Turkey: Highlights In The Guidelines On Vertical Agreements

Last Updated: 12 July 2018
Article by Seyma Inal

In competition law, agreements between undertakings, which are at different levels of the supply chain, are classified as vertical agreements. Competition law sensitivities which may arise from vertical agreements have mainly been regulated under the Communiqué No. 2002/2 on Block Exemption on Vertical Agreements (the "Communiqué No. 2002/2") and a guideline setting forth how to implement the relevant Communiqué in detail in line with the principles of the source European competition law has been an extremely useful secondary legislation mechanism for around 10 years. On the other hand, it is possible to state that, due to the evolution of the business models in the world, the intensification of internet usage, the intensive flow and increase of trading through online markets in addition to the traditional methods, the relevant Communiqué has become unable to respond to the competition law problems that may arise out of the specific dynamics of these markets at certain points.

Even though the established practices of the Competition Board have taken certain positions, specific to concrete files regarding these matters, the necessity to include these principles in the Guidelines on Vertical Agreements (especially due to prevalence of online markets) had, in any case, arisen. The new guidelines addressing to this necessity and containing comprehensive revisions have been published. Indeed, guidelines are documents prepared for the purposes of clarifying the competition legislation.

The Guidelines on Vertical Agreements (the "Amended Guidelines") have been put into practice upon being published on the official website of the Competition Board on the 30th of March, 2018 following its adoption on the 29th of March, 2018 under no. 18-09/179-RM(1).

The main innovations introduced by the Amended Guidelines are specified below.

1.      Most Favoured Customer Clause

The "Most Favoured Customer Clause" ("MFC") means the provision of the same advantageous conditions to a specific customer or customers in case the vendor supplies goods and services to other buyers under more advantageous conditions, and especially in recent years, these provisions have been caught by the radar of many competition authorities in the world, including the Competition Board, and put through comprehensive evaluations.

The Amended Guidelines actually specifies, in line with the position in the decisions of the Competition Board regarding "Booking.com" and "Yemeksepeti" (an online food ordering service), that in principle, if the market share of the party who is favoured under the agreement does not exceed 40% and other requirements specified in the Communiqué no. 2002/2 are met, MFCs can fall into the scope of block exemption. The Amended Guidelines also explain the factors which may play a role in the evaluation of individual exemption for MFCs, in cases where the market share limit is exceeded.

It may be stated that these principles, which will guide the undertakings in identifying, at the beginning, the competition law sensitivities arising from these clauses that are being used more intensely every passing day in the business life, are useful. The Amended Guidelines also examine the relationship between MFC and the determination of resale price and state that the MFC clause, which may decrease the vendor's motive to supply products to buyers, other than the favoured buyers, with better prices and under better conditions can further strengthen the impact of direct or indirect methods of determining the resale price, but also emphasize that the MFC clause and similar supportive practices reinforcing the effectiveness of fixing the resale price should not be alone considered as practices leading to the determination of the resale price.

Thus, it has been clarified that this practice, which has recently been a matter of dispute in Turkey, especially after the decision of the Competition Board regarding "Yemek Sepeti", should be evaluated by the parties to the agreement and by the Competition Board on the basis of the nature of each incident, and that the existence of this practice is not alone a breach of competition.

2.      Region and Customer Limitation - Passive Sales

Under competition law, the restriction of active sales to be made by the vendor to an exclusive region or an exclusive customer group allocated to it or a buyer is prohibited as a rule. Active sales are sales which are conducted by means of direct marketing methods such as letter or visit to individual customers in an exclusive region or to an exclusive customer group of another buyer. Therefore, under competition law, passive sales are not prohibited provided that they are evaluated separately on a case by case basis. Contrary to active sales, passive sales are realized in order to meet the demands which are directed by the customers in the region or in the customer group of another buyer and not caused by active efforts of the buyer.

Considering the present increase in online sales, whether these sales are active or passive, in other words, whether these sales are suitable for competition, has been a matter of dispute. In order to bring these disputes to an end, an explanation regarding this point has been added to the Amended Guidelines, which specifies that online sales shall be considered as passive sales and therefore not constitute a breach of competition, reserving the requirement for evaluation on a case-by-case basis.

However;

- If a (exclusive) distributor restricts access of customers in the (exclusive) region of another distributor to its own website or directs such customers to the website of the producer or to the other (exclusive) distributor, or

- If the (exclusive) distributor ends the sales transaction upon noticing from the address details of the customer such as delivery address, postal address, credit card info etc. that the address is not within the (exclusive) region of the distributor, or

- If a limitation is imposed regarding the proportion of the online sales to the total sales (except the cases where the vendor imposes on the distributor the requirement for the distributor to make a certain ratio of the sales through physical stores for the purposes of preserving the effectiveness of physical sales stores without preventing online sales, or that the vendor imposes requirements for adaptation of online sales to the general distribution system), or

- If it is decided that the distributor will pay the vendor a higher price for those products to be put on resale online in comparison to the products to be offered at the physical sales points,

then, passive sales shall constitute a breach of competition.

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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