Turkey: The Board's Assessment On Online Sales Bans: Strengthened Position Concerning Guidelines On Vertical Restraints

Last Updated: 2 January 2019
Article by Aktay Legal

Turkish Competition Board (the "Board") announced its decision on the preliminary investigation into Jotun Boya Sanayi ve Ticaret A.Ş. ("Jotun") pursuant to Article 4 of Law No: 4054 on the Protection of Competition ("Law").

A distributor alleged that Jotun; a company that produces, sells and markets paint and other coatings for indoor and outdoor surfaces had:

  1. maintained resale prices for its distributors,
  2. not provided products directly to the market,
  3. restricted sales made by its distributors to end users,
  4. distributed some works between its distributors,
  5. discriminated between its distributors,
  6. restricted passive sales by forbidding sales through internet

The Board ruled that their findings would not amount to a violation and decided not to proceed with a full investigation. However, the Board noted that restrictions on online sales were restrictions on passive sales and accordingly issued a written opinion that Jotun;

(i) to terminate all related practices restricting passive sales and (ii) to revise contracts concluded with authorized distributors with respect to online sales.

The allegation regarding restriction on passive sales was the only allegation where the Board found basis for further evaluation.  The Board noted a provision in Jotun's renewed dealership agreement, stating that selling Jotun products through the internet was forbidden. This decision is especially significant since it pertains to online sales, a subject only recently embodied in the Guidelines with the amendment. In addition, Jotun refers to the European Commission's report on e-commerce, in which the European Commission signified augmenting practices on vertical restraints at the distribution level in the e-commerce sector in its report published in 2017 and weighed on the opinion that online sales shouldn't be restricted upon dealers. Most common restraints cited in the said report were:

  • Excluding undertakings which conduct only online sales from the distribution channel,
  • Price restrictions in the e-commerce channel,
  • Forbidding the internet as a sales platform,
  • Restrictions on price comparison engines.

According to the European Guidelines on Vertical Agreements, relevant vertical restraints may benefit from an individual exemption, if there is an "objective cause" for a product to be sold only through physical platforms. The Board cited two relevant cases held in the appellate review of the European Court of Justice (ECJ) which were Pierre Fabre1 and Coty2.

In Pierre Fabre, ECJ considered restrictions on online sales imposed by Pierre Fabre, a company operating in cosmetics and personal care markets, on its distributors. ECJ did not recognize Pierre Fabre's defence citing that (i) need for expert advice to use the relevant products and (ii) damages to brand image due to online sales. ECJ decided that the aforesaid restriction fell outside the block exemption and further, could not benefit from an individual exemption.

On the other hand, in Coty where the undertaking likewise established a selective distribution system, ECJ opined that a supplier might restrict online sales realised through discernible "third-party online platforms" to protect brand image of "luxury" products as long as the distributors are allowed to conduct online sales through their own online stores or through non-discernible third-party platforms. In particular, such non-discernible platforms offer SaaS (Software as a Service) to create online stores, making it easier for such distributors to operate online stores.

In Turkish Competition Law, the Communiqué grants a block exemption to vertical agreements from application of Article 4 of the Law. Within its scope, passive sales cannot be prohibited for any kind of distribution system and Paragraph 24 of the Guidelines characterises online sales as such. Furthermore, in a selective distribution system, although suppliers may prohibit dealers from selling products to unauthorised dealers, they cannot restrict active or passive sales of authorised dealers to end users in the retail level.

Jotun has established a selective distribution system which prohibited dealers from selling products to unauthorised dealers. However, Jotun had radically forbid the internet as a sales platform. The Board found this provision disproportionate with its stated purpose and that it fell beyond the scope of group exemption granted by the Communiqué and could not benefit from an individual exemption either. To obstruct sales to unauthorised dealers, the Board proposed a lighter alternative limiting the number of products sold to customers through internet as this condition might also be set forth for physical sales.

Nevertheless, the Board did not launch a full investigation since Jotun had limited power in the relevant market. Since Jotun's practice did not have restrictive effect on competition, the Board decided to only issue a written opinion. 

Footnotes

1  C-439/09 Pierre Fabre Dermo-Cosmétique SAS.

2 http://curia.europa.eu/juris/document/document_print.jsf?doclang=EN&text=&pageIndex=0∂=1&mode=lst&d ocid=197487&occ=first&dir=&cid=861368

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