Turkey: Turkish Competition Board Widens The Scope Of Its Probes Concerning Dominant Undertakings’ Legal And Commercial Practices Towards Sales Points In Various Sectors

Upon the Turkish Competition Authority's ("Authority") ex-officio investigation in the market for industrial ice creams in Turkey, on May 15, 2008, the Turkish Competition Board held that due to Unilever San. ve Tic.Turk A.Ş.'s ("Unilever") dominant position in the industrial ice creams market, current exclusive agreements of Unilever concluded with the sales points and its well-established commercial practices aiming at creating de facto exclusivity cannot benefit from the Block Exemption Communiqué No: 2002/2 ("Communiqué") with regard to vertical agreements. This is the fourth intervention of the Board with dominant players in the last ten months; following the decisions on Coca-Cola, Turkcell and Mey İçki, now with Unilever.

Having been evaluated by the Turkish Competition Board ("Board") as enjoying a dominant position (with its share above 40%) in the market for industrial ice creams (through its Algida trademark), in an attempt to safeguard effective competition in the relevant product market, following remedies have been imposed on Unilever by the Board;

  • Vertical agreements executed by and between Unilever (or its distributors) and sales points (other than Algida shops) that include non-compete clauses are prohibited.

  • Arrangements whereby Unilever (or its distributors) require sales points to purchase a specified minimum percentage of sales points' total ice cream requirements or offer any payment or other advantage conditioned on such purchasing obligation are prohibited.

  • Any kind of advantage (promotion, discount, financing arrangements, target rebates etc.) promised by Unilever (or its distributors) in exchange of the sales points' not selling competing products with Algida are prohibited.

After the amendments -came into force in July, 2007 through the enactment of 2007/2 Communiqué setting forth that only undertakings holding up to 40 % market share in a given relevant product market in Turkey is allowed to conclude restrictive vertical agreements-, the Authority has been quite busy trying to bring the dominant undertakings' vertical agreements in compliance with the Communiqué 2007/2.

Unilever decision is the fourth decision of the Board that has been rendered subsequent to the adaptation of market share threshold for the vertical agreements (including restrictive clauses). First three precedents of the Board by basing on market share threshold are as follows;

  • Mey Içki Sanayi ve Ticaret A.Ş. (leading undertaking in the supply of rakı (Turkey's traditional alcoholic drink) in Turkey) decision, dated 10.9.2007 and numbered 07-70/863-326.

  • Coca Cola Satış Dağıtım ve A.Ş. (leading undertaking in the supply of soft carbonated beverages in Turkey) decision, dated 10.9.2007 and numbered 07-70/864-327.

  • Turkcell İletişim Hizmetleri Anonim Şirketi A.Ş. (leading undertaking in the supply of telecommunication services in Turkey) decision, dated 27.12.2007 and numbered 07-92/1191-461.

Before the amendments on the Communiqué that came into force in July 2007, as opposed to the EC Regulations, Communiqué did not take account of the general policy that block exemption regulations should cover restrictive agreements only up to certain market share thresholds.

Although, the Board always had the power to render a decision whereby it could determine that any given dominant undertaking in a certain relevant product market cannot benefit from the privileges set forth under the Communiqué, before July 2007 amendments, the Board seemed to be hesitant to exercise such right since there had been just two decisions (Frito Lay decision, dated 3.5.2004 and numbered 04-31/367-92, Efes Pazarlama-Bimpaş decision, dated 22.04.2005 and numbered 05-27/317-80 ) where Frito Lay Gıda Sanayi ve Ticaret A.Ş. (leading undertaking in the supply of packaged chips in Turkey), Efes Pazarlama ve Dağıtım Ticaret A.Ş. and Bimpaş Bira Meşrubat Pazarlama Sanayi A.Ş. (leading undertakings in the supply of beer in Turkey) have been evaluated as dominant undertakings and thus privileges set forth in the Communiqué had been taken away.

Having diagnosed the difficulties that result from the lack of applicable market share thresholds, the Board seems to have found it appropriate to make certain amendments on the Communiqué, and brought a 40% market share threshold for vertical agreements.

The fact that very identical remedies were also foreseen for Coca Cola Satış ve Dağıtım ve A.Ş. ("Coca Cola Turkey") and Mey İçki Sanayi ve Ticaret A.Ş. ("Mey İçki") subsequent to the Authority's relevant investigations mentioned above is a clear signal of the Board's increasing sensitivity towards the dominant undertakings' commercial practices concerning both de jure and de facto exclusivity arrangements.

What is also certain is that the Board's approach in relation to commercial practices which are alleged to aim at creating de facto exclusivity -, is heavily inspired by the widely known The Coca Cola Company Undertaking which was given to the European Competition Commission in 2005. As all the competition law circles throughout the world may recall, the relevant commitments offered by The Coca-Cola Company and three major bottlers ("Coca Cola") related to carbonated soft drinks ("CSD") provide;

  • No more exclusivity arrangements. At all times, Coca-Cola customers will remain free to buy and sell carbonated soft drinks from any supplier of their choice. Where large, private sector customers or public authorities organize a competitive tender for their supplies and Coca-Cola provides the best offer, it can be the only CSD supplier.

  • No target or growth rebates. Coca-Cola will no longer offer any rebates that reward its customers purely for purchasing the same amount or more of Coca-Cola's products than in the past.

  • No use of Coca-Cola's strongest brands to sell less popular products. Coca-Cola will not require that a customer that only wants to buy one or more of its best-selling brands (e.g. regular Coke or Fanta Orange) also has to purchase other Coca-Cola products such as its Sprite or its Vanilla Coke. Similarly, Coca-Cola will no longer offer a rebate to its customers if the customer commits to buy these other products together with its best-selling products or to reserve shelf space for the entire group of products.

  • 20% of free space in Coca-Cola's coolers. Where Coca-Cola provides a free cooler to a retailer and there is no other chilled beverage capacity in the outlet to which the consumer has a direct access and which is suitable for competing CSDs, the outlet operator will be free to use at least 20% of the cooler provided by Coca-Cola for any product of its choosing

As back-to-back decisions of the Board with regard to the de facto exclusivity had inevitably raised the question of "how to conduct financing arrangements, target rebates in compliance with the Board's recent precedents" by the dominant undertakings, the Board's relatively satisfactory response to the relevant question was not late.

In its very recent (reasoned decision was published at the Authority's web-page on May 22, 2008) Mey İçki Burak Gıda decision, the Board attempts to draw the line for the conduct of financing arrangements and target rebates by the dominant undertakings. In this respect the Board held the followings;

  • Minimum purchasing commitments in the vertical agreements to be concluded by and between Mey Icki and sales points are altogether prohibited (regardless of whether it is made based on a previous reference period or not).

  • Minimum purchasing clauses set forth in such vertical agreements can only be deemed acceptable if it is designed on a non-obligatory basis (by way of the sales points' targeting to purchase and sell certain amounts rather than being obliged to do so.)

  • Financing arrangements should in no way co-relate with the targeted certain amounts by the sales points. In other words such incentive programs should be held separate from achievement of the sales points to the targeted certain amounts.

  • The Board always reserves the right to interfere in such arrangements if it concludes that Mey İçki intends to convert target rebates into loyalty rebates (either de facto or de jure basis).

A careful consideration of the new precedents reveals that the Board is getting more and more determined in its combat against unlawful conducts of the dominant undertakings.

The answer to the question of whether newly introduced principles serve these purposes remains to be seen. The relevant trend, however, corroborate the Board's intention to focus more on monitoring the dominant undertakings' legal and commercial practices.

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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