On 20 April 2010, the European Commission (the "Commission") adopted the Regulation No. 330/2010 on the "application of Article 101(3) of the Treaty on the Functioning of the European Union ("TFEU") to categories of vertical agreements and concerted practices", the so called new Vertical Restraints Block Exemption Regulation ("VBER") which exempts certain distribution agreements from competition law rules prohibiting restrictive agreements. The new VBER replaced the previous VBER, which expired on 31 May 2010. The new VBER is accompanied by new Guidelines1 which define the scope and conditions of the exemption. This article focuses on the key changes in the new VBER and draws comparisons with Turkish law.
Under Turkish competition law regime, the Block Exemption Communiqué on Vertical Agreements no. 2002/22 ("Turkish VBER") determines the conditions for exempting vertical agreements as a block from the application of the provisions of Article 4 of the Competition Act, which provides that "Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited". Currently the Turkish Competition Authority ("TCA")'s latest Guidelines of 2009 on Vertical Agreements ("Turkish Guidelines") which were significantly influenced by the Commission Notice on Guidelines on Vertical Restraints (2000/C291/01) is in force. The TCA's low speed in adopting the Commission's previous guidelines deflates though the hopes of adopting the Commission's new guidelines in the near future.
The main changes in the Commission's new VBER and the Guidelines regard the introduction of a buyer's market share threshold (30%) in addition to the existing supplier's market share threshold and online sales. Moreover the rules and guidelines provide clarification with regard to online distribution and some other commercial practices, such as resale price maintenance.
The new VBER maintains the similar approach in exempting distribution agreements from competition law rules as long as the supplier's market share is under 30 percent and the agreement does not contain hardcore restrictions. However, according to the new VBER, the buyer's market share also should not exceed 30 percent of the relevant market in which it purchases the contracted goods or services. The rationale behind this change is based on the Commission's ten year-experience in applying the market share criteria and now it plans to have an eye on powerful buyers whose market shares may be leveraged as well as gives the small and medium-sized businesses the benefit of enjoying VBER safe harbor. Comparatively, according to the Turkish VBER, the determining factor for the application of the block exemption is considered as the market share of the supplier and the market share threshold in this respect is 40 percent. On the other hand, there is an exception with regards to the agreements involving obligations to supply an exclusive buyer, in which case the market share of the buyer becomes decisive. Currently companies wishing to benefit from the market share threshold find the application of Turkish VBER complex. Therefore if and once the new VBER and the guidelines are adopted, the new market share threshold may be found even more complicated as both the supplier's and the buyer's market shares must then be considered.
The new EU Guidelines introduce clarifications with regard to restrictions on internet sales and describes how the Commission interprets active online sales and passive online sales. According to paragraph (51) of the Guidelines, sending of unsolicited e-mails, actively approaching a specific customer group or customers in a specific territory through advertisement on the internet or other promotions are considered active sales. Moreover placing territory-based banners on third party websites and paying a search engine or online advertisement provider to have advertisements displayed specifically to users in a particular territory are also considered forms of active sales which suppliers are free to restrict and still benefit from the VBER. On the other hand, the Commission has also provided examples to the types of passive online sales such as responding to unsolicited requests from individual customers including delivery of goods or services; using a website to sell products although it may have effects that extend beyond the distributor's own territory and customer group; a customer opting to be kept (automatically) informed by the distributor and it leads to a sale. These activities cannot be restricted by a supplier.
Examples of restrictions on online sales that are considered hardcore restrictions of competition are provided in paragraph (52) as follows:
(a) An obligation imposed on a distributor to prevent customers located in another territory from viewing its website or shall automatically re-route its customers to the manufacturer's or other distributors' websites.
(b) An obligation imposed on a distributor to terminate consumers' transactions over the internet once their credit card data reveal an address that is not within the distributor's territory;
(c) An obligation imposed on a distributor to limit its proportion of overall sales made over the internet.
(d) An obligation imposed on a distributor to pay a higher price for products intended to be resold by the distributor online than for products intended to be resold offline.
As these examples of active and passive online sales and hardcore restrictions do not appear in the Turkish Guidelines, the companies who are active in the Turkish market and Turkish practitioners are lacking guidance at this stage to manage their online distribution strategies. The current Turkish Guidelines do not go beyond defining sales through internet as passive sales and sending e-mail to customers as active sales unless there is a demand from customer. On the other hand the TCA is likely to follow the Commission's approach in its new Guidelines should a question that has not been covered by the current Turkish Guidelines arises.
The Commission also provided guidance in relation to online sales in selective distribution systems which are commonly used by suppliers of luxury or other special character products. In general the Commission's approach to online distribution in a selective distribution is that every distributor must be allowed to sell its products on its website and that a supplier cannot limit the quantities that its distributor sell online and impose an obligation on a distributor to charge higher prices for products which will be sold online. On the other hand a supplier may require its distributor to have one or more "bricks and mortar" shops in compliance with the supplier's distribution model or select distributors on the basis of certain quality standards as long as the object of these requirements is not directly or indirectly limit the online sales by the distributors.
Consistent with the current Turkish VBER and Guidelines, an agreement or a concerted practice having the effect of fixing resale prices are still considered as a hardcore restriction under the new VBER. However, according to the Commission, resale price maintenance may not only restrict competition but also, in particular where it is supplier driven, lead to efficiencies. According to the Guidelines, fixed resale prices, may be necessary to organize in a franchise system or similar distribution system applying a uniform distribution format a coordinated short term low price campaign (two to six weeks in most cases) which will also benefit the consumers. Moreover, during the introductory stage of a new product, resale price maintenance may be helpful to expand demand to induce distributors to better take into account the manufacturer's interest to promote the product. These efficiency arguments will ultimately be assessed under Article 101(3) TFEU in individual cases.
The differences between US and EU law concerning distribution reveal that companies must be vigilant to ensure that their distribution strategies align with both systems of law. As these examples show, the analysis can differ, with significant impact on a firm's distribution strategy.
Although there have been many discussions about various proposals, after all the new VBER adopted by the Commission is generally consistent with the previous VBER except for the need to provide detailed guidance in relation to online distribution strategies. This reflects the previous block exemption had worked well in practice. With these considerations in mind the differences between the Commission's new Guidelines and current Turkish Guidelines are unlikely to cause great legal uncertainties. With regard to online distribution; we may expect that the TCA would follow the Commission's new Guidelines should a case that has not been covered by the current Turkish Guidelines is brought before the TCA. We may also expect the TCA to issue new Guidelines when internet distribution becomes more crucial for competition in the Turkish market.
1. Guidelines on Vertical Restraints (2010/C 130/01)
2. The Block Exemption Communiqué on Vertical Agreements no. 2002/2 combines the three Block Exemption Communiqués; Exclusive Distribution Agreements no. 1997/3, Exclusive Purchasing Agreements no., 1997/4 and Franchising Agreements no. 1998/7. The Block Exemption Communiqué on Vertical Agreements no. 2002/2 was amended on 25 May 2007 with the namesake Communiqué no. 2007/2.
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