Turkey: The Board decided that the “Exclusive Distributorship Agreement” signed between Johnson and Johnson and İdeal benefits from individual exemption

Last Updated: 8 December 2015
Practice Guide by ELIG, Attorneys-at-Law

The Board decided that the “Exclusive Distributorship Agreement” signed between Johnson and Johnson and İdeal benefits from individual exemption (28.07.2015, 15-32/461-143)

The Turkish Competition Board (“Board”) found that the Exclusive Distributorship Agreement signed between Johnson and Johnson and İdeal is in the scope of the block exemption set out in the Block Exemption Communique No. 2002/2 on Vertical Agreements (“Communique No. 2002/2”) for certain markets, and benefited from the individual exemption set out in the Article 5 of the Law No. 4054 for the others. The relevant agreement included various restraints such as an exclusive supply agreement on Johnson and Johnson, a non-compete obligation on the distributor, İdeal, and the reservation of an exclusive customer group for Johnson & Johnson.

In the reasoned decision, the Board found that the products subject to the Exclusive Distributorship Agreement signed between the parties could be divided into various sub segments according to content and place of use, such as baby care products, common and selective products intended for adults, hygienic products for women, oral care products and OTC products which consist of medication without prescription. Johnson and Johnson’s market share within the markets for products other than baby oil, baby cologne, tampons, mouth care products was found not to be higher than the %40 threshold specified within the Communique No. 2002/2 and therefore the relevant products were found to be within the scope of the Block Exemption.

As Johnson and Johnson’s market share exceeded the %40 threshold for the products specified above, the Board made an assessment to determine whether the vertical restraints within the relevant agreement for the abovementioned products are in the scope of the individual exemption indicated within the Article 5 of the Law No. 4054.  To be eligible for individual exemption, a restrictive agreement/practice/decision must (i) ensure new developments and improvements, or economic or technical development in the production or distribution of goods and in the provision of services, (ii) allow the consumers a fair share of the resulting benefit, (iii) not eliminate competition in a significant part of the relevant market and (iv) not limit competition more than what is compulsory for achieving the goals set out in sub-paragraphs (i) and (ii).

The Board found that the first condition is met as, through the use of an exclusive distribution arrangement, the availability of the products within the market will increase, the unsaturated markets for products such as baby oil and tampons within Turkey will expand through the local distribution channels and therefore these will result in the increase of competition between the undertakings and therefore the quality of the products. Furthermore, the Board reasoned that the non-compete clause foreseen in the Exclusive Distributorship Agreement will allow İdeal to solely focus on the sales of Johnson’s products and therefore will serve the purpose of Johnson and Johnson’s optimization within the local distribution channels.

The Board found that the second condition is also met as the obligations of storage, stocking and duly transmission foreseen in the Exclusive Distributorship Agreement for İdeal will result in unhindered product supply. Furthermore, without the pressure of another competing distributor, İdeal will be able to focus all efforts on the sale of the relevant products. As a result, the number of points of sale, even in remote places, and lead to greater choice for consumers, as well as the potential for lower prices.

The Board found that the third condition is also met due to (i) the dynamic structure of the product markets, (ii) the fact that Johnson and Johnson faces competition in each product market (iii) the fact that exclusivity is only contemplated for the wholesale and not the retail level, (iv) the fact that the non-compete clauses are only foreseen for İdeal and not İdeal’s subsidiaries, (v) the competing undertaking already had effective distribution networks, and the entrants could set up effective networks through making the necessary investment.  

Lastly the Board found that the fourth condition is also met. Particularly, the Board found that the exclusive customer group reserved to Johnson and Johnson only covers İdeal’s active sales and does not restrict its passive sales. In this respect, active sales restrictions were seen as a necessary element to secure the exclusivity of a region or a consumer group and accordingly; to provide expansions in operations. With regards to the term of the non-compete provisions, the Board found that the competition is not limited more than what is necessary for achieving the goals set out within the first and the second conditions, as the duration does not exceed five years and there are no restrictions foreseen after the termination of the Exclusive Distributorship Agreement. 

In the light of the above the Board decided that the Exclusive Distributorship Agreement will benefit from the individual exemption set out in the Article 5 of the Law No. 4054 with regards to the markets for baby oil, baby cologne, tampons, mouth care products.

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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