Vertical relations between suppliers and distributors are subject to the principles set out in the Article 4 of the Act no 4054. Subsequently the Block Exemption Communiqué on Vertical Agreements1 (“Communiqué”) entered into force as secondary legislation and the Guidelines on Vertical Agreements2 has been published by the Turkish Competition Authority (“TCA”) to clarify the implementation. The rules in the Communiqué regarding the implementation of competition law in terms of vertical relations are largely in line with the Vertical Block Exemption Regulation3 (VBER), which is currently in force in Europe Union.
The market share threshold identified in the Communiqué for the scope of the block exemption, is determined as 40%4. Accordingly, undertakings that have a market share above this specified threshold are not eligible for block exemption and are expected to apply for individual exemption when deemed necessary. Considering the “extra” competition law responsibilities loaded on undertakings with dominant position, the conditions for individual exemption are more difficult to be met by such undertakings. The most recent case of TCA, where vertical relations of an undertakings with dominant position is taken under close scrutiny, is the Trakya Cam Case-III5. Trakya Cam has a strong dominant position in the “flat glass market” for several reasons such as; the market share above 70%, the presence of market entry barriers, portfolio advantage provided by seven “float” lines, high financing capacity arising from being a part of Şişecam group, strong brand image of Isıcam brand and the reliability of the group's being the only producer in the market for years and foreign trade restrictions in effect6. Trakya Cam continued to maintain its dominant position in the following years. In this article, we intend to briefly go over Trakya Cam cases of TCA.
First, in the Trakya Cam Exemption Decision-I7 dated 2015, TCA examined the agreement signed between Trakya Cam and a total of eighteen dealers, and decided that the agreement includes active sales prohibition and non-compete clauses, but not any prohibition for passive sales. In this decision, TCA concluded that the agreement could not benefit from the block exemption on the grounds that the market share threshold was exceeded and therefore conducted an individual exemption assessment. Under individual exemption assessment, TCA reached the following conclusions:
- The authorized dealers will be able to evaluate the demand more accurately by focusing only on Trakya Cam products and their own region and/or customer groups, and this will enable Trakya Cam to make production planning more effective by receiving more accurate feedback about the market. In this regard, TCA also stated that Trakya Cam will have the opportunity to make more effective production planning by observing the stock and sales status of authorized dealers more effectively with the software program to be installed by the dealers. By evaluating that the authorized dealers concentration on certain regions and/or customer groups can contribute to reaching more points, better planning of their distribution and logistics activities, emerging economies of scale and thus rationalizing the distribution, and the incentive of the dealer to increase the service quality by investing will increase, TCA concluded that the first condition of individual exemption of “providing new developments and improvements or economic or technical development in the production or distribution of goods and the provision of services” is met.
- TCA has found that in contracts where active sales are restricted, passive sales are negligible due to the unique characteristics of the product, and consequently, intra-brand competition is eliminated, restrictions will have a greater negative impact when inter-brand competition is also very limited. In addition, considering that in the event that the competitive pressure of the provider's competitors in the market is not strong enough, these restrictions will limit the freedom of choice of consumers and thus reduce consumer welfare, TCA has concluded that the “consumer benefits from this” condition is not met.
- On the grounds that with its market share, capacity, product range and diversity, financial power and brand awareness, Trakya Cam is in a very strong position against its competitors in the flat glass market, the market power of Trakya Cam's competitors remains at a significantly low level and they are not at a level to compete with Trakya Cam, entry barriers in the relevant market are high, the trade of flat glass products, especially inter-regional trade and arbitrage, will become difficult in the downstream market, and some other factors will cause restriction of competition, TCA has concluded that the “competition should not disappear in a significant part of the relevant market” condition is not met.
- On the grounds that there is dependence on Trakya Cam's products, Trakya Cam might be in a monopoly position in terms of some flat glass products, therefore, the non-compete obligation in the agreement is highly likely to close the market to other competitors, TCA has concluded that the “competition should not be restricted more than necessary” condition is not met.
As a result of individual exemption assessment, TCA rejected to grant individual expemtion to the agreement on the grounds that the last three conditions as mentioned above, were not met.
Second, in the Trakya Cam Exemption Decision-II8 dated 2017, the TCA examined the exemption request to the distributorship agreement planned between Trakya Cam and its dealers. TCA determined that the distributorship agreement includes the non-compete clauses, but does not impose an exclusive zone allocation any active or passive sales prohibition to authorized dealers. TCA determined the relevant product market as "flat glass market" in this decision, as in 2015. TCA conducted an individual exemption assessment and reached the following conclusions:
- TCA concluded that the contract met the condition of “providing new developments and improvements or economic or technical development in the production or distribution of goods and the provision of services”, largely on the same grounds as the decision taken in 2015.
- TCA was convinced that the “consumer benefits from this” condition is fulfilled on the grounds that the motive of being an authorized dealer of Trakya Cam, whose number has been reduced, can increase the consumer's freedom of choice between different retail outlets and products with the same or different brands by contributing to the number of final sales points, product variety, continuity of supply, the Agreement can support the product supply that responds to the trends of the consumers, that the efficiency in logistics and stock management and the rationalization of the distribution will result in cost savings at both the provider and the resale/wholesale distribution level, and the end consumer can be prevented from being deceived in terms of the flat glass product, which cannot be distinguished from each other by the end consumer.
- TCA has concluded that the “competition should not disappear in a significant part of the relevant market” requirement is met by taking into account the obligation to only compete at the reseller/wholesale level, the absence of any restrictions at the retail level, and the existence of a large number of undertakings operating in the same segment with authorized dealers, dynamic structure of the market in terms of product and distribution channels in the flat glass market, and similar factors.
- TCA considered that the “competition should not be restricted more than necessary” requirement is met on the grounds that Trakya Cam will sign agreements with only 19 of the undertakings at the reseller/wholesaler level estimated to be over 100 in the market, the remaining undertakings will be able to continue their trade with Trakya Cam's competitors as they wish, and the provisions of region allocation, exclusivity and therefore active sales restriction, recommended price, appointment of a dealer manager to authorized dealers by Trakya Cam, who will be located in the dealers to determine and control almost all sales planning and strategy of the dealers, through the software system to be installed on the dealers and integrated with the system of Trakya Cam, the provisions for making passive sales difficult by determining whom included in the agreement subject to application in 2015 have been removed from this Agreement.
Therefore this time, TCA granted individual exemption to the Agreement for the duration of the contract, which was arranged for two years, since it met all the conditions listed in Article 5 of the Act No. 4054.
Lastly in the Trakya Cam Exemption Decision-III9 of 2020, which is a continuation of the exemption decision taken in 2017 and is quite current, TCA has been determined that the Agreement includes the non-compete obligation, but does not include exclusive zone allocation to authorized dealers and no active and passive sales prohibition in this context. Taking into account the previous decisions, the relevant product market is defined as “flat glass market” and the relevant geographical market as “Turkey” again. As a result of the individual exemption examination, TCA reached the conclusion that the agreement is very similar to the one assessed in 2017 and that it was expected from the undertaking to support their arguments for eligibility to exemption with much more concrete data in order to provide sufficient certainty that the efficiency gain has been or will be realized. However the undertaking did not provide sufficient explanations regarding the contribution to the economy in general and to the consumer in particular. As a result, TCA has decided that individual exemption cannot be granted to the Agreement subject to notification, since the first and second conditions listed above were not fulfilled.
In the case of Trakya Cam, it is noteworthy that the TCA refused to renew an exemption on the grounds that the efficiency gains are not realized in the period following the previous exemption decision. In this sense, it is of great importance to concretely demonstrate the efficiency gains in the market, attained through an already exempted agreement to obtain a renewal. In other words, when evaluating the application made after the exemption period has expired, the TCA attaches great importance to the effects of the exemption period. As it can be seen from the most recent example of Trakya Cam decisions, it may be very difficult for suppliers in the dominant position to obtain a permit from competition authorities within the scope of individual exemption for contracts with their distributors that contain provisions restricting competition.
1 Turkish Competition Authority Block Exemption Communiqué on Vertical Agreements Communiqué No: 2002/2 https://www.rekabet.gov.tr/Dosya/communiques/17-pdf Date of Access: 11.11.2020
2 Turkish Competition Authority, Guidelines on Vertical Agreements https://www.rekabet.gov.tr/Dosya/guidelines/guidelines-on-vertical-agreements-(2018)ing-20180420105658388.pdf Date of Access: 11.11.2020
3 European Commission Regulation (EU) No 330/2010 of 20 April 2010 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32010R0330&from=EN Date of Access: 11.11.2020
4 In terms of the motor vehicle sector, vertical rules are different from general rules on certain issues, and market share thresholds can be varied. Competition law rules for motor vehicles are regulated in Block Exemption Communiqué on Vertical Agreements in the Motor Vehicles Sector (Communiqué No. 2017/3).
5 TCA Decision 21.12.2017, 17-42/670-298
6 TCA Decision - 17.11.2011, 11-57/1477-533
7 TCA Decision - 02.12.2015, 15-42/704-258
8 TCA Decision 21.12.2017, 17-42/670-298
9 TCA Decision 25.06.2020, 20-31/382-171
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