Turkey: Growing determination

Author: | Published: 1 Oct 2009
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During the Turkish Competition Authority's (Authority) ex-officio investigation of the market for industrial ice creams in Turkey, the Turkish Competition Board (Board) held in Unilever San. ve Tic. Turk A.S. (Unilever) that, due to its dominant position in the ice cream market, Unilever's current exclusive agreements with points of sale and its well-established commercial practices aiming at creating de facto exclusivity could not benefit from Block Exemption Communiqué 2002/2 regarding vertical agreements.

Having been evaluated by the Board as enjoying a dominant position (with a share above 40%) in the market for industrial ice creams (through its Algida trade mark), in an attempt to safeguard effective competition in the relevant product market, the following remedies were imposed on Unilever.

1) Vertical agreements executed by and between Unilever (or its distributors) and points of sale (other than Algida shops) that include non-compete clauses are prohibited.

2) Arrangements whereby Unilever (or its distributors) require points of sale to purchase a specified minimum percentage of their total ice cream requirements or offer any payment or other advantage depending upon such purchasing obligations are prohibited.

3) Any kind of advantage (promotions, discounts, financing arrangements and/or target rebates, among others) promised by Unilever (or its distributors) in exchange for the point of sale not selling products competing with Algida are prohibited.

After the amendments came into force in July 2007 through the enactment of Communiqué 2007/2, which provides that only undertakings holding up to a 40% market share in a given relevant product market in Turkey are allowed to conclude restrictive vertical agreements, the Authority has been busy trying to bring the dominant undertakings' vertical agreements into compliance with Communiqué 2007/2.

Amendments regarding vertical agreements

Before the newly-enacted amendments to the Communiqué, and unlike the EC Regulations, Communiqué 2002/2 did not take account of the general policy that block exemption regulations should cover restrictive agreements only up to certain market share thresholds. It therefore did not place sufficient weight on whether block exemption would afford a company the possibility of eliminating competition in a substantial part of the market.

Having diagnosed the difficulties that result from the lack of applicable market share thresholds, the Board found it appropriate to make certain amendments to Communiqué 2002/2 and introduced a 40% market share threshold for vertical agreements.

The most substantially amended parts of the Communiqué that led the Authority to conduct such back-to-back decisions were as follows.

Amendments made to Article 2 of Communiqué 2002/2:

  • "The exemption shall apply on the condition that the supplier's share of the relevant market on which it sells goods does not exceed 40%."
  • "In the case of exclusive purchase agreements, the exemption shall apply on condition that the buyer's share of the relevant market on which it purchases goods does not exceed 40%."

Following the enactment of the amendment to Article 3 of Communiqué 2002/2, the Communiqué now provides a description of exclusive supply agreements, as follows: "Exclusive purchase obligation means any direct or indirect obligation imposed on the supplier whereby it undertakes to sell goods and services, either for its own use or resale purposes, exclusively to one purchaser within the territory of Turkey."

The amendments also included market share calculation methods and exemption withdrawal mechanisms, which seem to have been adopted from EU competition law principles.

As the abovementioned amendments provide structural changes to the delicate issue of vertical agreements, the temporary Provision 2 of Communiqué 2007/2 also provided a transition period whereby all the vertical agreements that benefit from the block exemption under the principles of Communiqué 2002/2 but that do not meet the requirements stipulated in Communiqué 2007/2 will be brought in line with the principles set out in Article 5 (individual exemption) of Law 4054 on the Protection of Competition within one year (up to July 1, 2008) from the effective date of Communiqué 2007/2.

The Unilever decision is the fourth decision of the Board that has been rendered following the adaptation of a market share threshold for vertical agreements (including restrictive clauses) and in light of the substantial amendments stipulated above. The first three Board decisions based on market share threshold were as follows.

  • The Mey Içki Sanayi ve Ticaret A.S. (leading rakı supplier in Turkey) decision, dated September 10, 2007.
  • The Coca Cola Satis Dagitim ve A.S. (leading supplier of carbonated soft drinks in Turkey) decision, dated September 10, 2007.
  • The Turkcell Iletisim Hizmetleri Anonim Sirketi A.S. (leading telecommunication services supplier in Turkey) decision, dated December 2, 2007.

Before the relevant amendments to the Communiqué that came into force in July 2007, the Communiqué did not take into account the general policy that block exemption regulations should cover restrictive agreements only up to certain market share thresholds.

Although the Board always had the power to render a decision whereby it could determine that any given dominant undertaking in a relevant market could benefit from the privileges set forth under the Communiqué, it seemed hesitant to exercise such a right before the July 2007 amendments and made only four decisions (the Benkar decision, dated August 15, 2003, the Frito Lay decision, dated May 3, 2004, the Yemek Sepeti decision, dated September 20, 2004 and the Efes Pazarlama-Bimpas decision, dated April 22 2005). The Frito Lay Gıda Sanayi ve Ticaret A.S. (leading supplier of potato chips in Turkey), Efes Pazarlama ve Dagitim Ticaret A.S. and Bimpas Bira Mesrubat Pazarlama Sanayi A.S. (leading beer manufacturers in Turkey) decisions were evaluated as dominant undertakings and thus, the privileges set forth in the Communiqué were taken away.

Having diagnosed the difficulties that result from the lack of applicable market share thresholds, the Board found it appropriate to make certain amendments to the Communiquè and introduced a 40% market share threshold for vertical agreements.

The fact that identical remedies were also foreseen for Coca Cola Satis ve Dagitim ve A.S. (Coca Cola Turkey) and Mey Içki Sanayi ve Ticaret A.S. (Mey Içki) following the Authority's relevant investigations is a clear sign of the Board's increasing sensitivity towards the dominant undertakings' commercial practices concerning both de jure and de facto exclusivity arrangements.

What is also certain is that the Board's approach regarding commercial practices that are alleged to seek to create de facto exclusivity is heavily inspired by the well-known Coca Cola Company case, which was passed to the European Competition Commission in 2005. As competition law practitioners throughout the world will recall, the relevant commitments offered by The Coca-Cola Company to three large bottlers of carbonated soft drinks (CSD) provide as follows.

  • No more exclusivity arrangements. At all times, Coca-Cola customers will remain free to buy carbonated soft drinks from any supplier of their choice. Where large private sector customers or public authorities organise a competitive tender for their supplies and Coca-Cola provides the best offer, it can be the only CSD supplier.
  • No target or growth rebates. Coca-Cola will no longer offer any rebates that reward its customers for purchasing the same amount or more of Coca-Cola's products than in the past.
  • No use of Coca-Cola's strongest brands to sell less popular products. Coca-Cola will not require that a customer who only wants to buy one or more of its best-selling brands (regular Coke or Fanta Orange, for example) also has to purchase other Coca-Cola products such as Sprite or Vanilla Coke. Similarly, Coca-Cola will no longer offer a rebate to its customer if the customer commits to buy those other products together with its best-selling products or to reserve shelf space for the entire group of products.
  • 20% of free space in Coca-Cola's coolers. Where Coca-Cola provides a free cooler to a retailer and there is no other chilled beverage capacity in the outlet to which the consumer has direct access and that is suitable for competing CSDs, the outlet operator will be free to use at least 20% of the cooler provided by Coca-Cola for any product of its choosing

As the back-to-back decisions of the Board regarding de facto exclusivity inevitably raised the question of how to conduct financing arrangements and target rebates in compliance with the Board's recent precedents, the Board's (reasonably satisfactory) response to the relevant question was delivered just in time.

In its very recent Mey Içki - Burak Gıda decision, the Board attempts to draw a line for the conduct of the financing arrangements and target rebates of dominant undertakings. In this respect, the Board provided as follows.

  • Minimum purchasing commitments in vertical agreements (concluded for a definite period of time) to be executed by and between Mey Içki and points of sale are altogether prohibited (regardless of whether they are made based on a previous reference period).
  • Minimum purchasing clauses set forth in such vertical agreements (concluded for a definite period of time) can only be deemed acceptable if they are designed on a non-obligatory basis (by way of the point of sale's choosing to buy and sell certain amounts rather than being obliged to do so).
  • Financing arrangements should in no way correlate with the chosen trading levels of points of sale. In other words, incentive programmes should be kept separate from the point of sale's achievement of sales targets.
  • The Board always reserves the right to interfere in such arrangements if it concludes that Mey Içki intends to convert target rebates into loyalty rebates (on either a de facto or a de jure basis).

A careful consideration of recent precedents reveals that the Board is becoming more and more determined to combat the unlawful conduct of dominant undertakings.

The answer to the question of whether the newly introduced principles serve this purpose remains to be seen. However, the visible trend corroborates the Board's intention to focus increasingly on the monitoring of dominant undertakings' legal and commercial practices.

About the author

Gönenç Gürkaynak is a qualified attorney admitted to the Istanbul and New York Bars and is a qualified solicitor in England and Wales. He is the head of the competition law practice at ELIG Attorneys-at-Law. Gönenç received his LLM from Harvard Law School and has extensive experience of Turkish competition law counselling issues, as well as being involved in the establishment of the Turkish Competition Authority. He has led defence teams in dozens of written and oral defences before the Turkish Competition Authority, represented clients before the Administrative Courts and the High State Court on many appeals and has represented clients in more than 100 files before the Turkish Competition Board. Gönenç also worked for many years as a competition lawyer in international law firms in New York and Brussels.

Gönenç has one book published by the Turkish Competition Authority and dozens of competition law articles published by numerous Turkish and international publishers, as well as having delivered many speeches at national and international conferences. He is a highly recommended competition lawyer in Turkey, mentioned in the Who’s Who of Competition Lawyers 2006, 2007, 2008 and 2009, Legal Experts 2006, 2007, 2008 and 2009, Legal500 2006, 2007, 2008 and 2009 and 40 Under 40.
Contact information

Gönenç Gürkaynak
ELIG

Citlenbik Sokak No:12
Yildiz Mahallesi
Besiktas, 34349 Istanbul
Turkey
Tel +90212 327 1724
Fax +90212 327 1725
Email:
info@elig.com
gonenc.gurkaynak@elig.com
Web: www.elig.com