Turkey: Clash Of Opinions In The Sheet Glass Market: The Board Did Not Grant Individual Exemption To The Dealership Agreement Between Trakya Cam And Its Dealers; Despite A Detailed Dissenting Vote

The Turkish Competition Board (the "Board") published its reasoned decision1 on the exemption request for the Authorized Dealership Agreement (the "Agreement") which is stipulated to be executed between Trakya Cam Sanayii A.S. ("Trakya Cam") and its nineteen authorized sellers/dealers.

The decision is noteworthy as it includes detailed information as well as a significant dissenting vote elaborating the individual exemption conditions concerning (i) new developments or improvements or economic or technical improvement in the production or distribution of goods, and in the provision of services and (ii) consumer benefit in detail.

I. General information on Trakya Cam and the relevant product market definition

Trakya Cam, which is a subsidiary of Türkiye Sise ve Cam Fabrikalari A.S. ("Sisecam"), is active in almost all types of glass such as base glass (sheet glass, frosted glass, mirror, laminated glass, coated glass, glass for architectural projects), automotive glass and other transportation vehicle glass, energy glass and domestic appliances glass. Most significant purchasers of these products operate in the construction, automotive, energy, domestic appliances, furniture and agriculture sectors.

In terms of the relevant product market analysis, the Board did not define the sub segments of the sheet glass product separately; based on its assessment that sheet glass does not lose its sheet glass nature despite of different processes and can be used as substitutes for each other according to different needs and preferences. There are numerous precedents in which the Board defined the relevant market as "sheet glass market".2 In light of the Board's consistent approach, the relevant product market has been defined as "sheet glass market" within the case at hand as well.

II. General information on the Agreement

Pursuant to the Agreement, the dealers of Trakya Cam would be authorized to sell the sheet glass produced by Trakya Cam to the market and within this scope, organize the delivery of Trakya Cam's products to customers without reprocessing, as they are purchased, or by cutting the products if necessary.

With the Agreement, Trakya Cam imposed non-compete obligations on its authorized dealers. More specifically, the Agreement set forth that the dealers could not manufacture, import, sell, distribute, keep in stocks and promote the similar or competing products produced, sold, marketed by Sisecam Düzcam and the dealers would not take franchise, representation or agency from companies that are competitors of Sisecam Düzcam and/or would not establish similar commercial relations with such companies.

The Agreement was assessed as a distribution agreement that includes non-compete obligation; however, does not include exclusive territory allocation to authorized dealers or active and passive sales restrictions. It also does not include vertical restrictions such as determining resale price, imposing a minimum resale price, or restriction on passive sales. That being said, the non-compete clause imposes restrictions on the dealers (i) to obtain sheet glass products only from Trakya Cam or from another supplier that Trakya Cam will determine, and (ii) not to produce, sell or market competing products directly or indirectly. Therefore, the Agreement has been evaluated within the scope of Article 4 of Law No. 4054 on the Protection of Competition Law ("Law No. 4054").

III. Board's assessment on whether the Agreement would benefit from block or individual exemption

In order to determine whether the Agreement benefits from block exemption under Block Exemption Communiqué No. 2002/2 on Vertical Agreements, the Board first examined the market share of Trakya Cam. In its previous decisions, the Board indicated that Trakya Cam is in dominant position in sheet glass market due to factors such as the high market share, entry barriers, high financing capacity, the strong image of the Isicam brand, the reliability of the group being the only producer in the market for years, and the foreign trade restrictions. In conclusion, the Board held that the Agreement cannot benefit from block exemption since Trakya Cam's market share exceeds 40%.

Accordingly, the Board proceeded with making an individual exemption analysis under Article 5 of Law No. 4054. In terms of the first condition of individual exemption (i.e. new developments or improvements or economic or technical improvement in the production or distribution of goods, and in the provision of services), it is stated that the efficiency gains should be objective and not be assessed from subjective point of view of the parties. The benefits created by the agreement and what the economic importance of such efficiencies must be clearly defined and verified. The Guidelines on the General Principles of Exemption sets forth that, in case of measurable efficiencies, undertakings making an assessment or application within the scope of the first condition must, as accurately as possible, estimate the value of the efficiencies and describe in detail how the amount has been computed if necessary.

In light of the foregoing, the Board concluded that, although the evaluations to be made in order to ensure sufficient certainty that the efficiency gain has been or will be achieved with the distribution system should be supported more concrete data, sufficient explanations and concrete data have not been provided in order to demonstrate efficiency gains contributed to economy and consumers objectively. Therefore, the Board concluded that the Agreement could not benefit from individual exemption.

IV. The assessments made under the dissenting vote

Although the Board concluded that the Agreement cannot benefit from individual exemption since it does not meet the conditions, the dissenting vote is noteworthy, since it examines the individual exemption conditions concerning (i) new developments or improvements or economic or technical improvement in the production or distribution of goods, and in the provision of services and (ii) consumer benefit in detail.

In terms of the first condition, the dissenting opinion argues that, with the Agreement, the authorized dealers would focus on Trakya Cam products and therefore be able to evaluate the demand more accurately. Accordingly, Trakya Cam would be able (i) to receive more accurate feedback about the market, (ii) to plan its production more effectively and therefore (iii) ensure product range and continuation of supply. Moreover, the dissenting opinion also suggests that the distribution system would reduce the cost of logistic and stocking.

As for the second condition, the dissenting opinion argues that the distribution system would increase the choices of the customers in terms of retail sales points and different branded products. It has been also stated that since the consumer demand would be better understood, product supply would respond to the trends among consumers in terms of both existing and newly designed products. Furthermore, it has emphasized that the sheet glass products could not be distinguished by the consumers visually in terms of quality and brand due to its physical characteristics; however it could only be distinguished as a result of analyses in laboratories, and therefore, a customer who wants to buy sheet glass of good quality could be deceived easily with a different type of sheet glass. Therefore, the dissenting vote observed that the consumers would not be deceived anymore due to the non-compete obligation, and as evident, the complaints on that front have been reduced. To that end, the first two conditions of individual exemption would be met.

In this regard, the dissenting opinion concludes that, despite the high entry barriers, imposing non-compete obligation at the reseller/wholesale level would not eliminate competition in a significant part of the relevant market and restrict competition more than necessary to achieve the goals set out in the first two conditions of the individual exemption, based on the grounds that (i) the retail sales would not be restricted, (ii) there were many players active in the same segment with the authorized dealers, (iii) the term of the Agreement was limited to two years and (iv) the sheet glass market was dynamic in terms of products and distribution channels. To that end, according to the dissenting opinion, the Agreement should have been granted with individual exemption.

As a result, the decision gains significance as the dissenting opinion evaluates the effects of the non-compete clause specifically for the sheet glass market.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in December 2020. A link to the full Legal Insight Quarterly may be found here

Footnotes

1 The Board's decision dated June 25, 2020 and numbered 20-31/382-171.

2 The Board's Trakya Cam-I decision dated November 17, 2011 and numbered 11-57/1477-533; Trakya Cam/Isicam Exemption decision dated January 24, 2013 and numbered 13-07/73-42; Trakya Cam/Düzcam Exemption-I decision dated December 2, 2015 and numbered 15-42/704-258; Trakya Cam/Düzcam Exemption-II decision dated December 21, 2017 and numbered 17-42/670-298.

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