Turkey: An Interesting Evaluation Of The Passive Sales Restriction By The Turkish Competition Authority

Last Updated: 9 June 2015
Article by Şahin Ardiyok

As per the Turkish competition rules, vertical agreements are governed by Article 4 of the Competition Act No.: 4054 ("Competition Act") and the Block Exemption Communiqué No: 2002/2 on Vertical Agreements ("Communiqué"). According to the Article 4 (b) (1) of the Communiqué, an active sales restriction imposed to an exclusive region or exclusive group of customers by a provider to a purchaser is authorized. The same article follows that 'introduction of restrictions in relation to regions or customer where or to whom the goods or services which are the subject of the contract shall be sold by the purchaser [involving] sales to be made by customers of the purchaser', also referred as restriction of passive sales, shall be left outside the scope of the relevant Communiqué. Thus, in principle, agreements containing passive sales restrictions are considered to not benefit from the block exemption.

Yet case law portrays that the Turkish Competition Authority ("TCA") has interpreted passive sales restrictions in varying ways. Some decisions1 have evaluated restriction on exportation of goods within the scope of the Communiqué; whereas some decisions2 have rendered restrictions on passive sales invalid, requiring amendment of the relevant clauses pursuant to the Communiqué.

In the pharmaceutical sector, similar clauses restricting sales of customers of the purchase have been considered to not benefit from the block exemption and thus been granted individual exemption subsequent to an individual exemption evaluation pursuant to Article 5 of the Competition Act.

For example, in the Sandoz Decision3, the "Licensing, Procurement and Marketing Agreement" signed between Eli Lily Export S.A. and Sandoz İlaç Sanayi ve Tic. A.Ş. has been subject to an individual exemption analysis. The clause restricting active sales of the customers of the buyers has been interpreted as a passive sales restriction and considered to not benefit from the block exemption. In this decision, the TCA's landmark decision4 differentiating active sales from passive sales has been referenced. Similarly, in the Eczacıbaşı Decision5, concerning the Agreement on joint marketing of a product by Abott Laboratuarları İthalat ve Ticaret Ltd. Şti., EİP Eczacıbaşı İlaç Pazarlama A.Ş. , the clause restricting sales of products to customers who may be reasonably believed to export goods has also been subject to individual exemption analysis.

However, the TCA has undergone a different evaluation in its recent decision6 on Novo Nordisk Sağlık Ürünleri Ticaret Ltd. Şti. ("Novo Nordisk") concerning the pharmaceutical sector.

The recent decision of the TCA focused on negative clearance/exemption application for the Standard Sales and Purchase Agreements ("agreements") entered between Novo Nordisk and various pharmaceutical warehouses. The agreements concerning manufacturing and importation of material, such as human insulin, ready mixed insulin, insulin injector, fighting diabetes laid down the conditions for sale of these goods to pharmaceutical warehouses and sale of such goods by the pharmaceutical warehouses.

Accordingly, aligned with the past TCA decisions, the TCA pointed that there was no need to make a relevant market definition as various goods are subject to sale in tenders which meet the aggregate demand for various product groups and as the standard agreements of Novo Nordisk encapsulate the entire product portfolio. Yet, the geographical market was defined as Turkey based on the scope of the standard agreements.

The vertical agreements had a clause stipulating that the warehouses were restricted to sell the goods outside the borders of Turkey and were restricted to sell the goods to a third party who may be reasonably believed to have the intention to resell outside the borders of Turkey.

It has been argued that the manufacturing and development of the contracted goods required intensive R&D investments and the cross-border price differences reflected on the R&D activities carried out. It has also been added that the prices of the goods are subject to the national price regulation and that these prices are lower than the prices abroad. Against this background, it has been argued that despite the competition increasing effect of exportation of cheaper goods in the international markets, the R&D investment in countries which adopt relatively higher prices for medical products will fall behind and development of new goods will be hindered.

Furthermore, it has been added that the goods are supplied to the domestic market based on the supply-demand analysis in Turkey and thus exportation of such goods would hinder availability and access to the relevant goods. Other factors taken into consideration were potential problems which may arise with regards to quality control of the products and the efficiency of distribution of such products.

In the light of the abovementioned factors, the agreements drafted by Novo Nordisk were granted negative clearance. This is regarded to be a landmark case as similar passive sales restriction imposed on exportation of goods has traditionally been subject to an individual exemption analysis; yet, in the recent decision, a similar restriction has been granted negative clearance pursuant to Article 8 of the Competition Act. Whether the decision will open floodgates in exemption analysis concerning passive sales restrictions remains ambiguous.

1 TCA's Ford Decision dated 20.06.2007 and numbered 07-53/616-205 para .50.; TCA's GAP Decision dated 08.11.2007 and numbered 07-85/1036-398 para.210.

2 TCA's PMS Decision dated 11.03.2005 and numbered 05-14/170-62 paras.190-200.

3 TCA's Sandoz Decision dated 02.08.2007 and numbered 07-63/776-282 para.240.

4 TCA's decision dated 30.06.2003 and numbered 03-46/540-M explaining the Communiqué No:2002/2.

5 TCA's Eczacıbaşı Decision dated 15.03.2007 and numbered 07-23/227-75 para.190.

6 TCA's Novo Nordisk Decision dated 05.02.2015 and numbered 15-06/71-29.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Şahin Ardiyok
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