Turkish Competition Authority ("the Authority") has reviewed the Guideline on Vertical Agreements (" the Existing Guideline") considering the developments in the legislation of European Union as well as the requirements in related sector and announced the "Draft Guideline on Vertical Agreements" ("the Draft Guideline") where some explanations in the Guideline has been changed and some new explanations have been added, with the aim at obtaining public consultation.
The Draft Guideline includes mainly some amendments in and additions to ''Agency Agreements'', ''Internet Sales'' as well as ''Most Favored Customer Clause''.
Agency Agreements
The Existing Guideline indicates that non-competition clauses in the agency agreement could have effect to restrict the competition in the market and fall under the scope of Article 4 of Law on the Protection of Competition No. 4054 ("the Law") , if they could foreclose the market. As understood, this explanation in the Existing Guideline included a possibility itself. However, in the Draft Guideline, it is aimed to remove the difference between the agency agreement and other vertical agreements and with this approach it has been stated that both the agency agreements and other vertical agreements should be subject to the same assessment processes in terms of the non-competition clauses in the agreements. In this regard, if the agency agreements including non-competition clauses effective both during the effectivity of the agreements and after the termination and/or expiry of the agreement, these could have effect to foreclose the market and fall under the evaluation within the scope of Article 4 of the Law.
Online Sales
As is known, it is possible to designate exclusive sales locations or regions for buyers in a provider-buyer relationship in a distribution network. Fulfilling demands of customers from the region or customer group of another (exclusive) buyer and which are not a result of active efforts by the buyer constitutes passive sales and restriction of passive sales to exclusive regions or customer groups is prohibited and considered an infringement which excludes the agreement from the block exemption.
As the Internet becomes a widespread sales channel day by day, the Authority has accepted internet sales as a new distribution channel and aimed to provide a balance of interests in terms of competition rules and accordingly new sections related to internet sales have been deemed necessary by the Authority to add to the Existing Guideline.
In this regard, it has been deemed appropriate to add the phrase "the restriction of a vendor's buyers to sell on the Internet is a kind of passive selling restriction" following the section where the passive sales are described. It is explained in the Draft Guideline that each supplier/ dealer / distributor have the right to make sales outside its region by selling through the internet and the prohibition of passive sales is not benefitted from the exemption. In particular the agreements including the following restrictions (for exclusive distributors) would not take the advantage of the block exemption;
- Restriction of access to customers located in another distributor's region to its website or reroute of such customers to the website of the manufacturer or other (exclusive) distributor,
- Termination of the transaction by the distributor, once it has been realized from the address in the customer's credit card that the address of the customer is not located in distributor's region,
- Restriction on the ratio of online sales to total sales
- Agreement on to pay higher price for the products that the distributor will resell online than the products to be offered to sell at the physical points of sale (offline).
However, the supplier may foresee some conditions on the use of internet as the sales channel by the distributor. In this sense, the supplier has the right to require some quality standards, sales of certain products and providing certain services, having physical point of sale (being a brick and mortar shop) etc. Despite the right to determine such conditions for online sales, such conditions may not have the effect to prevent directly or indirectly online sales.
In addition to this, in accordance with the section regulating "Selective Distribution Systems" of the Existing Guideline, no prohibition to active or passive sales to be made to end users may be imposed on system members. With the Draft Guideline, this section has been expanded to indicate that online sales are also covered by passive sales. Besides, pursuant to the Draft Guideline opening a website for online sales will not be considered as opening a new physical point of sale.
Most Favored Customer Clause
In the Existing Guideline there is no explanation on the 'Most Favored Customer' clause. Due to the increase of e-commerce and the frequency of being the subject to the investigations of the Authority the Authority deemed necessary to give a special place to the Most Favored Customer ("MFC") clause in the Draft Guideline.
Supplier provides price guarantee for a product to favored customer in MFC clauses. The Authority's approach both in the guideline and in its decisions is not to prohibit MFC clauses per-se. With this approach, the Authority has stated that MFC clauses may result in different consequences in different markets and in some markets it could harm consumers by restricting the competition and in other markets, it may cause efficiency gains in the market by increasing the competition.
Besides, the Authority has made a distinction between narrow MFC and wide MFC clauses by taking into account the recent decisions adopted by the competition authorities in European Union and gives its definition a place in the Draft Guideline.
In narrow MFC clause, the undertaking providing price guarantee to the favored customer, is not allowed to offer the same product/services on better or cheaper prices only on its own online sales channel.
Unlike narrow MFC clause, in wide most favored customer clause, the undertaking providing price guarantee to the favored customer is not allowed to offer the same product/services on better or cheaper prices to the competitors of favored customer as well as the same on its own online and offline sales channel.Competition authorities in Europe generally do not prohibit the narrow MFC clauses, but prohibit the wide MFC clauses.
The Authority has conducted three investigations in different markets focusing on MFC clauses, namely
- Decision on "Sony Europe/Arçelik" dated 08.12.2010 and numbered 10-76/1572-605
- Decision on "Yemek Sepeti" dated 09.06.2016 dated and numbered 16-20/347-156
- Decision on Booking.com" dated 05.01.2017 dated and numbered 17-01/12-4
The Authority stated in its Information Letter it has announced with the Draft Guideline that the MFC clause prevents the undertakings to offer better prices to buyers other than the favored customer and therefore the prices are to be fixed in a certain level. As is known buyers have the right to determine its own prices and determination of fix or minimum sales prices of the buyers are forbidden under Turkish Competition Law. The Authority underlines in its Information Letter that the practice of MFC clauses have the similar effect as the determination of the resale prices in the market.
In Section 9.5.2.9 added to the Draft Guideline, the different practices and potential consequences of the MFC clauses have been explained by examples and it has been stated that (i) the position of the party benefitting from MFC clause as well as its competitors (ii) the purpose of the subject MFC clause and (iii) the characteristics of the market and the MFC clause itself have to be analyzed in detail. The Authority has given the following examples:
In case the parties benefitting from the MFC clause have strong positions in the market in comparison to its competitors, the likelihood for this clause to harm the competition is high.
Unlike above example, in case the parties to the agreement including the MFC clause do not have market power, it is unlikely for the MFC clause to create a concern on its effects in the competition.
Conclusion
It is seen that the amendments and additions in the Draft Guideline explained above has been done in order to comply with the approach adopted in Europe by Competition Authorities, which is the role model of the Authority. The Draft Guideline is open to public consultation until September 11, 2017.
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.
