Turkey: The Board published the reasoned decision on the preliminary investigation against Ecocaps, Ferm and Tuborg

Last Updated: 27 May 2016
Practice Guide by ELIG, Attorneys-at-Law

The Board published the reasoned decision on the preliminary investigation against Ecocaps, Ferm and Tuborg (10.02.2016, 16-04/69-27)

The Turkish Competition Board (“Board”) published the reasoned decision on the preliminary investigation against ECOCAPS’s S.R.L Socio Unico (“Ecocaps”), Ferm Endüstriyel Cihazlar ve Elektronik Sanayi ve Ticaret A.Ş (“Ferm”) and Türk Tuborg Bira ve Malt Sanayi A.Ş. (“Tuborg”) following Anadolu Efes Biracılık ve Malt Sanayi A.Ş.’s (“Efes”) complaints mainly indicating that the exclusivity provision in the contract concluded between Ecocaps and Tuborg (i.e. Ecocaps’s exclusive supply obligation to Tuborg in Turkey) hampers the competition between Efes and Tuborg and is against Article 4 of Law No. 4054 on the Protection of Competition (“Law No. 4054”), which prohibits agreements and concerted practices between undertakings that have an object and/or an effect of restricting the competition in the relevant markets.

Ecocaps is an undertaking operating in the market for hygienic cap packaging/protection systems. Tuborg is active in the production and sale of beer. Ferm is active in farm machinery imports, establishment of medicine production facilities and sales of machinery for bottling and packaging systems. Ferm is the distributor of Ecocaps’s hygienic cap and packaging machinery and supplies Tuborg the relevant products in Turkey. The cap packaging/protection systems in scope of the allegations are used for the purpose of preventing contamination that might occur on the surface of canned beverages at different levels supply chain until the product is delivered to the end user/customer. The aim of these systems is preserving the hygiene of the cap area that the consumers come into contact with while the products are being consumed.

In scope of the preliminary investigation, the Board looked into the cap packaging/protection systems market and gathered information about the undertakings active in the market, i.e. Ecocaps, Krones and Pactech, two of which manufacture aluminum caps (Ecocaps and Krones) and one manufactures plastic caps. The Board then moved on to the Turkish beer market, which was described as a “duopoly” with two local undertakings, Efes and Tuborg, and imports around 1%. The Board analyzed the structure of both the overall beer market and the canned beer market, as Tuborg used Ecopcaps’s products for canned beer. The Board found that since January 2014, the market share of Efes has been decreasing in the overall beer market, even though it still holds a strong position in the market, whereas the market share of Tuborg has been increasing. On the other hand, when the Board put the canned beer market under the microscope, to analyze the effects of the cap packaging/protection systems in the canned beer market, it found that Tuborg’s market share had decreased, whereas Efes had increased its share (actual shares not disclosed). The Board also observed that the beer market has been growing. Furthermore, to understand the characteristics and use of cap packaging/protection systems, the investigation team conducted interviews with various players active in the production and sales of canned beverages, including Tuborg.

Efes further alleged further during the preliminary investigation that currently, only Ecocaps and Krones produce hygienic caps for canned beers and Krones’s product is not substitutable with the advanced technology offered by Ecocaps. Efes also indicated that the exclusivity provision between Tuborg and Ecocaps is based on a deliberate strategy to discredit Efes, as Tuborg’s “clean cap” advertising slogan creates the impression that Ecocaps’s technology is required to ensure hygiene in canned beverages. Lastly, Efes requested Ecocaps’s and Tuborg’s actions be evaluated under the Article 6 of the Law No. 4054 in scope of the prohibition of refusal to supply by dominant undertakings and reiterated that the relevant undertakings’ actions are also in violation of the Article 4(2)(e) of the Law No. 4054 which prohibits “Except exclusive dealing, applying different terms to persons with equal status for equal rights, obligations and acts.”

The Board first assessed Ecocaps’s unilateral actions under Article 6 of the Law No. 4054, in scope of the refusal to enter into agreements, under the assumption that Ecocaps holds a dominant position. The Board asserted that there are three conditions that must cumulatively exist for the finding of a violation under the theory of refusal to supply: (i) the refusal should relate to a product or service that is indispensable to be able to compete in a downstream market, (ii) the refusal should be likely to lead to the elimination of effective competition in the downstream market, (iii) the refusal should be likely to lead to consumer harm. With regard to the first condition, the Board found that Efes has large market shares both in the overall beer market and its sub-segments, including canned beer products; canned beer comprises less than half of the overall beer market and therefore more than half of the sales within the beer market are outside the scope of the capping systems in question; even through the effect of the use of Ecocaps is noticeable in Tuborg’s market share, Tuborg has already been increasing its market share since 2010 and the effect of Ecocaps in Tuborg’s market share is not fundamental. In light of the foregoing, the Board concluded that the Ecocaps capping systems are not an essential input for undertakings competing in the downstream beer market and therefore the first condition under the refusal to supply theory is not satisfied. The Board ultimately dismissed this claim, with a few more remarks regarding the remaining conditions of refusal to supply.

Secondly, the Board assessed Tuborg’s practices (i.e. the exclusivity arrangement) in scope of Article 4 of Law No. 4054. The Board decided that the agreement between Ecocaps and Tuborg containing an exclusive supply obligation cannot be granted negative clearance and therefore assessed whether the vertical agreement, concluded between the supplier Ecocaps and the purchaser Tuborg, benefits from the block exemption of Communique No. 2002/2 on Block Exemption for Vertical Agreements (“Communique No. 2002/2”).  Due to the inability to calculate Ecocaps’s precise market share, the Board concluded that the relevant agreement and the exclusive supply provision should be assessed in light of the conditions for an individual exemption, since Ecocaps’s market share may be above the 40% threshold of Communique No. 2002/2.

As such, the Board conducted an assessment to determine if the relevant agreement and the exclusive supply provision fulfill the conditions for an individual exemption pursuant to Article 5 of Law No. 4054. To be eligible for an individual exemption, a restrictive agreement/practice/decision must (a) ensure new developments and improvements, or economic or technical development in the production or distribution of goods and in the provision of services, (b) allow the consumers a fair share of the resulting benefit, (c) not eliminate competition in a significant part of the relevant market and (d) not limit competition more than what is compulsory for achieving the goals set out in sub-paragraphs (a) and (b). This is not an alternative test and all conditions must be satisfied for an individual exemption. The Board found that the first condition is satisfied seeing the increase in hygiene and therefore the quality of canned beer with Ecocaps’s new technology. The Board found that the second condition is also satisfied due to reasons such as introducing the consumers with a new technology that increases the hygiene level and promoting innovation in the future, driving actual and potential competitors to try designing substitutes. Considering that cap protection systems is a new technology and the market is open to new entries, and noting that Tuborg is a small player, the Board found the third condition to be fulfilled. Lastly, the Board found that the fourth condition is satisfied, concluding that the term of the relevant agreement (the term not disclosed in the decision) would not limit competition more than what is compulsory for achieving the goals set out in sub-paragraphs (a) and (b).

Ultimately, in light of the above, the Board granted individual exemption to the agreement signed between Ecocaps and Tuborg and refrained from launching a full-fledged investigation against the undertakings in question.

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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