All Things Newz
Law \ Legal

Restrictions On Internet Sales In Competition Law – Antitrust, EU Competition

[ad_1]


To print this article, all you need is to be registered or login on Mondaq.com.

In Türkiye, e-commerce is defined in Law No. 6563 on the
Regulation of Electronic Commerce as “all kinds of online
economic and commercial activities carried out electronically
without physically meeting each other”.

Enterprise sales techniques and processes have changed as a
result of the growth of e-commerce. The competitive dynamics at the
retail level have changed dramatically as a result of sellers using
both traditional and online sales channels. With these
developments, restrictions on internet sales through vertical
agreements between undertakings are observed.1

Vertical Agreements in Turkish Competition Law and the Effects
of EU Law

Vertical agreements have a special importance in Turkish
Competition Law. In Türkiye, restrictions in vertical
agreements are regulated under Article 4 of Law No. 4054 on the
Protection of Competition (“Law No. 4054”)2.
As is known, in accordance with Article 4 of Law No. 4054,
Agreements and concerted practices between undertakings, and
decisions and practices of associations of undertakings which have
as their object or effect or likely effect the prevention,
distortion or restriction of competition directly or indirectly in
a particular market for goods or services are illegal and
prohibited. In the preamble of the article, it is clearly
stipulated that the term “agreement” covers horizontal
and vertical agreements.

Vertical agreements are defined in the Block Exemption
Communiqué on Vertical Agreements Communiqué
No:2002/2 (“Communiqué”)3 as
Agreements concluded between two or more undertakings
operating at different levels of the production or distribution
chain, with the aim of purchase, sale or resale of particular goods
or services
“. Based on the definition, it can be said
that vertical agreements have three main elements. Firstly, two or
more enterprises must be parties to the agreement. Secondly,
enterprises must operate at different levels of production or
distribution. A distribution contract concluded between a producer
enterprise acting as a supplier and a wholesaler, is an example of
a vertical agreement that is frequently encountered in practice.
Thirdly, there are certain goods or services that must be for the
purpose of purchase, sale, or resale.

Article 5 of Law No. 4054 authorizes the Competition Board to
“grant exemptions” as a group to agreements that meet
certain conditions and to issue communiqués specifying such
conditions. Although it restricts competition, it is also
acknowledged that under some circumstances, agreements with
positive elements may be exempt from the Communiqué since
they are more equitable and economically advantageous. Exempted
agreements will have effects and consequences for the parties and
third parties, even if they contain anti-competitive provisions.
Therefore, pursuant to the amended paragraph 2 of Article 2 of the
Communiqué, agreements that do not contain restrictions
listed in Article 4 of the Communiqué and where the market
share of the provider in the relevant market affected by the
vertical agreement does not exceed 30%4 are considered
within the scope of group exemption.

Article 4 of the Communiqué lists the limitations that
exclude agreements from the scope of group exemption. Subparagraph
(a) of the first paragraph of Article 4 of the Communiqué
relates to the restriction of the buyer undertaking’s freedom
to determine its own sales price. Pursuant to this provision, the
buyer is prohibited from setting a fixed or minimum selling price.
However, it is possible for the supplier to determine the maximum
selling price or recommend the selling price, provided that it does
not turn into a fixed or minimum selling price as a result of
pressure or encouragement by any of the parties. Therefore,
agreements within the scope of group exemption are exempt from the
prohibition under Article 4 of Law No. 4054 has been kept.

While it is prohibited to set the resale price directly by
including an “express provision” in the vertical
agreements concluded between the parties, it is also prohibited to
set the resale price indirectly. Determination of the buyer’s
profit margin, promising additional discounts to the buyer if the
buyer complies with the recommended prices, or delaying deliveries
or terminating the agreement in case of non-compliance with the
recommended prices can be given as examples of prohibited
situations due to the indirect determination of the resale price.
Such indirect resale price determination practices are also
prohibited under subparagraph (a) of the first paragraph of Article
4 of the Communiqué.

On the other hand, pursuant to subparagraph (b) of the first
paragraph of Article 4 of the Communiqué, indirect or direct
sales restrictions to certain regions or customer groups are also
prohibited. However, the exceptions to this provision are
explicitly listed in the following sentences. The types of region
or customer sharing listed under four headings are not considered
restrictions that exclude agreements from the group exemption:

  • “Restriction of active sales by the supplier to an
    exclusive territory or exclusive group of customers allocated to it
    or to a buyer, provided that this does not include sales by the
    buyer’s customers,

  • Restriction of sales to end-users by the buyer operating at
    the wholesaler level,

  • Restricting members of a selective distribution system from
    selling to unauthorized distributors,

  • In the case of parts supplied for the purpose of assembly,
    restricting the buyer from selling them to competitors of the
    supplier who is the manufacturer.5

Except for the first of the four exceptions set forth in
subparagraph (b) of the first paragraph of Article 4 of the
Communiqué, no distinction is made between active and
passive sales. While active sales is a type of sale where the
provider and/or resellers reach consumers through elements such as
advertising and promotion, passive sales is a type of sale where
the consumer reaches the seller without any effort on the part of
the provider and/or resellers.

Within the scope of competition law, internet sales are defined
as passive sales.6 Passive sales cannot be subject to
any restriction under competition law, except for exceptions. In
other words, in cases where the last three exceptional provisions
are applicable, any active or passive sale by the buyer may be
restricted by the provider7.

In the continuation of the first paragraph of Article 4 of the
Communiqué, the restriction of active and passive sales to
end-users by system members operating at the “retail”
level in the selective distribution system is also included within
the scope of the prohibition. Likewise, it is also prohibited to
prevent the sale and purchase among system members in the selective
distribution system. Furthermore, in the case of goods created by
assembling parts, in agreements between the supplier who sells
these parts and the buyer who assembles them, the supplier is
prohibited from selling these parts as spare parts to end users or
to repairers who are not authorized by the buyer to maintain or
repair the goods.

Another important restriction in the Communiqué is the
“non-compete obligation”. According to
Article 5 of the Communiqué, all direct and indirect acts
that prevent the buyer from producing, selling, or reselling goods
or services that compete with the goods or services subject to the
agreement are considered within the scope of the non-compete
obligation. The duration of the non-compete obligation must be at
least five years or indefinite. It is important to note that a
non-competition obligation where the parties tacitly agree that the
agreement will be renewed every year should also be considered
indefinite. Non-competition imposed contrary to these obligations
will remove the contract from the scope of the group exemption.

It is also important to consider how the non-competition
obligations imposed on buyers in vertical agreements will affect
the agreement in terms of group exemption. In the event that a
non-compete obligation is imposed on the buyer that exceeds the
limits permitted under this Article, if the provisions of the
agreement containing this obligation can be separated from the
other parts of the agreement, these provisions cannot benefit from
group exemption. However, the remaining parts of the contract may
benefit from group exemption. If the non-compete obligation in the
vertical agreement between the supplier and the reseller can be
separated from the other provisions of the agreement, the agreement
may be maintained without the non-compete obligation. If the
contractual provisions containing the non-compete obligation cannot
be separated from the other provisions of the agreement, the
agreement cannot benefit from group exemption in its entirety.

In Turkish competition law, the first decisions involving the
restriction of internet sales in selective distribution systems did
not make a detailed assessment and only focused on the
“active/passive sales distinction”. However, with the
guidelines issued by the European Union (“EU”) in 2010,
the Competition Board decisions started to be influenced by the EU
and started to include qualitative criteria put forward by the
providers.8

Restrictions imposed on re-providers in e-commerce are generally
encountered in selective distribution systems in EU competition law
legislation, as in Turkish law. It is seen in the reports that the
market share of e-commerce has expanded since the pandemic.
However, vertical agreements and restrictions on resellers in
selective distribution systems in the EU were first subjects to the
Court of Justice of the European Union (“CJEU”) in 1977
and 1986, respectively. The Metro I9 and Metro
II10 decisions are still used today in the approach of
the CJEU and the Competition Board to e-commerce restrictions.
Accordingly, in the Metro I decision of the CJEU in 1977, it was
held that price competition alone is not sufficient to impose
restrictions on resellers.

The Metro I and Metro II judgments have been accepted as the
“Metro Criteria” by the CJEU and have
been used in exemption phases for vertical agreements.

Under the Metro Criteria;

  • The nature of the product,

  • Objective non-discriminatory criteria are applied in the
    selection of re-sellers; and

  • If the criteria applied are not excessive, the group will be
    able to benefit from the group exemption for vertical
    agreements.

In particular, restrictions imposed on resellers in the
selective distribution system must comply with Article 101/3 of the
Treaty on the Functioning of the European Union (“TFEU”).
Accordingly, any agreement is deemed to be contrary to EU
competition law. The restrictions set out in Article 4 of Law No.
4054 are regulated in accordance with Article 101/3 of the TFEU,
and the provisions restricting competition are more clearly set out
in Law No. 4054.

Regulation No. 330/2010 of 20.04.2010 adopted by the European
Commission11 (“Regulation No. 330/2010”) and
the Guidelines explaining Regulation No. 330/201012
(“EU Guidelines”), in line with Turkish competition law,
considered internet sales as “passive sales”. Passive
selling means that providers and/or resellers do not advertise to
reach consumers outside their territories.13 Most
competition law authority decisions were unable to prevent passive
sales. In addition, as in the Communiqué, vertical
agreements that do not contain severe restrictions and do not
exceed the 30% market share threshold under Regulation 330/2010 are
considered to be within the scope of group exemption by the CJEU
and outside the scope of Article 101 of the TFEU14.

The heavy restrictions in Regulation 330/2010 are the same as in
the Communiqué;

  • setting the reseller’s resale price,

  • limitations on the region and customer group,

  • limitation of active and/or passive sales to end consumers in
    the selective distribution system, and

  • preventing resellers who are members of the selective
    distribution system from making sales to each other.

An exclusive distribution system is a system in which the
supplier determines only the region and number of resellers,
without taking into account the characteristics of the product
subject to sale in any way. According to this system, the
above-mentioned market thresholds are exceeded and there are severe
limitations, that would not be possible under the TFEU.

In addition, in the selective distribution system, resellers
should make a selection based on objective criteria according to
the nature of the products. The aim of the selective distribution
system is to protect the brand image in luxury and niche products
and to provide pre-and post-sales services to
consumers.15 In this distribution system, more
restrictions can be imposed on the reseller than in the exclusive
distribution system, such as the complete blocking or limitation of
online sales and restrictions on advertising.

One of the absolute restrictions under Regulation 330/2010 is
the complete blocking of internet sales by re-sellers. One of the
primary objectives of both European and Turkish competition law is
consumer welfare. However, if internet sales are blocked, the end
consumer’s easy access to products is prevented and the
possibility of low prices is eliminated. Nevertheless, if the
provider has objective criteria, pursuant to Regulation No.
330/2010, as under the Communiqué accordingly, it will be
possible to include it within the scope of the exemption. As stated
in the EU Guidelines, circumstances such as public health may be
considered grounds for absolute prohibitions. In Pierre
Fabre16 decision, the protection of the public interest
and blocking internet sales as the sole means of protecting the
public interest are not in themselves limitations requiring an
exemption. However, both are necessary reasons for an exemption to
be granted by the Competition Board as well as by the CJEU.

Relevant Competition Board Decisions on the Subject

In the Yatsan and Antis cases, the Competition
Board evaluated the prohibition of online sales in the context of
the selective distribution system.

In the Antis I17 decision concerning the
distribution of cosmetic products, a negative clearance certificate
is requested for the resale agreement signed between the
manufacturer and authorized resellers. As a result of its
investigation, the Competition Board determined that the
restriction of authorized resellers to sell over the internet
without the written permission of the manufacturer restricts
intra-brand competition pursuant to Article 4 of the
Communiqué titled “Restrictions Excluding Agreements
from the Scope of Group Exemption”. Accordingly, the vertical
agreement was not within the scope of group exemption on the
grounds that competition was restricted and subsequently made an
individual exemption assessment. As a result of the examination,
the consumer’s skin using a product suitable for its structure
is essential to get the highest expected benefit from that product.
It is emphasized that consumers may make mistakes in this regard in
sales made through the internet or may have incomplete information
on usage. For this reason, it has been concluded that the brand
image targeted by the manufacturer may not be achieved and that
this restriction is necessary for the benefit of the consumer.

However, the contracts in question met all the conditions listed
in Article 5 of Law No. 4054. Therefore, an individual exemption
was granted.

In Yatsan18, another decision in which
internet sales were restricted in the selective distribution
system, it was held that the ban on internet sales constituted a
severe restriction in the context of preventing passive sales.

It was then analyzed whether there was an objective
justification for such a restriction, such as the protection of
public safety and health, and the introduction of a new product to
the market/marketing of an existing trademark for the first time in
a new market. Accordingly, these conditions were not met in this
particular case. The economic integrity of the undertaking through
vertical applications in which the undertaking determines the sales
price and prohibits internet sales is in violation of Article 4 of
Law No. 4054. is found to constitute a contradiction. It is
concluded that such practices cannot benefit from the exemption
provided by the Communiqué. In the individual exemption
assessment, it was acknowledged that the risk of free-riding and
the protection of the brand image, which were put forward by the
undertaking as justifications for the prohibition, was important.
However, noting the approach adopted by the Commission in the
Guidelines, it was emphasized that there were less restrictive
measures to achieve these objectives. It also referred to the
benefits of the internet for consumers and stated that the
restriction is unlikely to be beneficial for the consumer.
Therefore, since it does not meet the conditions set forth in
Article 5 of Law No. 4054, the said practices cannot be granted
individual exemptions.

In the first decisions in Turkish competition law involving
restrictions on internet sales in selective distribution systems,
no detailed evaluation was made and only the active/passive sales
distinction was emphasized. However, with the guidelines issued by
the European Union (“EU”) in 2010, the
Competition Board decisions started to be influenced by the EU and
include qualitative criteria put forward by the
providers.19

Decisions of the European Competition Authorities

The application of a retailer who was prevented from selling
“Scout” branded backpack products on eBay was
assessed by the German Competition Authority.20 The
provider justified its refusal to allow the sale of the product on
the eBay platform, although it allowed the sale of the product in
physical stores, by citing the protection of the brand image.
According to the decision, although Scout applied a selective
distribution system, the German Competition Authority stated that
this restriction was incompatible with the nature of the product.
Scout brand bags are school bags and are not luxury and niche
products. Due to the nature of the product, there is no need for
any limitation, and the consumer does not have any interest in the
relevant limitation. The German Competition Authority did not find
it appropriate to restrict the internet sales of dealers due to the
absence of the conditions set forth in Article 101.3 of the TFEU.
Since Article 4 of Law No. 4054 is regulated in parallel with
Article 101.3 TFEU, such limitations are also considered
inappropriate by the Competition Board.

The European Competition Commission investigated allegations
that Nike, directly and indirectly, restricted its dealers’
cross-border active and passive online sales and engaged in
anticompetitive practices.21 Nike delivers its products
to consumers directly or indirectly through authorized dealers to
whom it licenses its products. Nike has taken some actions to
actively and passively restrict its resellers’ online sales.
One of the most significant sales restrictions is the prohibition
of Nike’s licensed dealers from selling outside their exclusive
territories. Out-of-territory sales are contractually restricted
and Nike has the right not to renew the contract in case of a
breach. Although not explicitly stated, it is understood from the
wording that Nike will not renew its contracts with licensed
resellers and this puts pressure on sellers. An administrative fine
was imposed for anticompetitive acts and for restricting passive
sales. The non-restriction of passive sales except for exceptions
is regulated by both the European Competition Commission and the
Competition Board and has been the subject of many other
decisions.

Another decision regarding the selective distribution system is
the Coty22 decision. Coty, a perfume manufacturer, has
adopted a selective distribution system, whereby preventing its
dealers to use online platforms. As per the ruling of the Frankfurt
Regional Court, the relevant vertical restriction limits consumer
welfare and completely denies access to the product concerned to a
certain group of consumers. It was considered to be an absolute
limitation and incompatible with the TFEU. In line with the Coty
decision, the Competition Board’s decisions have shown that
competition in the relevant market is not restricted in cases where
consumer welfare is sought. Restrictions are made according to the
distribution system organized in accordance with the
characteristics of the product and this situation is based on
objective criteria.

CONCLUSION

The market share of e-commerce sales, which has become
widespread, especially during the pandemic period, is increasing
both in Türkiye and in the world. However, it is observed that
providers try to restrict or prevent sellers from using the
internet for various reasons. Maintaining the competitive market
provided by the internet and preventing anticompetitive
transactions fall within the scope of competition law. With the
development of the internet and the widespread use of e-commerce,
it is clear that the regulation and supervision of vertical
agreements and internet restrictions are of great importance for
the protection of competition. Therefore, it is necessary to
closely follow the developments and to keep our regulations on the
subject up-to-date in e-commerce, which is increasing use in our
country and in the world.

When the decisions of the European competition authorities and
the Competition Board decisions are analyzed together, the
situations that resulted in warnings to providers or administrative
fines have been identified as the same. It has been observed that
the TFEU and Law No. 4054, which are similar in terms of
legislative arrangements, may impose certain obstacles to
re-sellers in cases where consumer welfare is sought as a basis and
the qualities of the product are objectively taken into
account.

Footnotes

1. Friederiszick ve Glowicka 2015, 1

2. 4054 sayılı Rekabetin
Korunması Hakkında Kanun, https://www.mevzuat.gov.tr/mevzuat?MevzuatNo=4054&MevzuatTur=1&MevzuatTertip=5

3. 2002/2 sayılı Dikey
Anlaşmalara İlişkin Grup Muafiyeti Tebliğ, https://www.rekabet.gov.tr/Dosya/tebligler/2002-2-sayili-teblig-(2021-4-degisiklikleri-islenmis)-20211108175938391-pdf

4. While the market share limit was 40%
in the previous version of the clause, the numbered 2021/4
published in the Official Gazette dated 05.11.2021 reduced to 30%
with the communiqué.

5. Article 4/1/b-(1-4) of the
Communiqué No. 2002/2 on Group Exemption for Vertical
Agreements

6. TÜSİAD Competition Law
Workshops, Vertical Restrictions in Competition Law, p.8, October
2016

7. Competition Board, Guidelines on
Vertical Agreements, § 35

8. Hande Göçmen, Vertical
Restrictions on Internet Sales

9. Metro v Commission, [1977], Case 26/76
(Metro I).

10. 41 Metro v Commission, [1986], Case
75/84 (Metro II)

11. https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:102:0001:0007:EN:PDF

12. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52010XC0519%2804%29

13. https://www.rekabet.gov.tr/tr/Sayfa/Yayinlar/rekabet-terimleri-sozlugu/terimler-listesi?icerik=e9a4f20f-a673-48e1-8ecc-507e7bfd4224

14. https://www.ab.gov.tr/files/pub/antlasmalar.pdf

15. IACUBUCCI E./WINTER R.A., European
Law on Selective Distribution and Internet Sales: An Economic
Respective, Antitrust Law Journal, 2016, s.46-48

16. Pierre Fabre, Case C-439/09
[2011]

17. Decision of the Competition Board
dated 05.05.2008 and numbered 08-32/401-136

18. Decision of the Competition Board
dated 23.09.2010 and numbered 10-60/1251-469

19. Hande Göçmen, Vertical
Restrictions on Internet Sales

20. Scout Satchel, Case

21. Ancillary Sports Merchandise, Case
C-40436 [2019]

22. Coty, Case C-230/16 [2017]

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

[ad_2]

Source link

Related posts

I acted in self defence, so I am not guilty of assault. Which case won? – Crime

New England Clean Energy Connect Will Remain On Ice Until At Least Next Year As Achievement Of Bay State’s GHG Reduction Goals Hangs In The Balance – Renewables

FRAND Licence Agreements For Smartphones And IoT –