Turkey: Public Consultation In Turkey For Proposed Amendments To Vertical Guidelines, Addressing Online Sales And Most Favored Customer Clauses

Last Updated: 11 August 2017
Article by Bora İkiler, LL.M.

The Turkish Competition Authority recently announced a public consultation period for proposed amendments and additions to its guidelines on vertical agreements. The current regulatory framework fails to address the topic in any meaningful detail, simply indicating that online sales have the characteristic of passive sales. Current Turkish legislation also fails to address most favored customer clauses in vertical agreements. The proposed amendments aim to address these deficiencies by providing enhanced guidance information, to assist understanding and interpretation. The public can submit comments on the proposals to the Turkish Competition Authority until 11 September 2017.

The internet's development as a distribution channel enables consumers to easily reach a large amount of information, compare prices, as well as access more products and sellers. On the other hand, it also enables producers to market products at lower costs and to wider geography. Accordingly, the internet is accepted to provide a more intense competitive environment than traditional sales channels. Global discussions have increased in recent years about the role of competition law in striking the balance between protecting the benefits offered by the internet, vis-à-vis producers' commercial interests.

The European Commission revealed its approach to the issue in 2010 via the Regulation on Block Exemption (numbered 330/2010) and related guidelines. With these amendments, the Commission identified new prohibitions on online sales, as well as addressed vertical restrictions. These restrictions addressed permitted restrictions to eliminate producers' concerns about brand image and freeriding. The substance of the proposed additions is largely in line with the European approach, as is developed to date under European Commission decisions and guidelines.

A translation of the proposed amendments and additions to the Turkish vertical agreement guidelines is below. 

GUIDELINES ON VERTICAL AGREEMENTS DRAFT GUIDELINE AMENDMENTS
Online Sales
Paragraph Paragraph
- No provision in current guidelines. 25 Restriction on online sales imposed to the purchaser by the supplier is referred to as restriction of passive sales. In principle, every retailer/distributor should have right to make online sales. Below restrictions on online sales which fall within the scope of passive sales shall exclude vertical agreements from the scope of block exemption.
  • agreeing that the (exclusive) distributor shall prevent customers located in another (exclusive) territory to view its website or shall put on its website automatic re-routing of customers to the manufacturer's or other (exclusive) distributors' websites.
  • agreeing that the (exclusive) distributor shall terminate consumers' transactions over the internet once their credit card data reveal an address that is not within the distributor's (exclusive) territory;
  • agreeing that the distributor shall limit its proportion of overall sales made over the internet.
  • agreeing that the distributor shall pay a higher price for products intended to be resold by the distributor online than for products intended to be resold off-line.
- No provision in current guidelines. 26 Abovementioned restrictions shall be deemed as equivalent of restrictions on passive sales. The first two of these restrictions are related to the restrictions imposed to the purchaser regarding territory or customer where or to whom the contracted goods or services could be sold by the purchaser. Preventing online demands of specific territory and group of customers by imposing these restrictions shall be considered as hardcore restrictions.
- No provision in current guidelines. 27 Another restriction is the restriction on the proportion of overall sales made over the internet. Thus, determining a maximum amount for the sales that will be made through the internet shall constitute a hardcore restriction. Last restriction is agreeing that a higher price shall be paid for products intended to be resold online than for products intended to be resold off-line. Application of different wholesale price by the supplier either directly or indirectly (for example, discount system) shall be deemed within this scope. If the supplier is able to influence the purchaser by providing different prices for different sales channels, this may prevent the purchaser from making online sales. However, the supplier may make a fixed payment to the purchaser regardless of the revenue and amount of sales in order to promote the sales efforts of the purchaser (online or store sales).
- No provision in current guidelines. 28 On the other hand, the supplier may determine provisions regarding usage of the internet as a sales channel. For instance, the supplier may require quality standards for the use of the internet site to resell his goods, just as the supplier may require provision of specific services to the online customers or he may require the online distributors to have brick and mortar shops as well. Similarly, a supplier may require that its distributors use third party platforms to distribute the contract products only in accordance with the standards and conditions agreed between the supplier and its distributors for the distributors' use of the internet However, the purpose of these provisions must not be to prevent the online sales either directly or indirectly.
- No provision in current guidelines. 29 However, criteria for these two sales channels are not required to be exactly same due to the differences between the nature of physical sales and online sales. These criteria are required to serve the same purpose, provide comparable results and have the qualification to confirm the differences arising from the nature of these two distribution channels ("equivalence principle"). In other words, these provisions must not directly or indirectly prevent the online sales. Accordingly, in the event that the criteria determined by the supplier are contrary to the equivalence principle and be capable of deterring the purchaser from the usage of the internet as a distribution channel, such provisions would be deemed as hard core restrictions.
31 As stated in article 4.1(c) of the Communiqué, members of a selective distribution system are not prohibited from making active or passive sales to end users. Even if the undertaking in the position of a supplier forms exclusive regions by stating that it would supply goods to a limited number of buyers in a certain region, active or passive sales by the buyers to end users outside the region may not be prevented. In other words, selective distribution system member buyers may engage in active or passive sales to end users in any region. However, the supplier may prevent a system-member buyer from changing the location of the point of sale the buyer operates in, or from opening a new point of sale. This is because, as mentioned above, in the selective distribution system, the physical characteristics of the point of sale is the most important factor affecting the success of the distribution system. The other regulation which partly opens selective distribution system to competition is included in article 4.1(d) of the Communiqué. Accordingly, undertakings which adopt the selective distribution system may not place an exclusive purchase obligation on the system-member buyers. In other words, system members are not required to procure the products from the supplier; system members may not be prevented from purchasing the products from other member undertakings. 36 As stated in article 4.1(c) of the Communiqué, members of a selective distribution system are not prohibited from making active or passive sales to end users. Even if the undertaking in the position of a supplier forms exclusive regions by stating that it would supply goods to a limited number of buyers in a certain region, active or passive sales by the buyers to end users outside the region may not be prevented. In other words, selective distribution system member buyers may engage in active or passive sales including those made through the internet to end users in any region. However, the supplier may prevent a system-member buyer from changing the location of the point of sale the buyer operates in, or from opening a new point of sale. This is because, as mentioned above, in the selective distribution system, the physical characteristics of the point of sale is the most important factor affecting the success of the distribution system. However, setting up a website for online sales by the purchaser who is the member of the system shall not be deemed as opening a new physical point of sale. The other regulation which partly opens selective distribution system to competition is included in article 4.1(d) of the Communiqué. Accordingly, undertakings which adopt the selective distribution system may not place an exclusive purchase obligation on the system-member buyers. In other words, system members are not required to procure the products from the supplier; system members may not be prevented from purchasing the products from other member undertakings.
Most Favoured Customer Clause (MFC Clause)
19 Direct and indirect methods for maintaining resale prices are more effective in case where the prices that are applied by the purchasers are monitored and controlled by the suppliers. For instance, an obligation applied to all purchasers to report purchasers who sell things at different prices other than that in the standard price list makes significantly easier for supplier to control prices applied in the market. 19 Direct and indirect methods for maintaining resale prices are more effective in case where the prices applied by the purchasers are monitored and controlled by the suppliers. For instance, an obligation on all purchasers to report the purchasers who do not sell the goods for the prices in the standard price list makes it significantly easier for the supplier to control prices applied in the market. In this regard, most-favoured-customer clauses which would decrease the motivation of supplier to provide products at more reasonable prices and in more convenient conditions to the purchasers other than that of favoured-customer, may reinforce the effects of direct and indirect methods for resale price maintenance.
- No provision in current guidelines. 223 Most-favoured-customer (MFC) clauses do not always produce the same results in the market in terms of the competition. While these clauses have positive impacts on the competition in the market, they may also have anti-competitive effects. Thus, for the competitive assessment of these clauses, it is required to evaluate; (i) the market positions of the party to whom this clause is in favour and its competitors, (ii) the purpose of this clause, and (iii) the characteristics of the market and specific clause.
- No provision in current guidelines. 224 For instance, MFC clause having retroactive effect and allowing the purchaser to receive more advantageous offers in any way or increasing the costs for the supplier to make discounts for the purchasers who are not the party to this clause is more harmful to the competition compared to other clauses. Besides, in cases where the parties to the MFC clause (especially the party to whom this clause favours) have significant market power, these clauses might be deemed to be more harmful to the competition. In such cases, these clauses may cause the exclusion of competitors, who are not the party to the clause, from the market and lead to foreclosure. Furthermore, these clauses can be more harmful in more concentrated markets since, in the markets where concentration is higher, the possibility for the competitors to find an alternative supplier is much lower. Additionally, in the event that application of MFC clause in the markets becomes common and the majority of the market is subject to these clauses, the effects of these clauses need to be examined with a stricter scrutiny. In this case, the cumulative anti-competitive effects arising from these clauses and the competition restrictions would be more serious.
- No provision in current guidelines. 225 On the other hand, application of the MFC clauses may not cause competitive concerns in some cases. For instance, in the event that none of the parties to the agreement have market power, application of these clauses would not create competitive concerns. In case MFC clauses are used by the purchasers who do not have market power, it could be stated that MFC clause has a positive contribution to the competition in the market since, the opportunity to benefit from better prices and convenient conditions in the market is provided to such purchasers. In case concentration level of the upstream market is low, in other words, upstream market is competitive enough, since current and potential competitors may turn to other alternatives, competitive harm may not be materialized. In case the market is not transparent, the negative effects on competition are relatively low, since application of MFC clause cannot be monitored effectively.

Information first published in the MA | Gazette, a fortnightly legal update newsletter produced by Moroğlu Arseven

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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Bora İkiler, LL.M.
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