Turkey: Vertical Restrictions, Abuse Of Dominance, And Withdrawal Of Individual Exemption: The TCA Imposed An Avalanche Of Sanctions Against Turkish Flat Glass Producer

Last Updated: 19 December 2017
Article by Barış Yüksel LL.M., Mustafa Ayna and Hasan Güden

Introduction

The TCA published its short decision regarding the investigation conducted against Trakya Cam Sanayii A.Ş. ("Trakya Cam") on 14.12.2017 ("the 2017 Decision"). The TCA had initiated the investigation in December 2016 and after a year of review, it concluded that the findings gathered during the investigation are sufficient to hold that Trakya Cam has violated Articles 4 and 6 of the Competition Law. According to the short decision, the violation is due to Trakya Cam's de-facto application of certain distribution agreements to which the TCA refused to grant an individual exemption in 20151. The TCA not only imposed an administrative fine of approximately TRY 17,5 million on Trakya Cam but it also decided to withdraw an individual exemption granted to Trakya Cam in 20132. The TCA further required Trakya Cam to notify its authorized dealers that certain vertical restrictions in the distribution agreements will no longer be applied.

The 2013 Decision

Trakya Cam's individual exemption application concerned three types of agreements: (i) the "Domestic Authorized Sellers Agreement"3, (ii) the "Industrial Customer Purchase Agreement"4, and (iii) the "Franchise Agreement on the Production and the Marketing of Double-Glazed Flat Glass and Insulating Glass Units"5. In the 2013 Decision, the TCA granted individual exemptions for the first two agreements and held that the non-compete obligations must be removed from the third agreement.

In the short decision, the TCA stated that the individual exemption previously granted for the Industrial Customer Purchase Agreement is now withdrawn. Per the 2013 Decision, the only vertical restraint in the said agreement was the obligation imposed on the industrial customers requiring them not to resell unprocessed single layered flat glasses. The withdrawal of the individual exemption means that the industrial customers of Trakya Cam would now be allowed to resell unprocessed flat glass.

The 2015 Decision

In 2015, Trakya Cam has applied to the TCA for an individual exemption for the agreements to be signed with the authorized flat glass resellers. Those agreements granted exclusive territories to the resellers while also imposing non-compete obligations. Trakya Cam also reserved certain customers exclusively for itself.

Since Trakya Cam's market share in the flat glass market (which was not further divided into sub-markets) was far above 40%, the agreements fell out of the scope of the block exemption and the TCA conducted an individual exemption analysis. The TCA mainly focused on the market power of Trakya Cam and assessed the characteristics of the relevant market in detail. With respect to Trakya Cam's market power; the TCA emphasized that Trakya Cam had a very high market share well above its only local competitor, a significant production capacity, a wide product portfolio, a strong brand image and a strong financial position. With respect to the characteristics of the relevant market, the TCA noted that entry already required significant investments and that the first mover advantage combined with the strong brand image of Trakya Cam should be deemed as an additional factor rendering entry even more difficult. The TCA then explained that although the agreements in question would not foreclose a considerable portion of the wholesale market to Trakya Cam's competitors, the wholesalers with which the agreements would be signed were of critical importance. Hence, the TCA concluded that the agreements could indeed lead to market foreclosure and refused to grant an individual exemption.

The 2017 Decision

In the 2017 Decision, it is understood that TCA found evidence that Trakya Cam did apply the agreements that were deemed to be illegal in the 2015 decision and held that this constituted a violation of Articles 4 and 6 of the Competition Law. The 2017 Decision shows that the TCA confirmed once again that Trakya Cam is in a dominant position in the flat glass market.

Aside from that, the TCA rendered a rather exceptional decision and withdrew the individual exemption it granted to the Industrial Customer Purchase Agreement in the 2013 Decision. The grounds for TCA's withdrawal of the individual exemption will be elaborated in the reasoned decision but it is highly probable that the TCA concluded that there is a link between these agreements and Trakya Cam's abusive practices in the flat glass market. The TCA might be aiming to make the flat glass market even more competitive by allowing the industrial customers of Trakya Cam to be the resellers of unprocessed flat glass.

Finally, the TCA requested Trakya Cam to notify its authorized dealers that they do not benefit from a territorial exclusivity and that, consequently, they are entitled to actively sell Trakya Cam's products on a national scale.

Footnotes

1 TCA's decision dated 02.12.2015 and numbered 15-42/704-258 ("the 2015 Decision").

2 TCA's decision dated 24.01.2013 and numbered 13-07/73-42 ("the 2013 Decision").

3 The agreement does not contain any exclusive purchase duty, non-compete obligation, or territorial/customer group exclusivity.

4 The agreement does not contain any exclusive purchase duty or non-compete obligation but establishes an exclusivity of supply complemented by a prohibition to resell the product in the form of slab.

5 The agreement contains a non-compete obligation and some of its provisions could lead to quantity forcing.

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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Authors
Barış Yüksel LL.M.
Mustafa Ayna
 
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