The advent of digitalisation and technological advancements has significantly transformed trade practices, particularly in the retail and e-commerce sector. Unlike traditional commercial practices, the provision of retail services through digital platforms has become widespread. However, the rise in competition among businesses seeking strategic opportunities through digitalisation, coupled with the vertical agreements that include internet sales bans, has paved the way for potential competition violations. Internet sales bans arising from distribution agreements hinder the formation of a competitive market and significantly impact consumer behaviour. To ensure a competitive environment in the retail sector via e-commerce platforms, it is crucial to understand the regulations in Turkish law, the decisions of the Competition Board (the "Board") and the Court of Justice of the European Union ("CJEU") regarding internet sales bans.
- LEGAL FRAMEWORK
Article 4 of Law No 4054 on the Protection of Competition
Article 4 of Law No 4054 on the Protection of Competition (the "Law") addresses agreements between undertakings that directly or indirectly aim to prevent, distort or restrict competition, or that have or may have the effect of preventing, distorting or restricting competition. This includes both horizontal and vertical agreements.
Vertical agreements, as defined in Communiqué No 2002/2 on Group Exemption for Vertical Agreements (the "Communiqué"), are exempt from Article 4 if they meet the conditions specified in the Communiqué. However these conditions do not include the limitations listed in Article 4, which exclude certain agreements from the group exemption framework.
Market Share and Exemptions
The provider's market share in vertical agreements must not exceed 30% in the relevant market. Vertical agreements that prevent buying and selling among system members in the selective distribution system do not qualify for group exemption, as stated in Article 4 of the Communiqué. Additionally, active and passive sales restrictions applied by system members at the retail level to end users in the distribution chain are included. According to the Guidelines on Vertical Agreements regarding the implementation of Communiqué No 2002/2 (the "Vertical Guidelines"), sales and activities conducted through the internet are considered passive sales. Therefore, prohibiting authorised dealers' sales through the internet channel results in exclusion from the scope of group exemption.
Objective Justifications and Restrictions
While some restrictions that the provider may impose on the distributor may constitute an infringement of competition, the quality, brand image and quality conditions of the product to be sold on the internet also provide a legal basis for the restrictions that may be imposed by the provider. According to the Vertical Guidelines, providers may impose certain restrictions on internet sales. These restrictions can apply to physical sales points, catalogues where advertisements are published, with some restrictions also being imposed on sales made through the internet as another sales channel. It is stated that the scope of these limitations may include conditions such as the provider's ability to impose quality criteria regarding the website where the sale is made, or the provision of certain services by the distributor to consumers shopping through the internet channel. According to the Vertical Guidelines, the restrictions imposed by the provider on distributors should not aim to push distributors selling through the internet out of the market or restrict their sales in e-commerce.
Providers must offer objective, consistent conditions and justifications that align with the product's characteristics regarding these restrictions. Internet sales bans without proper justification will be considered a violation of competition law. Likewise, since authorised dealers selling in selective distribution systems are free to choose active or passive sales, the complete restriction of direct internet sales without justification will also be considered as an absolute restriction. Such restrictions constitute an obstacle to benefiting from the exemption.
- COMPETITION BOARD DECISIONS
Although the scope of evaluation of the Competition Board (the "Board") in its initial decisions was shaped around active/passive sales bans, internet sales bans were considered passive sales under Turkish law, within the framework of the Communiqué and the Vertical Guidelines. However, it has been observed that the Board's decisions have also taken into account certain qualitative criteria presented by the providers, in addition to the active/passive sales distinction, influenced by the Guidelines published by the European Commission. In this framework, the Board's decisions regarding internet sales bans are as follows:
- Yatsan Decision:1 In the Yatsan decision, the Board considered the introduction of an internet sales ban to prevent passive sales as a severe restriction. The Board evaluated whether the internet sales ban imposed by the relevant undertaking had an objective justification, such as protecting public safety and consumer health, or whether there were conditions that would not lead to an infringement of competition, such as the introduction of a new product to the market for the first time, or the introduction of the relevant brand for the first time on a new market. The Board determined that the relevant conditions were not met. Although the Board accepted the grounds of risk of free-riding and protection of brand image as important grounds for individual exemption, it emphasised that less restrictive measures could achieve these objectives.
- Jotun Decision:2 In the Jotun decision, the Board assessed the restriction of internet sales, within Jotun's selective distribution system. The Board found that an absolute prohibition of internet sales in Jotun's new distributor agreements constituted a vertical restriction that excluded the relevant vertical agreement from the group exemption. The Board assessed that Jotun's total prohibition on internet sales, in order to restrict sales to unauthorised distributors, constituted a disproportionality. The Board stated that less restrictive measures could achieve the objective sought by Jotun, such as limiting the amount of products a customer can purchase online.
- Avon Decision:3 Avon resellers were prohibited from making internet sales through practices requiring Avon's approval for online sales. The Board characterised the prohibition of internet sales with a definite and absolute restriction in order to restrict intra-brand competition or to prevent passive sales as a severe restriction.Within the framework of the commitment text submitted by Avon, Avon undertook to ensure that in future contracts, re-sellers would be allowed to make internet sales, including on online marketplaces, and that this information would be included in Avon's online platforms and monthly representative magazine.
- L'Oréal Türkiye
Decision:4 The Board evaluated
L'Oréal's selective distribution principle for
certain products, including the approval of online sales by
L'Oréal and prior authorisation for advertising.
The Board found that the restrictions imposed by L'Oréal on internet sales should be objective and that only members of the selective distribution system could make internet sales. These issues were addressed in the commitment text submitted by L'Oréal, and the Board accepted L'oréal's commitments. However, in the relevant decision, the Board did not consider the approval mechanism introduced by L'Oréal Turkey regarding the advertisements applied by L'Oréal Turkey to resellers as a competition problem, stating that certain conditions may be put forward regarding the internet sales of undertakings adopting the selective distribution system, provided that they are objective.
In addition, the Board approved this condition for technical products by stating in the commitment text submitted by L'Oréal Turkey that the sale of L'Oréal technical size products through the internet would be permitted if the buyers of L'Oréal technical size products are professional customers such as hairdressers. However, it would not be permitted for technical products, even if the buyers are professional customers. As a justification, it was stated that technical size products are different from technical products, and it was also stated that a special training is required for the use of technical products. Based on these reasons, since technical products containing intense chemicals would pose a danger to human health, the Board found it appropriate to prevent the sale of these products over the internet on the grounds of consumer health. - Hunca Life Decision:5 Hunca Life
applied a direct sales method, prohibiting sales at retail points
and on the internet. The restrictions of Hunca Life imposed on its
re-sellers were evaluated as the prevention of active and passive
sales within the scope of Communiqué No 2021/2. The Board
accepted Hunca Life's commitment to allow sales in all
channels, including online channels at the retail level, without
separate authorisation or approval.
Oriflame Decision:6 Oriflame imposed internet sales bans and customer restrictions on its resellers. The findings of the investigation revealed that one of Oriflame's brand partner selling on Trendyol was complained about by another brand partner, and that brand partners who did not comply with internet sales procedures were blocked. As a result of the findings obtained within the scope of the investigation, the definite and general restriction on internet sales imposed on re-sellers was characterised as the prevention of active and passive sales. Within the framework of the commitment text brought by Oriflame, it was stated that all provisions regarding internet sales prohibitions on resellers defined as brand partners would be removed. Additionally, no approval mechanism would be applied for online sales, and these changes to the agreements with brand partners would be announced on Oriflame's website. With these amendments, the Board concluded that the commitments made by Oriflame were capable of eliminating competitive problems and terminated the investigation
- European Union Case Law
The perspective adopted by the European Commission on internet sales is also very important in the case of recourse to EU law, which is model legislation. The main perspective of the European Commission at this point is that the ability of sellers who are parties to a vertical agreement to sell via the internet should not be restricted. Likewise, if the principle of selective distribution is adopted between the parties, the existence of certain limitations in terms of active/passive sales is considered as a severe limitation under the Group Exemption Regulation No 330/2010.
Pursuant to the EU Vertical Guidelines, in order for vertical restraints to benefit from the exemption, there must be an objective reason to sell the product subject to the vertical relationship and agreement in a physical sales environment. For this reason, in light of the Pierre Fabre and Coty decisions evaluated by the CJEU, it is very important how the restriction of internet sales is evaluated in EU case law.
- Pierre Fabre Decision:7 In the decision first handled by the French Competition Authority, it was decided that the provision prohibiting internet sales, which the undertaking added to its distribution agreements, could not benefit from individual or group exemption on the grounds that it restricts competition for objective reasons. The CJEU, which examined the decision on appeal, stated that the agreement prohibiting internet sales would restrict competition unless there is an objective reason arising from the characteristics of the product subject to the agreement. Therefore, the justification on the grounds that the products subject to the relevant agreement should be used with expert advice or that sales via the internet would damage the brand image was not accepted by the CJEU.
- Coty Decision:8 In this decision of the CJEU, the restriction imposed by the undertaking implementing a selective distribution system on distributors who are parties to the agreement regarding the prohibition of sales via the internet was examined. The CJEU concluded that the restriction imposed by the undertaking regarding the nature of the products subject to the agreement would not constitute a passive sales prohibition. The CJEU approved that the products subject to the agreement could be considered as "luxury goods", meaning that the undertakings could apply the restriction on the sale of luxury goods on other third parties or e-commerce platforms for the purpose of protecting the brand image of the undertakings on the grounds that it was in accordance with the nature of the products.
- CONCLUSION
The evaluations regarding internet sales bans vary according to the sector and product characteristics. It is essential to consider whether the objective of the internet sales ban can be achieved by another measure. The problems and issues regarding internet sales bans and the crucial role of e-commerce in economic life will continue to develop with specific examples from case law and legislation.
Footnotes
1 Decision of the Board dated 23.09.2010 and numbered 10-60/1251-469.
2 Decision of the Board dated 15.02.2018 and numbered 18-05/74-40.
3 Decision of the Board dated 23.03.2023 and numbered 23-15/252-83.
4 Decision of the Board dated 07.09.2023 and numbered 23-41/808-287.
5 Decision of the Board dated 21.12.2023 and numbered 23-60/1175-421.
6 Decision of the Board dated 14.03.2024 and numbered 24-13/245-102.
7 C-439/09 Pierre Fabre Dermo-Cosmétique SAS.
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