The Board published its reasoned decision on Roche Müstahzarları Sanayi A.Ş.’s request for granting individual exemption to the exclusive tender store agreement concluded with MTS İlaç Dağıtım Ticaret A.Ş. (16.11.2016, 16-39/642-288).
The Turkish Competition Board (“Board”) recently published its reasoned decision on the Roche Müstaharları Sanayi A.Ş.’s (“Roche”) request for granting individual exemption to the exclusive tender store agreement concluded with MTS İlaç Dağıtım Ticaret A.Ş. (“MTS”). Roche, that is the Turkish subsidiary of F. Hoffmann-La Roche Ltd. based in Basel, Switzerland, is active in the sectors for medicine for human use and diagnostic equipment. MTS, that is based in Istanbul, is involved in the wholesale trade of basic pharmaceutics products and pharmaceutical preparations.
In its decision, the Board firstly analyzed whether the agreement could be granted negative clearance. In this regard, the Board determined that the agreement that is subject to notification exclusively authorized MTS to follow the tenders that are initiated in scope of the Public Tender Act numbered 4734 (“Law No. 4734”), to participate and to bid Roche’s products in such tenders. Although the agreement does not include provisions regarding resale price maintenance except for a maximum sales price. The Board stated that it is not possible to grant negative clearance to the agreement, due to the exclusivity and non-compete obligations provided within the agreement.
Afterwards, the Board analyzed whether the agreement could benefit from the block exemption that is provided under the Block Exemption Communiqué No. 2002/2 on the Vertical Agreements (“Communiqué No. 2002/2”). In this regard, the Board found the agreement could not be granted block exemption, since the non-compete provisions provided under the agreement were found to be contradictory with the Communiqué No. 2002/2, on the basis of the duration of the non-compete obligations and the persons and/or institutions (other than MTS) that could be subject to the effects of the such obligations, which are more restrictive than what is provided under the Communiqué No. 2002/2. Therefore the Board assessed that the agreement should be analyzed in scope of the terms of individual exemption.
In this regard, the Board analyzed the agreement in scope of the conditions set out under Article 5 of Law No. 4054. In order for an agreement to be granted individual exemption;
- the agreement must contribute to improving the production or distribution of goods or to promoting technical or economic progress,
- it must allow consumers a fair share of the resulting benefit,
- it should not eliminate competition in a significant part of the relevant market,
- it should not limit competition more than what is compulsory for achieving the goals set out in sub-paragraphs (i) and (ii) above.
The Board found that the relevant agreement provides supply persistency and regular flow of information, which enables Roche to conduct proper planning and keep sufficient stock in proportion to MTS’s tender results. The Board has also indicated that the concrete information provided by the parties support the findings regarding the terms of the agreement. Therefore, the Board found that the agreement satisfies the first condition provided under Article 5 of Law No. 4054.
The Board has also found that the agreement would have positive effects on the state’s drug expenditures. Therefore, the Board has indicated that while the agreement satisfied the supply persistency condition, it will also provide for progress as regards the treatment of inpatients. In this regard, the Board assessed that the agreement also satisfied the condition provided under Article 5(b) of Law No. 4054.
As regards the third condition, the Board stated that there are quite a few pharmaceutical warehouses, which operate for tender sales and therefore, the agreement would not eliminate competition in a significant part of the relevant market. In this respect, the Board found that the agreement further satisfied the third condition provided under Article 5 of Law No. 4054.
Finally, the Board explained that, the competition might be limited in the absence of non-compete obligations, namely in cases where the competing suppliers separately conclude exclusive agreements with the same warehouse. The Board stated that, due to the fact that offering alternative products in drug tenders are restricted, the pharmaceutical warehouse which has separate exclusive agreements with competing suppliers would only be able to offer one of the competing products, in which case, only one of the competing products would be represented in the relevant tender. The Board assessed that, the non-compete obligations eliminate the explained drawback. Yet, the Board indicated that the scope of non-compete obligation must be justifiable and in proportion with the expected gains of the agreement.
In this regard, the Board referred to Article 11.2. of the relevant agreement which takes MTS’s shareholders and/or affiliates into the scope of the non-compete obligation and stated that the agreement could be deemed as proportionate to the extent that the non-compete obligation solely covers MTS and the persons who have a control relationship with MTS. Therefore the Board assessed that Article 11.2. of the agreement should be amended in a way that the shareholders and affiliates are excluded from the scope of the non-compete provisions. The Board has also found that Article 11.2. of the agreement is drafted in such a way that the sales of MTS might be restricted beyond the tender sales. However the Board indicated that, in order for the agreement to be deemed proportionate, the non-compete obligation should only cover MTS’s sales in scope of the tenders. Therefore the Board assessed that the relevant article must be amended in a way that the non-compete obligation only applies to MTS’s sales in tenders that constitute the subject of the relevant agreement. Therefore the Board found that the fourth condition provided under the Article 5 of Law No. 4054 would be satisfied if Roche amends the agreement in line with the concerns explained above.
In light of the above, the Board concluded that the agreement could be granted individual exemption on the condition that Roche amends Article 11.2. of the agreement in a way that (i) the non-compete provisions would solely impose obligations on MTS and the persons who have control over MTS and that (ii) the non-compete obligations would be limited to MTS’s sales in the relevant tenders that constitute the subject of the agreement.