What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?Sector-specific rules
Since 1998, the Turkish automotive industry has been regulated by sector-specific rules, with the (latest) Block Exemption Communiqué released in February 2017. These sector-specific rules lay down the conditions to be met for vertical agreements in the automotive industry to benefit from block-exemptions from the prohibition on the allocation of markets, interfering with sales conditions and exclusive dealing of article 4 (akin to article 101 of Treaty on the Functioning of the European Union) of the Law on the Protection of the Competition, No. 4054 (the Competition Law). The provisions of the Block Exemption Communiqué apply to vertical agreements concerning the purchase, sale and resale of new motor vehicles; the purchase, sale and resale of spare parts of motor vehicles; and maintenance and repair services.
As long as the market share of the parties to the vertical agreement does not exceed 30 per cent, exclusive distribution systems, quantitative distributions systems or qualitative distribution systems can be concluded. Vertical agreements in which the market share of the parties exceeds 30 per cent benefit from the block exemption only if they adopt the qualitative distribution system. The Block Exemption Communiqué aims to protect distributors from immediate termination by regulating the terms of their agreements and the notice periods for termination. Accordingly, to benefit from the block exemption, the agreement must have a duration of at least five years and both of the parties must accept a provision in the agreement to notify their desire not to renew at least six months before the expiration of the agreement, and where the agreement is for an indefinite duration, the notice of termination period must be at least two years for both parties.Hardcore restrictions
The Block Exemption Communiqué contains a list of hardcore restrictions applicable to the distribution of vehicles, spare parts and the aftersales market, and is supplemented by a sector-specific guideline. The main restrictions can be summarised as follows:
- restrictions on setting the distributor’s resale prices, with the exception of setting maximum and recommended prices;
- restrictions related to the region or customers to which the distributor may sell, with the following exceptions:
- in the case of an exclusive distribution system, restriction of active sales to an exclusive region or an exclusive customer group allocated by the supplier to itself or to another buyer, provided the restriction does not include sales by customers of the buyer;
- restriction on sales to final users by a buyer operating at the wholesale level;
- prohibition of sales by selective distribution system members to unauthorised distributors within the region allocated by the supplier for the operation of the system concerned; and
- in the case of parts procured for assembly, prohibition on the buyer selling these parts to manufacturing competitors of the supplier;
- restrictions on active or passive sales by selective distribution system members operating at the retail level to final users. However, the supplier is entitled to prohibit a system member from operating at a location where it is not authorised. Furthermore, prevention of sales and purchases between members of the selective distribution system is prohibited; and
- restriction on an authorised service station’s freedom to limit its operations to maintenance and repair services, and spare part distribution.
In its regulation of the distribution of spare parts, the Block Exemption Communiqué aims to ensure that authorised distributors, authorised spare part distributors, authorised service stations, independent spare part distributors, private service stations and end users are not forced to depend on the motor vehicle supplier for the procurement of the goods in question, and to allow other suppliers of such goods to be active in the market.Non-compete obligation
Non-compete obligations are regulated separately under the Block Exemption Communiqué for the distribution of motor vehicles, for the distribution of spare parts, and for aftersales services. A non-compete obligation is defined as ‘any direct or indirect obligation placed on the buyer forcing the buyer to make its purchases of the relevant goods or services in the relevant market, or substitutes thereof, from the supplier or from an undertaking designated by the supplier at a level of over 80 per cent in the new motor vehicle sales market and over 30 per cent in the aftersales market.
For the distribution of motor vehicles, non-compete obligations with a period of a maximum of five years are within the scope of the block exemption. However, the distribution of spare parts and aftersales services do not benefit from the block exemption.Investigations in the automotive industry
The automotive industry, including the spare parts sector, is a relatively frequent investigation target of the Turkish Competition Authority (TCA). The first violation decision of the Turkish Competition Board (the Board), a part of the TCA, related to Renault’s practices on vertical agreements in 2000. Renault was fined for non-compliance of its distribution agreements with competition rules, fixing the discount rates, prohibiting the use of matching-quality spare parts, and prohibiting fleet sales by authorised dealers to public entities. Two subsequent decisions of the Board against Doğuş Group, which imports and distributes Volkswagen Group brands into Turkey in 2001, and Peugeot in 2004 also related to vertical agreements that were not in line with the requirements of permitted block exemptions.
In its widest investigation of the industry, the TCA initiated an investigation of 23 undertakings active in the automotive sector (both passenger cars and light commercial vehicles) in 2009. The TCA alleged that the undertakings under investigation discussed future pricing policies, stock data, sales targets and sales strategies. According to the Board’s decision in 2011, 15 undertakings under investigation violated article 4 of the Competition Law (article 4 is akin to article 101 of Treaty on the Functioning of the European Union). The Board imposed fines on these 15 undertakings totalling approximately 277 million lira. At that time, it was the largest fine ever imposed by the Board. In its decision, the Board emphasised that exchange of future prices or price strategies can be deemed a violation of competition rules. The Board indicated that unless otherwise proven by the investigated undertakings, it is presumed that the undertakings used the exchanged information to coordinate their actions in the market. Exchange of other information such as stock data, sales targets, sales amounts and sales strategies among the undertakings was deemed as complementary to the exchange of future prices and price strategies. The appeals process against the fines was concluded by the end of 2019. The Council of State dismissed the request of 15 undertakings to cancel the fines and approved the Board’s decision. In early 2020, the Board decided to open a new investigation against three undertakings, namely, Tofaş, Ford and Doğuş.
The length of the appellate process for competition law violations often prevents claims for damages by private action because Turkish courts are unwilling to accept suits for damage claims before the final decision regarding the underlying infringement has been issued. Additionally, it is not possible to bring actions on behalf of multiple claimants in the form of a collective action. Non-existence of the class action concept under Turkish law can be considered as a barrier to damage claims by private action.Dispute resolution mechanisms
What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?
The main types of disputes seen in the automotive industry are disputes arising from contractual relations and product liability.
Disputes regarding contractual relations usually arise among main industry manufacturers, sub-industry manufacturers, distributors and dealers. These disputes are usually resolved by litigation. If the infringement of a contract constitutes an emergency that may prejudice a party from exercising a right, such party may file for an interim injunction before filing a case, provided it posts a deposit. After obtaining the court’s decision on an interim injunction, related legal proceedings must be initiated within two weeks. The parties are also free to include arbitration and other ADR clauses in their contracts, or agree to such procedures after the dispute has arisen.
Disputes arising from product liability can be divided into two groups: disputes between automotive companies and other legal entities, and disputes between automotive companies and consumers. While product liability disputes between automotive companies and legal entities are resolved by litigation through civil courts, specialised consumer courts oversee consumer disputes. Furthermore, if the claim is for less than 6,920 lira, consumers can apply to consumer arbitration commissions for expedited resolution of the dispute.Distressed suppliers
What is the process for dealing with distressed suppliers in the automotive industry?
There are no specific provisions for dealing with distressed suppliers in the automotive industry. Having said that, Turkish legislation in general aims to enable distressed suppliers to continue their operations and provide various incentives to improve their financial status. There are various incentives foreseen for small and medium-sized enterprises, from which sub-industry manufacturers can benefit. Such incentives include, but are not limited to, loans with a low interest rate, tax deductions, debt relief and reorganisation.
Furthermore, one of the primary goals of the Turkish Code of Obligations, at the time of inability to perform obligations, is to maintain the continuity of contractual relationships rather than immediate termination. Accordingly, the Turkish Code of Obligations sets forth that in a bilateral contract, if one of the parties is distressed, the other party may grant additional time or request a judge to do the same to enable the distressed party to perform its obligations. In such a case, a claimant can request compensation or termination only if the distressed party cannot fulfil its obligation in the granted time. Having said that, as a default rule, if the rights of a party to a contract are jeopardised due to the other party’s inability to perform its obligation arising from the contract, especially if the non-performing party is bankrupt or collection proceedings against it remain inconclusive, the jeopardised party may refrain from performing its obligations until the performance of the other party is secured without the necessity to grant additional time.Intellectual property disputes
Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?
The most significant intellectual property disputes in the automotive industry have traditionally been due to alleged infringements caused by companies that are not original equipment manufacturers (OEMs), which constitute a majority of the market. The new Turkish Industrial Property Law, which entered into force in 2017, adopts a new method specifically for aftermarket and non-OEM parts. Pursuant to this law, if the intended use of a good is indicated, the trademark owner can no longer prevent third parties from using accessories, repair parts and non-OEM goods in good faith, within the natural flow of commercial life.
From a design aspect, protection of vehicle parts is examined in different groups: repair parts (must-fit parts and must-match parts) and equivalent goods. Must-fit parts (engine pistons and the like) are designed in an imperative shape and size for a specific function, and cannot be replaced with a different shape. On the other hand, must-match parts (headlights and the like) are visible and mandatory for the original appearance of a design, but not the function. Designs of must-fit parts cannot benefit from protection over design rights and OEMs cannot pursue any claims over must-fit parts manufactured by non-OEMs arising from design rights.
On the other hand, must-match parts can benefit from protection of design rights, and the most significant intellectual property disputes arise from the manufacturing of must-match parts. An exception to this rule is that the use of a must-match part for repair purposes after the part has been in the market for at least three years does not constitute an infringement of design rights. This exception was adopted as a part of Turkey’s harmonisation process with European Union legislation.
The Turkish Industrial Property Law also protects non-OEMs with respect to their production of equivalent goods to prevent intellectual property disputes between non-OEMs and OEMs. Pursuant to this law, the use for repair purposes of equivalent goods announced by the Ministry of Science, Industry and Technology does not constitute infringement of design rights even for the first three years of the availability of the goods on the market.
There is no fast-track option for resolving intellectual property disputes. Disputes arising from the infringement of intellectual property rights are examined by specialised civil and criminal courts for intellectual and industrial property rights. The approximate trial period is one to three years, excluding the appeal process, which may take more than two years.