubs is still in excess of the price
the specific
of beer
including
distribution system for the whole on-trade,
clubs, is the same: the special installations for draught
dispense, the brewers' beer list prices, and the operation
of loan ties.

in supermarkets. Furthermore,

that prevailing in pubs,

for

is that

in premises

follows that

the reference market

for the
It
distribution of beer
the sale and
consumption of drinks (the whole on-trade market). As
stated in the Delimitis judgment at paragraph 17, that
finding is not affected by the fact that there is a certain
overlap between the on- and off-trade, namely inasmuch
as retail sales allow new competitors to make their
brands known and to use their reputation in order to
gain access to the market constituted by premises for the
sale and consumption of drinks.

1.2. The relevant geographic market

The objective competitive conditions of supply and
demand for the supply of beer to the on-trade vary
considerably in the different parts of the Community. As
the Court of Justice noted in the Delimitis judgment at
paragraph 18, most beer supply agreements are still
entered into at a national
in
applying the Community competition rules to the agree-
ment, account is to be taken of the United Kingdom
market for beer distribution in premises for the sale and
consumption of drinks.

follows that,

level.

It

(4) The German (procedural language) version of the judgment uses the
term ‘Schankwirtschaften’. In the French version, being the working
language within the Court, the term ‘cafés’

is used.

(5) OJ C 101, 13.4.1984, p. 2.
(6) Extracts from Stats MR's survey of retail prices, submitted by a

national brewer to the Office of Fair Trading.

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(44)

The United Kingdom market is also distinct from beer
markets in other Member States in view of the Orders
(see recital 13), the high consumption of draught beer
(see recital 15),
the presence of pub management
companies (see recital 18), the pub-licensing regulations
(see recitals 19 and 31) and the variety in types of ale
offered (see recital 36).

2. Agreement between undertakings

(45) GPC, on the one hand, and the lessees, on the other, are

undertakings within the meaning of Article 81(1).

(46)

The individual leases, in a form similar to the notified
Leases, between the notifying companies and each of its
lessees are agreements within the meaning of Article
81(1).

3. The beer tie's restrictive effect on competition

3.1. Description and nature of the beer tie

(47) A beer supply agreement such as the Leases is generally
qualified by referring to the exclusive purchasing obliga-
tion which is generally backed by a non-competition
obligation (1). These clauses are formulated in the lease
as follows (see also recitals 36 to 38):

— the lessee agrees to purchase all specified beers that
he requires for sale in the property only from the
company or its nominees. The brands or denomina-
tions of the specified beers type are indicated on the
company's price list. The company may as often as it
wishes add, substitute or delete brands or denomina-
tions of a specified beers type on the price list
(exclusive purchasing obligation),

— except for the guest beer provision, the lessee shall
not sell or expose for sale in his pub any specified
beer not supplied by the company or any unspecified
beer unless (a) it is packaged in bottles, cans or other
small containers; or (b) it is in draught form and the
sale of that beer in draught form is customary or is
necessary to satisfy a sufficient demand from the
lessee's customers (non-competition obligation).

(48)

(49)

It can be noted that, apart
from the explicit non-
competition obligation, the exclusive purchasing obliga-
tion is so formulated that it already includes implicitly a
non-competition obligation by reference to the general
wording ‘all specified beers’.

the exclusive purchasing obligation,

the
Because of
lessees are precluded from accepting offers of contract
goods from other suppliers. Competition for the lessees
between the company's nominated supplier and other

(1) Delimitis,

loc. cit.; paragraph 10 of the judgment.

beer wholesalers who offer the same brands is precluded
(restriction of intra-brand competition).

(50)

The explicit and implicit non-competition obligation for
beer, that is, the prohibition on the lessees to purchase
other brands of specified types from other producers of
beer, restricts interbrand competition. The contractual
provisions on the purchase of non-specified types
impose certain administrative constraints on the lessees
but do not in effect restrict their ability to offer such
non-specified types on their premises. These clauses
therefore lack a restrictive effect on competition.

(51)

(52)

(53)

3.2. The Delimitis tests

The Court held in paragraph 27 of the Delimitis judg-
ment that ‘a beer supply agreement is prohibited by
Article 85(1) of the EEC Treaty, if two cumulative condi-
tions are met. The first is that, having regard to the
economic and legal context of the agreement at issue, it
is difficult for competitors who could enter or increase
their market share to gain access to the national market
for the distribution of beer in premises for the sale and
consumption of drinks’. That is, the first test concerns
whether the United Kingdom on-trade beer market is
foreclosed.

for the notifying parties'

Even if any foreclosure exists on the United Kingdom
on-trade beer market,
tied
leases to fall within the scope of Article 81, it is neces-
sary to consider, as the Court went on to do in para-
graph 27 of the Delimitis judgment, that ‘the agreement
in issue must make a significant contribution to the
sealing-off effect brought about by the totality of those
agreements in their economic and legal context. The
extent of the contribution made by the individual agree-
ment depends on the position of the Contracting Parties
in the relevant market and on the duration of the agree-
ment’.

The Court clarified this further in paragraphs 25 and 26
of that judgment, ‘That position is not determined solely
by the market share held by the brewery and any group
to which it may belong, but also by the number of
outlets tied to it or to its group, in relation to the total
number of premises for the sale and consumption of
drinks found in the relevant market’. As to the duration,
the Court indicated that ‘if the duration is manifestly
excessive in relation to the average duration of beer
supply agreements generally entered into on the relevant
market, the individual contract falls under the prohibi-
tion under Article 85(1). A brewery with a relatively
small market share which ties its sales outlets for many
years may make as significant a contribution to a
sealing-off of the market as a brewery in a relatively
strong market position which regularly releases sales
outlets at shorter intervals’.

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EN

Official Journal of the European Communities

1.8.2000

(54)

the Court of First
In the German ice-cream cases,
Instance, in assessing the significant contribution of the
companies in question, referred to ‘the strong position
occupied by the [company concerned] in the relevant
its market share’ (1). The
market, and,
Court thus based itself primarily on the broader concept
of the overall market share.

in particular,

(55)

In applying this test to the notifying party, their tied
leases must also be looked at in their ‘economic and
legal context’.

(56)

The assessment of
the agreements concerning the
purchase of beer from brewers (the ‘upstream’ beer
supply agreements) has to be differentiated from the
assessment of the property and loan-tie agreements (the
‘downstream’ agreements).

(57) Where the former category of agreements, the ‘upstream’
beer-supply contract, contains a sort of tie (minimum
purchasing obligation, non-compete obligation, must-
stock obligation) it is to be considered as part of the tied
network of the supplying brewer. This contract can thus
fall within the scope of Article 81(1) if the supplying
brewer contributes significantly to the foreclosure on the
market. The agreements can, however, be exempted if
they fulfil the criteria of Article 81(3).

(58)

In this respect,
it should be noted that whereas the
restrictive links between the brewers, which are in effect
national players, and the other wholesale players are
limited, access to the ‘downstream’ tied network of the
wholesale players is possible for other, United Kingdom
or foreign, brewers. Furthermore, it is easier for these
other brewers to conclude an agreement with one
wholesale player and thereby obtain access to all the
outlets tied to such a player, than to conclude agree-
ments with each individual retail outlet. The existence of
an open beer-supply structure should therefore not have
an impact on the assessment of the tied network of the
‘wholesaler’. The tied network of the ‘wholesaler’ cannot
simply ‘be attributed to the (brewery) which makes an
appreciable contribution (to the foreclosure)’ (2).

(59)

to the Delimitis case, which concerns a
In contrast
brewer,
the notifying party is a free-standing pub
company, which is not vertically integrated with any
United Kingdom brewer. The relationship between the
notifying party and its tenants, on the one hand, and the

(1) Cases T-7 & 9/93 Langnese-Iglo and Schöller, [1995] ECR II-1539

and II-1611, paragraphs 112 and 87 respectively.
loc. cit.; paragraph 24 of the judgment.

(2) Delimitis,

brewers, on the other, is therefore economically different
from that of a brewer which wishes to see its beer sold
through its network of agreements.

(60)

Since 29 March 1998, the supply of beer to the GPC
estate has been characterised by multi-sourcing and peri-
odic tendering. Brands are sourced on the basis of a
diversified portfolio from national and regional brewers.
The duration of contracts with supplying brewers (typi-
cally two to five years) is structured so that a proportion
of the business can be re-tendered at frequent intervals.
Over the period 1998 to 2003, approximately 98 % of
the beer throughput will provide an opportunity for
third party brewers to tender. The notifying parties do
not have a single volume commitment to any of the
current 18 brewers whose brand(s) are currently listed
on their price list. The notifying parties thereby offer a
gateway for the already substantial number of brewers,
and, theoretically (3) for all other national or foreign
brewers, to the UK on-trade market. Furthermore, it is
easier for another brewer, and in particular a newcomer
on the UK market, to conclude an agreement with one
wholesale player and thereby obtain access to all the
outlets tied to such a player, than to conclude agree-
ments with each individual retail outlet.

(61)

The effect of the leases is therefore to mitigate rather
than reinforce any network effect of brewers' agreements
in the United Kingdom on-trade beer market. The role of
such an independent distribution structure in reducing
foreclosure was recognised by the Court in paragraph 21
of the Delimitis judgment, ‘the presence of beer whole-
salers not
tied to producers who are active on the
market is also a factor capable of facilitating a new
producer's access to that market since he can make use
of those wholesalers' sales networks to distribute his
own beer’.

(62)

It can therefore be concluded that rather than signifi-
cantly contributing to the foreclosure, the tied leases of a
‘non-tied’ pub company are more likely to enhance the
competitive structure of the market (4). In those circum-
stances, the importance of a pub company's tied estate
(in terms of number of outlets tied and the beer
throughput of those outlets) is not currently relevant to
an assessment of the contribution to market foreclosure.

(3) The Commission recognises that there are practical limits as to the
(not necessarily equal to brands as one
that a pub

number of ‘product lines’
brand might be stocked in different container sizes)
company can stock and distribute efficiently to its tied outlets.
(4) In the case of a non-brewing pub company, given the current
market structure at the retail
level, the duration of the IPCL and
Spring standard leases is irrelevant for the assessment of whether
they contribute significantly to foreclosure, when the ‘upstream’ beer
supply structure is open.

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Official Journal of the European Communities

L 195/57

3.3. Conclusion on the Delimitis tests

including its standard lease agreements,

(63) GPC does not operate a network of ‘restrictive’ agree-
ments,
that
contribute significantly to the foreclosure of the United
Kingdom on-trade beer market; nor can their standard
lease agreements be considered,
in view of the beer-
supply agreements with brewers, to form part of such a
‘supplying’ brewer's tied network.

(68)

4. Conclusion

(64)

The exclusive purchasing and non-competition obliga-
tions contained in the notified Leases after 28 March
1998 fall outside the scope of Article 81(1).

(69)

5. Restrictive effect on competition of the advert-

ising clause

(65)

The notified leases contain a clause which states that the
lessee should avoid advertising goods supplied by other
undertakings in a higher proportion than the share of
those goods in the total turnover realised in the premises
(hereinafter ‘the advertising clause’).

(66) Whether or not the advertising clause falls within the
scope of Article 81(1) of the Treaty is only relevant to
the market for the distribution of beer. With regard to
all other neighbouring markets for the supply of goods
to on-licensed premises in the United Kingdom, such as
non-beer drinks, crisps and amusement machines, the
clause is not restrictive. The Leases, in the absence of an
exclusive purchasing obligation and a non-competition
obligation for the supply of such products, do not
if such were
restrict competition on such markets,
considered to exist, to an appreciable extent by the mere
imposition of an advertising clause.

(67) With regard to the supply of beer, the advertising clause
has the object of limiting the lessee's ability to advertise
the beer supplied by particular undertakings. The only
beer that a GPC lessee is entitled, pursuant to his Lease,
to buy from undertakings other than the nominated
suppliers is the guest beer and beer of non-specified
types. In particular, brands of beer of non-specified types
may not be well known to the United Kingdom
consumer and therefore would require specific on-the-
spot advertising. The letter of the clause would make
advertising for these new products impossible, as the
clause requires the advertising to be proportionate to the

turnover of these goods, which by definition, is virtually
zero as the goods are new.

The exclusive purchase obligation contained in the beer
tie allows GPC to exclude any third-party beer from
being offered by the lessee merely by adding it to the
price list as a specified beer (see recital 47). As demon-
strated at recital 64, this beer tie falls outside the scope
of Article 81(1) of the Treaty. It follows that an advert-
ising clause which can make advertising for such third-
party beer impossible cannot be caught by Article 81(1)
of the Treaty either.

In any event, the Commission possesses no information
to the effect that the advertising clause has been applied.
On the contrary, GPC confirmed in a letter dated 29
June 1999 that, ‘IPCL/Spring did not enforce the clause
in the lease allowing for advertising of product’ and
further in a letter of 15 March 2000, whereby GPC also
confirms that it has no intention of enforcing this clause
in the future, ‘this is apparent from the fact that lessees
have the freedom to advertise, promote and market
according to the marketing mix of
their choice of
brewers' products as appropriate to their business plan’.

(70)

It follows that the advertising clause falls outside the
scope of Article 81(1) of the Treaty,

HAS ADOPTED THIS DECISION:

Article 1

On the basis of the facts in its possession, the Commission has
no grounds for action under Article 81(1) of the Treaty in
respect of the notified agreements for the period after 28
March 1998.

Article 2

This Decision is addressed to The Grand Pub Company Ltd, c/o
Mill House, Aylesbury Road, Thame, Oxfordshire OX9 3AT,
United Kingdom.

Done at Brussels, 29 June 2000.

For the Commission

Mario MONTI

Member of the Commission