Source: EURLEX
Language: en
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12. 10. 89 Official Journal of the European Communities No C 259/5

Notice pursuant to Article 19 (3) of Council Regulation No 17 (')

Case No IV/32.363 — KSB/Goulds/Lowara/ITT

(89/C 259/05)

A. Introduction

On 5 June 1987 the firms KSB Aktiengesellschaft, Frankenthal, Federal Republic of Germany (KSB), Lowara
SpA, Montecchio, Italy (Lowara), Goulds Pumps Inc.,
Seneca Falls, New York, United States (Goulds), and
ITT Fluid Handling Division, Midland Park, New
Jersey, United States (ITT) applied for negative
clearance or alternatively exemption for the two
agreements concluded by them on 22 July 1987 and
submitted for notification.

The agreements in question are an Agreement for Joint
Research, Development and Production of the wet end
of a single-stage, single-flow, radial centrifugal pump
made from chrome-nickel steel and a Production

Agreement concluded by the parties with Lowara as
manufacturer for the production of the pump
components.

The two agreements supersede an agreement concluded
by the parties on 5 November 1985 on the setting up of
a joint venture, Quattro Tech, SA.

B. The parties

1. KSB is the leading European pump manufacturer and
has its registered office in Frankenthal, Federal
Republic of Germany. It has subsidiaries inside and
outside the Community. In 1986, KSB acquired the
largest French pump manufacturer, Ets Pompes
Guinard, whose registered office is in Courbevoie. As
a result of this acquisition, KSB became the largest
pump manufacturer in the world. Some 90 % of its
consolidated aggregate turnover in 1987 came from

pumps.

2. Goulds Pumps Inc., whose registered office is in
Seneca Falls, New York, United States, is, together
with its wholly owned subsidiary, Lowara SpA, which
it acquired on 5 November 1985, the third largest
pump manufacturer in the world after KSB and a
Japanese firm. Like KSB, Goulds produces a wide
range of pumps. Lowara forms part of Goulds' Water
Technologies Group.

3. Lowara SpA, whose registered office is in Montecchio
Maggiore (VI), Italy, and which was established in
1968, developed the know-how for chrome nickel
steel components initially for smaller diameter pumps.
Although a wholly owned subsidiary of Goulds, it is

(*) OJ No 13, 21. 2. 1962, p. 204/62.

still one of the four parties involved in the
cooperation. At the end of 1987, it began production
of the new wetted components for all the participants.

4. The ITT Corporation comprises nine main divisions
for economic activities. One of these is the ITT Fluid

Technology Corporation, into which in 1987 the ITT
Corporation combined its production plants and sales
companies for fluid technology worldwide. One of
the largest divisions of ITT Fluid Technology
Corporation is the ITT Fluid Transfer Division
(referred to in the agreement as the Fluid Handling
Division), whose registered office is in Midland Park,
New Jersey. It is the effective party to the cooperation
and is therefore referred to below as ITT. Its largest
division is ITT Bell & Gosset, whose registered office
is in Morton Grove, Illinois. The new pumps are sold
by ITT Bell & Gosset.

Following the sale of Loewe Pumpenfabrik GmbH,
Liineburg, Federal Republic of Germany, in 1988 to
the Danish pump manufacturer Grundfos, ITT
operates as a pump manufacturer in Europe through
the following firms: Flygt AB, Lindas, Sweden, with
its European subsidiaries, AB Grindex, Handen,
Sweden, and ITT Marlow and ITT Jabsco, United
Kingdom.

C. The product

1. The cooperation agreement relates to the development and production of the wet end of a new type
of single-stage, single-flow radial centrifugal pump.
The components are made from deep-drawn chrome
nickel steel and are assembled into a pump by each
partner individually on the basis of its own
production. The pump is constructed in such a way
that its inner components can be dismantled without
the casing being removed from the piping (back
pull-out design). Through the products which are the
subject of the cooperation agreement, it is intended
for the first time to achieve high-performance capacities using series-produced pumps made from
deep-drawn high-grade steel. Capacity in the case of
the large nominal sizes ranges up to 240 mVh. With
supplementary type series using traditional casting
technology, far larger capacities are reached. A numer
of manufacturers (Lowara, Grundfos and Ebara) have
already been producing pumps using high-grade steel,
though their performance has been lower.

No C 259/6 Official Journal of the European Communities 12. 10. 89

The use of stainless chrome-nickel steel entails

considerable advantages over traditional components,
mostly produced from grey cast iron: Its resistance to
corrosion means that a chrome-nickel steel pump can
be used to handle a wide range of media from clean
water to light acids and alkalis. This has the
advantage that the purchaser normally needs only this
one type of multi-media pump instead of many pumps
made from different materials suited to each medium

pumped.

Because of the use of rolled chrome-nickel steel as the

basic material, all the internal surfaces in contact with
the medium are smooth. As a result, flow losses
caused by wall friction are reduced, leading to energy
saving. The stainless properties of the wetted
components ensure that the product handled does not
become contaminated.

The traditional material used in manufacturing
pumps, grey cast iron, is a brittle material. In contrast,
chrome-nickel steel is a tough material which is better
able to withstand high pressure and vibrations without
cracks or fractures developing, under a very wide
range of temperature conditions of from -30° to
+ 110°.

A further factor is that the weight of the new
components is only a quarter that of the equivalent
traditional cast iron components.

When the agreement on the setting up of the joint
venture 'Quattro Tech SA' was concluded on 5
November 1985, the original parties to the
cooperation, KSB and Lowara, had not yet solved the
many technical problems associated with the development of the pumps. According to the documents
which the parties submitted to the Commission
(minutes of meetings, reports and correspondence up
to February 1988), these problems were discussed at
numerous meetings attended by all the parties. At
such meetings, it was decided what contribution to
solving the problems was to be made by the individual
parties. Under these arrangements, ITT and Goulds
focused on the following problems: casing design,
rigidity investigations, vibration and noise tests,
impeller design and tests on its stability, hydraulic
measurements, analysis of the influence of the shape
of the flow area on the hydraulic performance
capacity, attachment and adjustment of the wetted
components to the other pump components, questions
relating to seals, welding problems and the question
of quality control in series production.

The technical cooperation is continuing. According to
the parties, this involves in particular the following
areas: endurance testing of the prototypes of the
hig-performance and large nominal-size pumps,
laying down quality control plans and ensuring
constant maintenance and improvement of quality for
all sizes.

(ITT): Quantum stainless pump,
series 3510, 23 sizes (frame
mounted or close coupled
models) with capacities of up
to 500 US gallons per minute
(114 mVh [1 US gallon =
3,78543 litres]).

D. The market

1. The pumps which are the subject of the cooperation
agreement may be said to form part of the market for
single-stage, single-flow radial centrifugal pumps for
water with a nominal size of the outlet connection

from 25 mm diameter (excluding sewage pumps).
Such pumps, referred to below as water pumps,
include in particular close-coupled pumps with axial
entry connections, close-coupled pumps with in-line
casings and submerged motors, in so far as they are
not heating circulation pumps, bearing bracket pumps
(including standardized water pumps to DIN 24 255),
vertical pumps and other single-stage, single-flow
radial centrifugal pumps (e. g. U-turn pumps). The
relevant market does not include multi-stage pumps,
chemical pumps for the transport of chemical
substances other than the acids and alkalis specified in
C.l, sewage pumps and heating circulation pumps.
The relevant geographical market is the entire
common market, since the pumps are regularly
supplied and purchased in all the Member States.

2. According to the information supplied by the
notifying parties, there are some 70 water-pump
manufacturers in the Community. They also state that
conventional cast-iron pumps are increasingly being
supplied from non-Community countries. Within the
Community, they argue, there is fierce competition in
prices and quality and excess capacity. However,
while there is a large number of suppliers, it must be
borne in mind that KSB is the largest pump manufacturer not only in Europe, but also in the world.

4. In 1988, each of the four parties marketed an initial
series of the jointly developed chrome-nickel steel
pumps. According to the brochures submitted to the
Commission, these are as follows:

— KSB: Etachrom N standardized

pumps and Etachrom B closecoupled pumps with capacities
of up to 100 mVh;

— Lowara: High-Tech close-coupled
pump series with capacities of
up to 100 mVh;

Goulds:

Bell & Gosset:

G & L SST water pump (SST
— super stainless technology),
with capacities of up to 500
US gallons per minute
(114 mVh);

12. 10. 89 Official Journal of the European Communities No C 259/7

According to the firm's own estimates, its market
share in the Federal Republic of Germany and,
following the acquisition of Ets Pompes Guinard, in
France is between 20 and 30 %; in the Benelux
countries and in Italy, its market share is substantial.

Lowara has a not inconsiderable market share in Italy.
The market shares of Goulds and ITT in the

Community as a whole and in the individual Member
States are, according to the information provided by
the parties, insignificant following the sale of Loewe
Pumpenfabrik GmbH by ITT in 1988. At the time of
notification, the parties estimated their joint share in
the Community at under 20 %.

Consequently, while there are a large number of
suppliers throughout the common market as a whole,
it must be borne in mind that KSB has on its own a

relatively strong position in the Federal Republic of
Germany, France and the Benelux countries and,
together with Goulds/Lowara, also a relatively strong
position in Italy.

3. The agreements notified

As mentioned above the agreement of 5 November 1985
on the setting up of a joint venture has been replaced by
two agreements concluded on 22 July 1987, namely:

— the Agreement for Joint Research, Development and
Production (Joint Agreement),

— the Production Agreement.

The two agreements contain the following provisions:

1. _The Joint Agreement_

— The agreement is for an initial term of 10 years
starting on 22 July 1987. After the end of the
term, it can be terminated provided 12 months'
prior written notice is given.

— The aim and purpose of the Agreement is to
conduct research, design, development and testing
with respect to the wetted components of the
pump, to acquire patents in connection therewith
and to provide the tooling necessary to manufacture the product. Such components are to be
sold solely and exclusively to the parties to the
cooperation arrangement.

— Work on the project is decided on by the parties
at joint meetings and then carried out by the
parties individually, with the performance of any
research or development tasks and the purchase of
any tooling required being carried out by each
party in its own name and on its own behalf.

— The manufacture of the units is carried out by
Lowara to the specifications of each participant on
the basis of individual contracts which are geared

to the general conditions laid down in the
Production Agreement. The participants then use
the units as components of pumps bearing the
respective participant's proprietary trade mark.

— The intellectual property rights to developments
are owned by the developing participant; the other
participants have a perpetual royalty-free licence
to use any such intellectual property only upon
termination of the Agreement or withdrawal of
the participant from the Agreement.

— Each participant has the right to withdraw from
the Agreement for good cause. He will then be
entitled to retain on a confidential basis all infor
mation required to promote, advertise, apply and
sell the product (product technology) and a
perpetual, royalty-free, non-exclusive licence to
utilize the technical know-how in the widest sense

(process technology). However, he does not have
the right to sublicense any of the technology. The
withdrawing participant is also subject to trade
secrecy and may incorporate the components only
into pumps bearing his own proprietary trade
mark. Subject to these conditions, however, he
may also have the wetted components manufactured by another supplier.

— During the term of the agreement, such product
technology as is not normally published for
commercial purposes must be treated as
confidential. The process technology is to be
treated as a trade secret and is subject to detailed
strict confidentiality rules applying for five years
after termination of the agreement. So as to
ensure confidentiality, each participant is
provided, upon entry into force of the agreement,
with one original copy of the process technology
for review and to ensure that it is complete. The
original copy is then deposited in a safety deposit
box in a bank. The key to the safety deposit box is
held in trust by an independent selected third
party (the 'third party'). The same procedure is
followed for changes to the process technology.
The third party may allow a participant access to
the deposited process technology only following a
consultation procedure.

The obligation to maintain secrecy must be
observed by any other manufacturer acting as
supplier.

— The participants agree not to exchange any information which would impair the maintenance of a
valid competitive posture among the parties
outsiede the scope of the Agreement, and they
also agree to comply with all laws to which they
may be bound.

— Rights, duties and interests under the agreement
may be assigned only with the written consent of
each of the other participants.

No C 259/8 Official Journal of the European Communities 12. 10. 89

— Disputes between the participants which cannot
be settled by negotiation are to be referred to
arbitration conducted pursuant to the Rules of the
Chamber of Commerce in Geneva. Any award
made shall be binding.

— Upon termination of the agreement, all the
participants shall receive a complete copy of all
the know-how and shall have perpetual,
royalty-free, non-exclusive licences. Lowara will
upon request manufacture replacement parts for a
further period of two years.

2. _The Production Agreement_

— Lowara agrees, at its sole cost, to establish and
maintain sufficient capacity for the production of
the new pump units.

— Lowara is the only manufacturer of such
components and agrees to manufacture the
products and the tooling necessary for their manufacture exclusively for the parties to the
agreement.

— Lowara concludes individual contracts with the

participants on the terms and conditions laid down
in the agreement with regard to pricing and
deliveries and guarantees, with all the participants
having access to the product on an equal basis.

— Lowara agrees to segregate and keep separate all
tooling which was furnished by the participants
and to perform maintenance and repairs.

— The obligation to maintain confidentiality is in
line with that laid down in the Joint Agreement.

— The Production Agreement is for a term of 10
years, starting on 1 January 1988. In contrast to
the Joint Agreement, it may be terminated only 18
months before the end of the 10 years. Thereafter,
it may, like the Joint Agreement, be terminated by
giving 12 months prior written notice.

— Arbitration and the apportionment of the
know-how after termination of the agreement, the
assignment of rights and obligations to third
parties, and the supply of replacement parts
following termination of the agreement are in line
with the Joint Agreement.

F. Submission of the parties

The parties consider that their cooperation does not
restrict competition. Without this association, none of
them would on its own have developed the high-grade
steel parts, they argue, since the development costs are
too high compared with the small number of items which
the individual manufacturer requires. The same applies

to the manufacturing investment. For this reason, it is
argued, the cooperation does not entail any loss of innovative competition between the parties. As far as the
wetted components of the pump are concerned, they
never were potential competitors. For the rest, they
continue to be in competitition with one another. The
high-grade steel parts make up only a part of the pumps.
The new pumps are marketed on a competitive basis,
with competition in terms of quality in respect of the
other parts of the pump.

Nor, the parties argue, is competition with other manufacturers eliminated. On the one hand, considerable
competition will continue with traditional grey cast-iron
pumps (the parties refer here _inter alia_ to cheap imports
from non Community countries; on the other, it has not
been established that consumers will in future actually
prefer the new high-grade steel pumps to traditionally
cast-iron pumps. The introduction of the first pumps on
to the market in 1988 had met with some resistance.

Furthermore, it could be expected that if the new pumps
were successfully marketed, competing manufacturers
would combine to form similar associations.

The parties also consider, that if Article 85 (1) were to
be applied to their cooperation, the cooperation would
be exempted under Article 85 (3), since it falls within the
scope of Commission Regulation (EEC) No 418/85 of
19 December 1984 on the application of Article 85 (3) of
the Treaty to categories of research and development
agreements ('). The parties' combined market share, they
argue, is below the 20 % threshold laid down for
competitors in Article 3 (2) of the Regulation.

The parties have lastly pointed out that, in order to
achieve the necessary number of units, the new pumps
have been developed for the world market, about half of
which (e.g. North America, Third World) uses a
frequency of 60 Hz 60 Hz pumps demand different
technical requirements to 50 Hz pumps. ITT and Goulds
had brought their experience in this respect into the
cooperation arrangement.

The Commission proposes to take a favourable decision
in respect of the agreements described above. Before
doing so, however, it invites interested parties to send
their comments on the case within one month from the

date of publication of this notice, quoting the reference
'IV/32.363 — KSB/Goulds/Lowara/ITT', to:

Commission of the European Communities,
Directorate-General for Competition,
Directorate B,
200 rue de la Loi,
B-1049 Brussels.

(') OJ No L 53, 22. 2. 1985, p. 5.