Turkey: The Board Conditionally Granted Individual Exemption to the Exclusive Tender Depository Agreement between Roche Müstahzarları Sanayii A.Ş. and MTS İlaç Dağıtım Tic. A.Ş.

Last Updated: 5 April 2017
Article by Gönenç Gürkaynak Esq

Most Read Contributor in Turkey, March 2019

Roche Müstahzarları Sanayii A.Ş. ("Roche") and a pharmaceutical wholesaler named MTS İlaç Dağıtım Tic. A.Ş. ("MTS") entered into an Exclusive Tender Depository Agreement ("Agreement"). They requested an individual exemption from the Board for the Agreement. The Board granted the individual exemption, but conditioned the exemption upon the parties making certain amendments to the Agreement (16-33/569-247, October 13, 2016).

By way of the Agreement and the additional protocol, MTS would be authorized as the exclusive distributor for all purchases and tenders made by the Public Hospitals Administration of Turkey ("PHAT"), the Public Hospitals Association ("PHA"), and other relevant institutions on behalf of the Secretary General of the PHA and university hospitals (including the Social Security Institution), with respect to certain products sold by Roche.

In its decision, the Board first assessed the Agreement under the block exemption provided under Communiqué No. 2002/2. It decided that the 40% market share threshold for the application of the block exemption had been exceeded in this case, so the Agreement could not benefit from the block exemption.

Before making an individual exemption assessment, the Board provided a general explanation regarding the circumstances under which similar vertical agreements between drug suppliers and wholesalers may be deemed to restrict competition. To that end, the Board emphasized that exclusive distribution arrangements would not restrict or hinder the competitive dynamics of the tender channel, due to the large number of drug wholesalers who are active in the tender channel for human medicinal products. Moreover, the Board stated that if the drug suppliers were to enter into exclusive distribution agreements with the same drug warehouses, this might result in the impediment of effective competition, given that the drug wholesalers could not submit alternative bids to the tender. In other words, even if a drug wholesaler were exclusively authorized for various products from different suppliers, it could participate in the tender for only one product. Under such a scenario, competing products would be left out of the tender process merely due to the exclusivity arrangement. Accordingly, the Board indicated that non-compete obligations would run the risk of the competitors' products being excluded from the tender due to such exclusivity agreements.

Moreover, the Board indicated that it was possible (i) for the hospitals to request offers for each group of tender items, and (ii) for the participants to procure and offer a single price for all of the items. By using this type of group tender, all of the drugs offered in the tender could be procured from a single drug wholesaler. Accordingly, if the group of tender items were to include an original drug which does not have any generic equivalents and if such a drug was included in the exclusive distribution arrangement, only the drug warehouse that is authorized for the exclusive distribution of that drug could offer a bid in the group tender. To that end, the Board emphasized (by way of referring to its settled case law) that group tenders are often left out of the scope of the exclusive distribution arrangements that are subject to individual exemption applications. For the case at hand, the group tenders were indeed left out of the scope of the Agreement by way of an additional protocol.

Subsequently, the Board concluded that the Agreement satisfied the first three requirements for an individual exemption.

However, the Board stated that the Agreement must not be more restrictive than strictly necessary to ensure that the contracted parties are able to obtain the expected benefits, in order to meet the last requirement of qualifying for an individual exemption.

The non-compete clause of the agreement in question included the following statement: "...shareholders of the Drug Warehouse, shareholders of any company and/or affiliated company directly or indirectly connected to the Drug Warehouse..." The Board stated that the relevant non-compete clause could be deemed proportionate to the extent that the clause concerns MTS itself and those parties that have a control relationship with MTS. Accordingly, the Board reached the conclusion that the relevant clause should be changed as to not inflict any consequences on persons and companies that do not have control over MTS, as this provision can be deemed disproportionate so long as it binds non-controlling third parties. Moreover, the Board concluded that the statement, "Drug Warehouse shall not have any interest in and/or will not operate directly or indirectly in the production, sale, distribution and/or marketing of the Competitive Product..." was unclear, and therefore should be revised to clearly indicate that the warehouse could participate in tenders, but not with competing products.

In light of the foregoing, the Board decided unanimously that the requirements of an individual exemption as outlined above had been met, provided that the proposed amendments would be put into effect.

Consequently, the Board unanimously determined that the Agreement would be granted an individual exemption, subject to the amendments in the non-compete clause, as mandated within the reasoned decision

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in March 2017. A link to the full Legal Insight Quarterly may be found here.

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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