ELIG Gürkaynak Attorneys-at-Law | View firm profile
The Turkish Competition Authority ("Authority")
completed its work in progress on revising the Guidelines on Vertical Agreements
("Guidelines") that was issued based on the Block Exemption
Communiqué on Vertical Agreements ("Communiqué No. 2002/2"). It
took approximately 2 years for the Authority to finalize its work. The
Authority has published the updated version of the Guidelines on its official on
March 30, 2018 (Friday). Below is the summary of amendments made in the
Guidelines:
I. Internet Sales
The Authority's announcement on revision of the
Guidelines indicates that internet platform's emergence as a new distribution
channel provides consumers with the ability to (i) access to a large set of
information without difficulty, (ii) compare prices, (iii) access more products
and more sellers. On the other hand, it enables suppliers to market their
products to wider geographical markets with lower costs. For that reason and
due to the rapid increase in internet sales' yearly average developing rate in
Turkey, a regulation on internet sales has become a necessity. The Authority's
announcement further states that the amendments seek a balance between (i)
re-evaluation of competition law rules with respect to sales through internet,
thereby ensuring preservation of internet's contribution to consumers and
resellers and (ii) protection of suppliers' commercial interests. On that note,
the Authority has added a couple of articles to sections regarding sales
through internet. Please find the brief notes on the amendments below:
1.
A
restriction on sales through distributors'/dealers'/buyers' websites imposed by
a supplier is restriction on passive sales. Within this context, purchases made
through consumers' (i) visits to dealers' websites, (ii) contacts with dealers
or (iii) requests to be auto-informed by dealers are considered to be passive
sales. Offering various language selections by dealers on their website does
not change the fact that they are passive sales. Accordingly, the restrictions
below in particular on internet sales will not benefit from the exemption under
the Communiqué No. 2002/2.
i. Restriction on a (exclusive) distributor's website to
consumers located in another (exclusive) distributor's region or diverting such
consumers' access to supplier's or the other (exclusive) distributor's
websites: Restriction on sales requested through internet from a particular
region or customer group will be considered as a hard-core restriction.
ii. (Exclusive) Distributor's termination of transaction
after realizing the customer is not located in its (exclusive) region regarding
the customer's delivery, mail, credit card, etc. address information:
Restriction on sales requested through internet from a particular region or
customer group will be considered as a hard-core restriction.
iii. Restriction on share of sales through internet in
total amount of sales: On that note, setting a maximum sales limit for internet
sales will be considered as a hard-core restriction. A condition setting forth
that a distributor should sell a particular portion of its total sales through
physical stores as to preserve those stores' efficiency without restricting
internet sales or conditions as to ensure compatibleness of internet sales and
general distribution system are excluded from the scope of this restriction.
iv. Condition providing that a distributor should pay more
to its supplier for products that it resells through internet than products
supplied in physical stores: Applying different bulk purchase prices directly
or indirectly (e.g. rebate systems) will be considered within this scope.
Supplier's power to affect the distributor's preference of its distribution
channel by increasing the price difference between internet and physical store
sales may obstruct distributors to operate through internet sales.
Nevertheless, suppliers are entitled to pay fixed amounts to their distributors
regardless of their sales income and amount, as to support their reselling
efforts (through internet or physical stores).
2.
To
that end, restrictions above are considered to be restriction of passive sales.
However, internet sales made to a particular exclusive region or a particular
exclusive customer group of another distributor through promotion or similar
methods will be deemed active sale and one can argue that such sales will be
within the scope of the exemption. Advertisements directed to a specific group
of customers and/or a specific geographical region and (unrequested) e-mails
will be considered as active sales. For instance, advertisements directed to a
particular geographical region that are published through third party platforms
or market places are active sales for that region's residents. Accordingly, one
can consider making payments to search engines or internet advertisement
providers to publish ads for customers located in a specific region as an
active sale.
3.
On
the other hand, a supplier may impose certain conditions on the use of internet
distribution channel as it can also do for physical stores or catalogues that
publish ads and promotions. For example, suppliers may require quality
standards for the website or may require provision of certain services to the
customers purchase through internet:
i. Especially within a selective distribution system, the
supplier may require its distributor to possess at least one physical store;
however, such requirement should not aim excluding the suppliers that only sell
through internet (pure player) from the market or restrict their sales.
Suppliers may also impose additional requirements to their distributors, but
more importantly such requirements should not aim to directly or indirectly
restrict distributor's internet sales. Justifications for the imposed
requirements should be objective, reasonable and admissible with respect to the
aspects that enhances the distribution's qualifications and quality, brand
image and/or potential efficiencies. Likewise, supplier may require the
distributor to resell only through "sales platforms/market places" that fulfil
certain standards and conditions. However, this requirement should also not aim
restricting the distributor's internet sales and price competition. One may
consider general restrictions on sales through platforms without any objective
and uniformed justification regarding the product's propriety and qualities as
an infringement.
ii. Even though requirements imposed on physical sales and
internet sales should not be identical due to their difference on sales
conditions, both requirements should (i) serve to the same purpose, (ii) ensure
comparable consequences and (iii) be able to verify the intrinsic differences
of the two distribution channels ("equivalence principle"). In other words, the
conditions should not restrict internet sales directly or indirectly. Therefore,
one can consider requirements as hard-core restriction if they (i) violate the
equivalence principle and (ii) discourage distributors to use internet as a
distribution channel.
4.
A
website launched for reselling through internet by a distributor within a
selective distribution system, will not be considered as a new physical sales
point.
II.
Most Favored Customer Clause ("MFN")
The Authority's announcement indicates that MFN clause
is one of the frequently examined issues recently by the competition authorities
throughout the world and the competition law practitioners and thereby a
necessity of establishing a new regulation on this matter has arisen.
1.
In
principle, an agreement containing MFN clauses may benefit from block exemption
on the conditions that the market share of the party that is beneficiary of the
clause does not exceed 40% and that the other conditions stipulated in the
Communiqué No. 2002/2 are met. The evaluation of MFN clauses in the traditional
markets differs from those in the online platforms. For example, while the
party that is the beneficiary of the clause is the buyer in the traditional
markets, it may be either supplier, buyer or intermediary in the online
platform markets depending on the relevant product market. Therefore, Communiqué
No. 2002/2 does not provide any indication as to which party's market share
should be taken into account. Accordingly, the Communiqué provides that one
should consider the market share of the beneficiary party of the agreement. In
case the market share thresholds are exceeded, it is necessary to consider the
explanations on individual assessments in the Guidelines:
i. For instance, retroactive MFN clauses which allow the
beneficiary buyer to get more favorable offers in all cases or which increase
the supplier's costs for making discounts to buyers that are not party to the
clause (payment of the difference between the (i) low prices offered to buyers
that are not party to MFN clause and the (i) price offered to the buyer party
to MFN clause, to the relevant buyer), are likely to harm competition much more
than other clauses do. Besides, in the instances where parties to MFN clause
have market power compared to their competitors in the market, one may evaluate
that such clauses are likely to harm competition more. In such situations,
these clauses may lead to exclusion of competitors that are not party to the
relevant agreement and foreclosure of market to the competitors. Moreover, the
use of these clauses in the concentrated markets is more risky than the use of
these clauses in non-concentrated markets from a competition law perspective.
This is because, the likelihood of rival buyers that are not party to the
clause, to find an alternative supplier is relatively lower in the concentrated
markets. In addition to this, in the cases where the use of MFN clauses have
become widespread and thus a significant portion of the market has been
subjected to these clauses, it is necessary to adopt a more skeptical approach
in the evaluation of these clauses. This is because, it is more likely that the
restrictive effects arising from the clauses cumulatively increase, where these
clauses have become widespread in the market, and thus the likelihood of
restriction of competition is higher.
ii. On the other hand, MFN clauses may not result in a
competition concern under certain circumstances. For example, in the instances
where both parties to an agreement containing MFN clauses do not have a market
power, it is unlikely that implementation of these clauses would create
competition concerns. In case small-scale buyers with no market power use MFN
clauses, it would have a positive effect on the competition in the market given
that these clauses allow relevant buyers to benefit from favorable price and
conditions in the market. In the instances where concentration level of the
upstream market is low (i.e. upstream market is sufficiently competitive),
competitive harm may not exist given that in such a situation current and
potential competitors may choose the alternatives. In case of a non-transparent
market, the negative effects of MFN clauses would be relatively low given that
in such situations it is unlikely to effectively monitor the implementation of
these clauses in the market.
2.
As
for the direct or indirect methods of determining the resale price, an MFN
clause incorporated in agreements concluded between undertakings which may
decrease suppliers' incentives to supply goods under more favorable price and
conditions to buyers other than beneficiary buyers may reinforce the influence
of direct or indirect methods of determining the resale price. However,
supporting practices which reinforce the efficiency of MFN clauses and resale
price should not be evaluated as practices which result in determination of the
resale price.
Author:
Gönenç Gürkaynak, Esq., ELIG, Attorneys-at-Law
First
published by Mondaq on April 3, 2018.