Turkey: Vertical Agreements And Block Exemption In Competition Law

Last Updated: 18 July 2019
Article by Özge Kisacik

SUMMARY

Vertical agreements allow enterprises to product and distribute in an efficient way; therefore, it results with the increment of competition between the brands. If the requirements are fulfilled some brands can be excused from the forbidding in the article 4 of the law on the protection of competition no 4054 ("Law no 4054")

Key Words: Vertical agreements, communique no 2002/2, block exemption, Competition Law, law no 4054

INTRO

As it is known, regulations relating to vertical agreements are set in, law no 4054 and Block exemption communiqué on vertical agreements no 2002/2 ("Communiqué"). According to the fourth article of law no 4054: "Agreements and concerted practices of the enterprises and decisions and practices of the associations of enterprises the object or effect or the possible impact of which is, directly or indirectly, to prevent, distort or restrict competition in a certain market for goods and services, are unlawful and prohibited." If the requirements of the fifth article of law no 4054 are fulfilled, the enterprises can be exempted from article four. The said exemption may be in the form of recognition of group exemption by the Communiqué or in the form of individual exemption decision. Two or more enterprises which are in the different level of production and distribution are exempted from the prohibition of the article four of the law no 4054 as group exemption. Herein this article's subject is, the group exemptions which are recognized by the vertical agreements.

SCOPE OF THE COMMUNIQUE

According to article 2 of the Communique, vertical agreements are defined as: "Agreements concluded between two or more undertakings operating at different levels of the production or distribution chain, with the aim of purchase, sale or resale of particular goods or services." In another way of speaking, vertical agreements embody, distribution, franchise, authorized service and dealer agreements between enterprises that are not opponent to each other by their position in the market. As the seventh article of the communique states, alongside with vertical agreements, the communique is also applicable to vertical concerted practices.

Additionally, all the vertical agreements are not held exempted within the scope of the communique. It is crucial to state that, the exemptions are only applied when the market share of the provider's in the market of goods and services which are subject to vertical agreement are below %40. In that case, it is important to calculate the market shares of the enterprises for exemptions.

Extensive information regarding vertical agreements and block exemptions, in accordance with communique are stated below.

1. Intellectual Property Rights in Vertical Agreements

Vertical agreements having clauses regarding transfer of intellectual property rights or the usage of the rights by the buyer, in addition to provisions regarding purchase, sale and resale of goods and services, if the intellectual property rights are directly related to usage of goods and services by the buyer or the buyer's customers can benefit from the block exemption in the Communiqué unless the usage or transfer of the intellectual property rights do not constitute the main purpose of the agreement.

Moreover, if the provisions regarding intellectual property rights carry the same purpose with the agreements that are not exempted in Communiqué then those provisions will not benefit as well.

2. Vertical Agreements Between the Opponents

Regardless of the fact whether they carry on business in the same geographical market, the enterprises that facilitate in the same product market in Turkey or has a potential to facilitate are considered as opponent enterprises.

The vertical agreements conducted between the opponents enterprises cannot benefit from the exemptions. In any case, because the agreements signed between two enterprises are considered as horizontal agreements they are not within the scope of communique.

However, if the supplier is both producer and distributor and the buyer is just a distributor then in that case, parties can benefit from the exemption

3. Limitations that Leave Block Exemptions Out of the Scope

a. Adjusting the Resale Price

It is forbidden for a supplier to designate a fix or minimum price for the buyer. However, the provider can recommend a sale price or designate a maximum price for the buyer provided that it does not become a fixed or minimum sale price. To prevent recommended prices and maximum prices, converting into minimum or fixed price, these prices have to be marked on the good or be stated in published price lists.

b. Restriction of Region and Customer

The region or customer sharing types listed under the four headings in paragraph (b) of the first paragraph of Article 4 of the Communiqué are not considered as restrictions that exclude agreements from group exemptions.

  • Restriction of active sales to a specific region or exclusive customer group assigned to the provider himself/herself or a buyer by the provider on condition that the restriction does not cover sales to be made by clients of buyer,
  • Restriction of sales by the buyer who are operating at the wholesale level to end users,
  • Restriction of members of a selective distribution system from selling to unauthorized distributors,
  • Restriction of the buyer from selling to the opponents of the provider at the same time is also a producer, in case parts that are supplied are for the purpose of assembling.

Protection given to the enterprises such as exclusive region or customers are not regarded as an absolute protection. Buyer undertakings can be protected from only active competition of other buyers in the system when selling to their assigned region or customer group. Restriction of passive sales to this region or customer group will be considered as a breach that excludes the agreement from group exemption.

"Active Sale" is defined as sales made by buyer, in his/her exclusive region or customer group via letter or visit. In addition, establishing a sales location or distribution warehouse in another buyer's territory is also under the scope of active sales. Advertisements or promotions directly targeting customers in the region or customer groups allocated to another buyer may also be included in other active sales methods.

"Passive Sale" is the type of sale that is made to customers from different buyer's regions and does not require the buyer's active effort for demands. Even if the buyer makes delivery of the goods to the customer's address, this sale will still be "passive sale ". General advertisements or promotions through the media will be considered as passive sales method. Sales via the Internet and similar ways are generally passive sales. However, sending e-mails to customers in the exclusive region or group of customers of another buyer will be considered as an active selling method unless such request is received from the customers in question. The same approach shall be applied in the evaluation of sales made by sending catalogues.

It should be noted that; bans of passive / active sales to be included in the contract must be clearly stated; phrases such as "shall not be sold out of its region" creates great controversy in Competition Law. For example, in a situation where the restriction of passive sales is prohibited, such a phrase may mean that both are prohibited.

c. Selective Distribution Systems

The selective distribution system members cannot be banned from active or passive sales in regard of the sales made to the latest users. Even if the enterprise in the position of provider, establishes exclusive regions by specifying that it will supply goods to a limited number of buyers in a certain region, the active/passive sales that are going to be made to the users out of the region by the buyers cannot be banned. However, a provider can prevent, a system member buyer to relocate where he/she operates or tries to open a new point of sale. Opening a web site for internet sales by a system member buyer will not be considered as opening a new physical point of sale. The other regulation that partially opened the selective distribution system to competition was made in the first paragraph of Article 4 (d) of the Communiqué. Accordingly, undertakings that choose the selective distribution system as a distribution system cannot impose a central buying obligation on the system member buyers.

d. Other Restrictions

Another regulation regarding the procurement agreements involving products formed by combining parts is included in the first paragraph of article 4 (e) of the Communiqué. In the supply agreement concluded between the supplier who sells such parts and the buyer who uses these parts in production, the supplier shall not be prevented from selling these parts to end users or repairers who are not authorized by the buyer to maintain or repair the goods.

As can be seen, this limitation is brought to the provider by the buyer, unlike the above. The relationship between the bicycle chain-producing provider and the buyer who uses these chains in bicycle production can be given as an example. The bicycle manufacturer in the position of the buyer cannot prohibit the supplier chain manufacturer from selling the chains to unauthorized, independent repairers and end users. However, the bicycle manufacturer in the position of the buyer may impose on his authorized repairers only the obligation to buy the chains from him. In addition, the chain manufacturer may be prohibited from selling to other bicycle manufacturers.

4. Obligation to Non-Compete

Obligation to non-compete is defined in article 3 of the Communiqué as an obligation that prevents the buyer from selling, buying or re-selling the goods or services which are subjected to the agreement.

In addition to this, the period to non-compete obligation carries vital importance. The non-compete obligation of buyers for an indefinite period of time or exceeding five years in the contract prevents the contract from benefiting from the exemption contained in the Communiqué. If it is decided that the non-compete obligation may be implicitly renewed in the manner of exceeding this time limit stated, it shall be deemed as a non-compete obligation for indefinite term. Any contradictory non-compete obligations will not be within the scope of the block exemption.

CONCLUSION

If the requirements in the communique are not fulfilled then a vertical agreement will be out of the scope of the communique and will be inspected under law no 4054 article 4. Once again if the article 5 of the law no 4054 is not fulfilled, a vertical agreement cannot benefit from the individual exemption as well. For a vertical agreement to benefit from the exemption within the scope of the communique, the agreement has to be inspected very carefully and should not be thought that group of exemptions are to be benefitted in any case.

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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