An Update on the Guidelines on Vertical Agreements: Positive Sign for the Awareness of Digital Age

An Update on the Guidelines on Vertical Agreements: Positive Sign for the Awareness of Digital Age

Turkish Competition Authority (“Authority”) updated its Guidelines on Vertical Agreements (“Vertical Guidelines”) that is issued as per the Block Exemption Communiqué on Vertical Agreements (“Communiqué No. 2002/2”). This update is a result of a two-year study conducted by the Authority. Given the exponential growth of online sales, this update can be considered as positive sign of the Authority’s awareness of the digital age and potential changes in the competitive structure associated with the digitalization.

The Authority, through its announcement of July 20, 2017, revealed that the anticipated update will focus on three main subjects: Agency Agreements; Internet Sales and Most Favoured Customer (“MFC”) Clauses. Nevertheless, based on the opinions received from the public, the Authority decided not to make any amendment on the agency agreements but rather proceed with the update on internet sales and MFC clauses.

The update on the internet sales were made by considering the growth of internet as a new distribution channel. Intuitively, internet sales are becoming an important sales channel and its share on the overall sales are increasing exponentially. Internet sales provide consumers with the ability to reach wide data sets, compare prices easily and access more products. It also facilitates producers to market their product to a wider area but with a lower cost. The Authority, in its statement, indicated that while revisiting the rules on internet sales, a balance was sought between protecting the efficiencies associated with the internet sales for consumers and resellers and at the same time protecting the commercial interests of the producers. In this regard, the Board added five new paragraphs to Vertical Guidelines (paragraph 25, 26, 27, 28, 29) and amended an existing one (paragraph 31).

–          Newly added paragraph 25, basically indicates that a restriction by a supplier on sales made by its buyers (distributors/dealers) through their webpages is considered as a restriction on passive sales. It further exemplifies the cases which will not benefit from the protective cloak of the Communiqué No. 2002/2. These examples are (i) the restriction preventing consumers from buying on the webpage of an exclusive distributor that is located in another region; (ii) exclusive distributors’ cancellation of a transaction made by a customer located in another exclusive region; (iii) limiting the internet sales shares among the total sales; and (iv) demanding from the distributor to pay a higher price for products intended to be resold by the distributor through internet than for products intended to be resold offline.

–          Paragraph 26 of the Vertical Guidelines starts by indicating that the restrictions exemplified under paragraph 25 will be considered as a restriction of passive sales. Whereas the first two example concerning the geographical restriction will be considered as a hard-core restriction, sales to another region through promotion or advertisement will be considered as active sales and may fall within the scope of the Communiqué No. 2002/2.

–          Paragraph 27 includes explanations both on (i) limiting the internet sales shares among the total sales; and (ii) demanding higher prices for the products sold through internet. The Vertical Guidelines clearly reveals that limiting the shares of internet sales among the total sales constitutes a hard-core restriction. As per the restriction by demanding higher prices for the products sold through internet, the Authority emphasise the potential negative effect of such different pricing on the motivation of the buyer in terms of making sales through internet. Yet, a contribution for the sale effort is considered as acceptable.

–          Under paragraph 28, it is stated that a supplier may impose certain conditions for the internet sales as it can also do for brick and mortar stores. To illustrate, the supplier may require certain quality standards for the webpage or may require the provision of certain services to the consumers purchasing through internet. Especially, the suppliers may, under selective distribution system, require from its distributors to be active at least one brick and mortar store. Yet, this should not be used as a tool to exclude distributors that solely uses the internet as a sales channel.

–          Paragraph 29 clearly indicates that the imposed conditions should not be designed to restrict internet sales either directly or indirectly. Even though the restrictions on brick and mortar sales and the internet sales do not necessarily be identical due to differences associated with these two channels, those restrictions should serve to the same purpose and ensure comparable results.

–          An amendment made on the paragraph 31 which is now the paragraph 36 of the Vertical Guidelines and concerns the selective distribution system. As per the new change, a webpage launched for reselling through internet by a distributor within a selective distribution system, will not be considered as a new brick and mortar store. Yet, active or passive sales of distributors to the consumers cannot be restricted.

The second update was on the MFC clauses which were one of the hot topics of the competition policy world. Under Vertical Guidelines, an explanation is added to the paragraph 19 and a new section is created for the MFC clauses.

–          Paragraph 19 of the Vertical Guidelines reveals the direct and indirect methods of application of resale price maintenance. With the amendment, it is further added that MFC clauses may ease the reinforcement of resale price maintenance. Yet, sole use of MFC clauses does not constitute a resale price maintenance.

–          Paragraph 223 includes explanation on MFC clauses. The use of MFC clause does not always have same effects in the market. Whereas there could be efficiencies associated with the MFC clauses, the use of such clauses may have anti-competitive effects in the market. Thus, for an accurate evaluation, it is of the significant importance to consider the market position of the players, the purpose of the MFC clause and the market conditions. An MFN clause may benefit from the protective cloak of the Communiqué No. 2002/2 so long as other conditions of the block exemption are met. However, if the market share threshold of %40 is exceeded, below examples will have a guiding role for the individual exemption.

–          Paragraph 224 illustrate the guiding examples of the cases where the use of MFC clauses may have anti-competitive effects. Retroactive MFC clauses are likely to harm competition more than ordinary MFC clauses. Besides, the cases where the parties to the agreement including MFC clauses have market power when compared to their competitors, may also be more problematic from competition policy perspective due to foreclosure effect associated with the high market power and the MFC clauses. The wide use of MFC clauses in the market may also increase the potential anti-competitive effects.

–          Paragraph 225 illustrates the guiding examples of the cases where MFC clauses may contribute to the competition in the market. Clearly, when the market players do not have any market power, the use of MFC clauses unlikely to be problematic. Besides, buyers with low market power can even benefit from the favourable price and conditions with the use of MFC clauses and this undoubtedly contribute to the competition in the market. The use of MFC clauses in the markets where the market conditions are not transparent, is not likely to lead anti-competitive effects as it is difficult to monitor whether the MFC clauses are implemented effectively.

 

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