The results of online searches depend on many factors, including the infamous keyword agreements made between online advertisers who are now having a hard time defending these agreements before the relevant competition authorities.
To gain access to many of the internet’s most utilized features free of charge (or so we perceive), there is certain compensation that must be provided to the hosts of these services. This compensation can often be found right on our screens, such as with online advertisements. Many online operators that stream their services free of charge use online advertising as a tool to generate income. A group of companies that use this technology perhaps more than anyone are search engine operators.
Search engines use keyword advertisements, among others, to generate income by having advertisers pay to display their advertisements to web users within their ad networks. To paint a better picture of the extent of this market, Google’s keyword advertisement network “Google Adwords” is now considered among its main sources of revenue, greatly contributing to Google’s total advertising revenues of USD 95.4 billion in 2017.
Keyword Advertising Agreements
When a web user uses a search engine, advertisements (i.e., sponsored links) are displayed alongside the user’s search results. These advertisement slots have been purchased by companies seeking to gain traction for their websites. The search engine mainly uses keywords determined by the advertiser to place advertisements on pages they think their products or services are relevant. Companies can also purchase “negative keywords”, i.e., ensuring the search engine does not display their websites when certain keywords are searched. This aspect of keyword advertising is where antitrust concerns are brought into the picture.
For example, imagine Company A and Company B are competitors in the sports equipment and apparel market. Company B purchases keywords including Company A’s trademark, so when a web user searches these keywords, Company B’s advertisement will display. To negate the potential negative effects this may have on Company A, Company A asks Company B not to display its advertisements when Company A’s trademark is searched (i.e., negative keywords) and agrees to do the same in return. In other words, both competitors enter into a mutual understanding to avoid using keywords that directly link to the competitor or its products such as company names, trademarks, or even marketing slogans. However, according to a growing number of competition authorities, this now almost established advertisement practice may violate antitrust laws.
Competition Law Breaches
With its decision of 26 August 2015, 1 the Bundeskartellamt (German Federal Competition Authority) held that ASICS Deutschland GmbH (“ASICS”), a brand widely known for its production of running shoes and other sports gear, would be fined for restricting the online sales of authorized distributors in its selective distribution system between 2012 and 2015. By the end of 2012, ASICS had introduced a new selective distribution system that imposed restrictions on its distributors for (i) using the ASICS brand name in their online advertisements, (ii) supporting online price-comparison engines, and (iii) their sales via online marketplaces. The Bundeskartellamt stated that prohibition on the use of brand names limits the distributors’ possibilities to conduct online advertising with reference to the fact that they sell ASICS products, making it difficult for customers looking for these products to find them.
Previously, the US Federal Trade Commission (“FTC”) issued its opinion stating that 1-800 Contacts, a contact lens retailer in the US, entered into anticompetitive settlement agreements with its online competitors. 2 From 2004 to 2013, 1-800 Contacts sent cease and desist letters to its competitors on the basis that they were violating its trademarks by purchasing 1-800 related keywords to display their advertisements online. 1-800 Contacts filed lawsuits against these competitors and entered into settlement agreements with all of them that prevented the competitors from bidding for keywords such as 1-800 Contacts and ordered them to appoint negative keywords to prevent their advertisements from showing up when 1-800 or similar keywords were searched on online search engines. The FTC decided that these agreements restricted competition by reducing the prices paid by 1-800 Contacts for online search advertising and caused contact lens prices to remain high as customers could not reach more reasonably priced items since competitor’s advertisements were blocked form their search results.
Recently, the European Commission (“Commission”) issued the clothing company Guess a hefty €39,821,000 fine for a number of competition law breaches, including restricting authorized retailers from: (i) conducting online sales without Guess’ prior authorization, (ii) selling to consumers outside of the authorized retailers’ allocated territories (also known as geo-blocking), (iii) cross-selling among authorized wholesalers and retailers, (iv) deciding the retail price at which authorized retailers sell Guess products, and relevant to our topic, (v) using the Guess brand name and trademarks for the purposes of online search advertising. 3 . The online search violation was revealed by Guess itself to the Commission during the investigation process, a wise move that granted Guess a 50% reduction from its fine. In its decision, the Commission stated that Guess’ objective was to reduce competitive pressure from authorized retailers on Guess’ own online retail activities by curtailing the ability of authorized retailers to use this advertising tool effectively and to lower its own advertisement costs. The Commission stated that this practice cannot serve the legitimate objective of the selective distribution system claimed by Guess, namely to protect the brand’s image. The Commission also discussed whether online search advertising restriction inflicts a sufficient degree of harm to competition that it may be considered a restriction of competition “by object”4 and ultimately concluded that the restriction did have the objective of restricting competition.
The Turkish Competition Authority`s Approach
Scaling back to examine the big picture these developments paint, we see that step by step restrictions on the use of keywords for online search advertising are becoming a competitive concern in many jurisdictions around the world. This issue has been handled in detail in its recent decision fining Guess for restricting its distributors from bidding on Guess related trademarks in regard to online search engine advertising. The ASICS decision by Bundeskartellamt also sheds light on this topic in Germany, in addition to the American decision on the anti-competitive practices of 1-800 Contacts that resulted in a fine for the settlements 1-800 Contacts executed with many of its competitors. This leaves us with the question: when will we see developments from the Turkish Competition Authority (“TCA”) on this issue?
The TCA has had quite an interest in the e-commerce sector recently. In March 2018, the TCA published its revised guidelines on vertical agreements, which included new provisions on internet sales, confirming that the internet platform is a new distribution channel that requires its own regulations. With these amendments, the TCA tried to find a balance between re-evaluating existing antitrust rules to make them applicable to online sales while maintaining the benefits that come with the ease of using the internet for consumers and resellers and protecting the commercial interests of producers. Prior to these amendments to the guidelines on vertical agreements, there was debate over whether online sales restrictions were to be considered restrictions on passive sales or active sales. The TCA rendered decisions concluding both sides of the argument. With the amended guidelines, it has been made clear that certain restrictions on internet sales would not benefit from block exemption.
In October 2018, the TCA published its first decision that sentenced fines in relation to excessive pricing on an online platform against Sahibinden.com. 5 More recently, on 7 January 2019, the TCA announced a new investigation that was initiated against Google based on the allegations that Google abused its dominant position via the updates it installed in the algorithms used in search services and by using its Adwords advertisements. 6 With such press currently focused on this topic, we believe that the answer to our earlier question may reveal itself sooner than one might think.