Regulation of the distribution relationship

Competing products

Are restrictions on the distribution of competing products in distribution agreements enforceable, either during the term of the relationship or afterwards?

Restrictions on the distribution of competing products in distribution agreements may be enforceable provided they are in compliance with Turkish competition law.

Pursuant to Block Exemption Communiqué on Vertical Agreements No. 2002/2 (Communiqué No. 2002/2), agreements concluded between two or more undertakings that operate at different levels of the production or distribution chains, with the aim of purchasing, selling or reselling particular goods or services that are referred to as vertical agreements, as well as including the distribution agreements, are exempted in block from the prohibition in article 4 of the Law on the Protection of Competition No. 4054. The exemption granted shall apply in the event that the market share of the provider in the relevant market in which it provides the goods or services that are the subject of the vertical agreement does not exceed 40 per cent.

The exemption granted by Communiqué No. 2002/2 shall not be applicable if non-competition obligations imposed on the purchaser are for an indefinite period, or whose duration exceeds five years. Thus, distribution agreements with non-competition obligations for an indefinite period, or those that exceed five years, are deemed to restrict competition and are considered to be unlawful.

Prices

May a supplier control the prices at which its distribution partner resells its products? If not, how are these restrictions enforced?

As per Turkish competition law, the supplier’s setting of fixed or minimum sales prices for the buyer is strictly prohibited. However, the supplier may set maximum sales prices for the buyer, or offer recommended sales prices to the buyer, provided these do not transform into fixed or minimum sales prices. Where the supplier’s market share does not exceed 40 per cent, recommended price and maximum price practices are evaluated within the scope of block exemptions. In order to ensure that maximum or recommended sales prices as notified to the buyer do not become minimum or fixed prices, price lists or packaging of the product must clearly state that the prices concerned are the maximum or recommended prices.

May a supplier influence resale prices in other ways, such as suggesting resale prices, establishing a minimum advertised price policy, announcing it will not deal with customers who do not follow its pricing policy, or otherwise?

Besides directly maintaining resale prices through the inclusion of explicit provisions in signed vertical agreements, suppliers may also commit the same violation, indirectly, through various practices, such as: ( i) setting the profit margin of the buyer; (ii) setting the maximum rate of discount that may be implemented by the buyer over a recommended price level; (iii) providing discounts to the buyer to the extent that the buyer complies with recommended prices; (iv) threatening the buyer with delaying and suspending deliveries; (v) terminating the agreement if the buyer does not comply with those recommended prices; or (vi) the actual implementation of such penalties.

May a distribution contract specify that the supplier’s price to the distributor will be no higher than its lowest price to other customers?

Most-favoured-nation (MFN) clauses are commonly found in a wide range of commercial agreements from long-term industrial supply to distribution arrangements, and are allowed under Turkish competition law, provided that they do not hinder competition in the relevant market. Although there were no specific provisions regulating MFN clauses under Turkish competition law prior to 2018, as a result of a recent amendment to the Guideline on Vertical Agreements in 2018, MFN clauses are now formally recognised and regulated. In this regard, such clauses benefit from block exemptions under Communiqué No. 2002/2 if the beneficiary has a market share less than 40 per cent. It is emphasised in the Guideline on Vertical Agreements that in competition law assessments involving MFN clauses, the market positions of the party benefiting from the clause, as well as its competitors, the purpose of including the clause in the agreement, and the characteristics of the market and the clause, must all be examined in detail. Furthermore, the Turkish Competition Board has particularly been interested in MFN clauses in online platform agreements and has recently rendered two decisions with respect to MFN clauses, concluding that broad-MFN clauses violate competition and would not benefit from individual exemption; whereas, narrow MFN clauses may be justifiable in certain cases.

Are there restrictions on a seller’s ability to charge different prices to different customers, based on location, type of customer, quantities purchased, or otherwise?

Vertical agreements that involve limitations, such as introducing restrictions in relation to regions or customers where, or to whom, the goods or services that are the subject of the agreement shall be sold by the purchaser, and whose goal is to hinder competition, directly or indirectly, may not benefit from the exemption granted by Communiqué No. 2002/2. In this respect, excluding the following four exceptions, region or customer restrictions may not be imposed upon purchasers:

  • provided that it does not cover sales to be made by customers of the purchaser, restrictions imposed by the provider of active sales to an exclusive region, or exclusive group of customers assigned to it or to a purchaser;
  • restriction of sales of the purchaser operating at the wholesale level in relation to end users;
  • restriction of the performance of sales by the members of a selective distribution system to unauthorised distributors; and
  • if parts are supplied with a view to combining them, restriction of the purchaser’s selling them to competitors of the provider who is the producer.

To be in compliance with competition law, the seller may charge different prices to different customers by way of introducing restrictions in relation to regions or customers.

Geographic and customer restrictions

May a supplier restrict the geographic areas or categories of customers to which its distribution partner resells? Are exclusive territories permitted? May a supplier reserve certain customers to itself? If not, how are the limitations on such conduct enforced? Is there a distinction between active sales efforts and passive sales that are not actively solicited, and how are those terms defined?

Please see question 17.

The protection provided to undertakings via granting an exclusive region or customer group is not absolute. When selling to the region or customer group assigned to them, buyers can only be protected from active competition by the other buyers within the system. In other words, the supplier may restrict active sales to exclusive regions or customer groups assigned to it or to a buyer. However, restriction of passive sales to that region or customer group shall be considered an infringement that excludes the agreement from the block exemption.

Online sales

May a supplier restrict or prohibit e-commerce sales by its distribution partners?

Pursuant to the recent amendments to the Guideline on Vertical Agreements in 2018, the Turkish Competition Authority has implemented a broad regulation based on the European Commission’s Guidelines on prohibitions on online sales. As per the Guideline on Vertical Agreements, limitations imposed on online sales will exclude vertical agreements in question from the scope of block exemptions. These limitations, in particular, are: restrictions imposed on buyers with regard to territory and customers to which the contractual goods and services will be sold; restrictions on the proportion of sales made via the internet; and limitations of determining higher prices to be paid by the buyer for products to be sold on the internet other than the products to be offered at the physical point of sale.

Furthermore, the Guideline on Vertical Agreements regulates that the provider may set forth certain conditions with respect to the use of the internet as a sales channel. These conditions are exemplified as follows: the quality conditions for the website in which the products are offered for sale; the requirement of providing certain services to online consumers; and the obligation to maintain a physical point of sale. Also, in accordance with the Guideline on Vertical Agreements, provided that the online sales are not prevented, directly or indirectly, the provider may request that the buyer sell through the ‘sales platforms’ that meet certain standards and conditions.

Refusal to deal

Under what circumstances may a supplier refuse to deal with particular customers? May a supplier restrict its distributor’s ability to deal with particular customers?

Under Turkish competition law, undertakings, whether in a dominant position or not, are in principle not obliged to conclude contracts with other undertakings, in line with the principle of freedom of contract. In other words, any undertaking, whether or not dominant, should have the right to choose its trading partners and to dispose freely of its property. However, in some cases, undertakings in a dominant position are under the obligation to conclude contracts in opposition to the principle of freedom of contract. This obligation is referred to as the essential facilities doctrine. Based on this obligation, the owners of an essential facility must enable their competitors or customers to access that facility.

Refusal to supply may be related to competitors or non-competitive clients in a downstream market. A supplier may restrict its distributor’s ability to deal with particular customers on the condition that an exemption is granted under competition law (see question 18).

Competition concerns

Under which circumstances might a distribution or agency agreement be deemed a reportable transaction under merger control rules and require clearance by the competition authority? What standards would be used to evaluate such a transaction?

The Turkish Competition Authority is entitled to control significant concentrations. Pursuant to article 5 of the Communiqué on Mergers and Acquisitions Subject to Approval of the Competition Board, (i) the merger of two or more undertakings, or (ii) the acquisition of direct or indirect control over the whole or a part of one or more undertakings, by one or more undertakings, or one or more persons who currently control at least one undertaking, by way of purchasing shares or assets, through a contract or through any other means shall be considered a merger or acquisition transaction, provided there is a permanent change in control.

Pursuant to article 7 of the Communiqué, approval of the Competition Board is required in order to gain legal validity, where: (i) the total turnovers of the transaction parties in Turkey exceed 100 million Turkish liras, and turnovers of at least two of the transaction parties in Turkey each exceed 30 million Turkish liras; or (ii) the asset or activity subject to acquisition, and at least one of the parties in merger transactions have turnover in Turkey that exceeds 30 million Turkish liras, and the other party of the transactions has a global turnover that exceeds 500 million Turkish liras.

Do your jurisdiction’s antitrust or competition laws constrain the relationship between suppliers and their distribution partners in any other ways? How are any such laws enforced and by which agencies? Can private parties bring actions under antitrust or competition laws? What remedies are available?

In general, antitrust law prohibits any agreements that intend to, or result in, restraint of competition. In the selective distribution system, the following restriction limitations, the goal of which is to hinder competition, directly or indirectly, may not benefit from the exemption granted by Communiqué No. 2002/2: (i) restriction of active or passive sales to end users, to be performed by system members operating at the retail level, provided that the right is reserved as to the prohibition for a system member against operating in a place where he or she is not authorised; and (ii) prevention of purchase and sale between system members themselves.

Competition law is mainly enforced by the Turkish Competition Authority, especially through fines. Private competition law enforcement in Turkey is regulated under articles 57 et seq of Law No. 4054. In accordance with article 57, anyone who prevents, distorts or restricts competition via practices, decisions, contracts or agreements that are contrary to Law No. 4054, or abuses their dominant position in a particular market for goods or services, is required to provide compensation for any damages suffered.