New development
On Monday, 8 February 2022, the Turkish Competition Authority (“Authority“) published on its official website the Turkish Competition Board’s (“Board“) reasoned decision concerning, among other things, online marketplace restrictions. Prior to this, the Board declared its position on BSH Ev Aletleri ve Sanayi Ticaret A.Ş’s (BSH) negative clearance and individual exemption application through decision no. 21-61/859-423 dated 16 December 2021 (“Decision“). You may access the reasoned decision’s original Turkish version here. BSH is a major home appliances manufacturer with a wide distribution network in Turkey. The Decision is pivotal as it demonstrates the Board’s most recent stance toward online marketplace restrictions, including its perspective on recent global developments. Below are the key takeaways from the Decision.
The Decision provides that BSH applied to the Board regarding agreements with its authorized dealers (“Agreement“) and a circular on the issue (“Circular“). Although the Circular allows dealers to sell online through their own websites, it has prevented dealers from selling on online marketplaces. BSH asked the Board to clarify two issues: (i) to confirm that the Circular does not fall within the ambit of Article 4 of Law No. 4054 on the Protection of Competition (“Law No. 4054“); and in any case to (ii) individually exempt the Circular from the application of Article 4 of Law No. 4054. The Authority carried out a highly comprehensive review that lasted for approximately one year and eight months. To test BSH’s claims and evaluate the market, the Authority turned to competing suppliers, their dealers, BSH dealers, electro markets, online marketplace platforms and, last but not least, consumers by sending information request. The Authority also commissioned research firms to conduct multiple surveys on e-commerce, consumer choices, etc. to understand the market fully. Having analyzed all this input, the Board rejected both requests for the reasons outlined below.
Online marketplace restrictions
Firstly, the Board assessed BSH’s grounds for banning its dealers’ sales on online marketplaces. While doing so, it adopted an extensive approach, starting by reviewing the current market size, consumer choices, sales and service routes to understand the importance of online sales and using omni channels. Therefore, BSH submitted that the related restriction was a condictio sine qua non for the existing selective distribution system. As such, the Board, in addition to its own researches, also opted for a global understanding and tested BSH’s justifications by way of following the legal framework in the Court of Justice of the European Union’s Metro decision on selective distribution systems [Case 26/76 Metro v Commission (I) (1977)] as well as Coty [Case C-230/16 (2017)], in addition to its comparative perspective on the EU Commission’s E-Commerce Report. Indeed, the Board exhausted almost every European competition authority decision on the issue while examining the pros and cons of the online marketplace restrictions in selective distribution systems.
The following summarizes BSH’s most notable reasons for bringing about such a restriction and the rationale behind the Board’s refusal.
- Brand image: BSH argued that online marketplace sales pose a risk of damaging BSH’s brand image because, in these marketplaces, dealers are free to shape their appearance, communicate with consumers, and resolve their issues in any way they see fit. The Board did not agree that only such a severe vertical restraint is necessary to preserve BSH’s brand image. The Board also considered the Coty decision (where a positive exception was made for the brand image) but rejected BSH’s claims at the end of its comparative review, due to product differentiation. In particular, the Board provided that considering that “consumer expectations for the products are different in comparison to the cosmetics, the substitution of the products is easy and the features to be specific to the luxury product described in the Coty judgment“, it is not possible to conclude that online marketplace restriction contributes to the protection of brand image for BSH.. Conclusively, according to the Board, the proposed remedy does not meet the proportionality criteria based on concrete justifications and BSH has less-restrictive options to achieve the same efficiency gain. Platforms and dealers would be open to negotiating such alternative methods.
- Imitated products and non-authorized dealers: The Board determined that this is not a highly common problem facing consumers and the current potential damage is lower than the damage that a total online restriction may cause, so it can be resolved with contractual and practical solutions. For instance, BSH may oblige its dealers to distinguish themselves from non-authorized resellers by various criteria to be set by BSH, add penal clauses to agreements, etc.
- Consumer relations: As put forward by BSH, consumers tend to communicate with the platforms when they have problems with BSH products. Accordingly, consumers can attribute errors with these aftersales services to BSH. On the other hand, the Board detected that marketplaces can actually make it possible for consumers to approach BSH directly about such issues. The Board also states that it is also possible for BSH to bring some additional service standard criteria on the authorized resellers where they have to get back to the consumer queries received through the online market marketplace channel within two hours at most. All in all, this is a problem where the consumers may face while using the dealers’ websites, which are not subject to a similar restriction.
- Delivery and service issues: The Board elaborately reviewed current issues surrounding delivery complications and aftersales support and concluded that BSH can solve issues with its dealers and authorized services.
- Nearby irrelevant products: From the Board’s perspective, the same ‘problem’ holds true for physical stores in shopping malls. Thus, it cannot justify an online marketplace ban.
In dismissing these justifications, the Board seems to take the following stance: BSH can resort to a complete online marketplace restriction only as an ultima ratio. As BSH’s grounds do not meet this legal test, the restriction is not proportionate.
Afterwards, the Board continued with a three-step negative clearance and exemption assessment enforcing Law No. 4054 and Block Exemption Communiqué No. 2002/2 on Vertical Agreements (“Communiqué No. 2002/2“).
- First step/negative clearance analysis: Since the related Circular and Agreements contained provisions that did not comply with Article 4 of Law No. 4054 (i.e., restricting competition), the Board did not issue a negative clearance to the Circular and Agreements.
- Second step/block exemption analysis: The Agreements and the Circular also did not benefit from the block exemption available under Communiqué No. 2002/2 as it prevented BSH’s authorized dealers from conducting sales on online marketplaces, thereby restricting passive sales. It also envisioned sanctions against dealers that did not comply with this prohibition. Therefore, the Board labeled this ban as a hardcore restriction since: (i) BSH did not provide for a qualitative criterion when restricting marketplace sales, while the ban (ii) had the effect of preventing online sales, (iii) contravened the principle of equivalence, and (iv) conclusively prohibited the selective distribution system members from selling to end users.
- Third step/individual exemption analysis: The Board concluded that the vertical restraint in the Circular did not meet any of the individual exemption conditions. As per Article 5 of Law No. 4054, the exemption conditions and the Board’s respective assessment in this regard are as follows:
- a) The agreements must ensure new developments, or economic or technical improvements, in the production or distribution of goods and in the provision of services. The Board found that the Circular produces no efficiency gains. Online marketplace sales do not damage BSH’s brand image, which the Board considers a speculative claim. The Board supports these findings with empirical data (e.g., survey results).
- b) The consumers must benefit from the new developments or improvements, or economic or technical improvements, given in the subparagraph above. In the decision, the Board concluded that online marketplaces are a consumer welfare element in and of itself. Thus, banning the use of these platforms cannot benefit consumers.
c) Restrictions caused by the agreement must not eliminate competition from a significant part of the relevant market. The Board noted that if other home appliances players enforce similar restrictions, it would eventually arise out of a vast application of this restriction by increasing the potential cumulative restrictive effect (note that another important market player had already imposed an online sales restriction). This is true whether or not they have a small market share, since the conduct of one undertaking can affect all others and restrict market competition on a larger scale. The Board also found that authorized dealers in Turkey make use of online marketplaces vis-a-vis their own websites even more so compared to those in the EU. According to the Board, platforms provide dealers, especially small retailers, with great opportunities. Hence, the Circular would foreclose a significant part of the market.
d) Restrictions must not restrict competition more than necessary to achieve the goals set out in subparagraphs (a) and (b). The Board decided that BSH has alternatives to banning online marketplace sales. For example, BSH can negotiate with platforms on and/or oblige its dealers into preserving its brand image.
Other sales restrictions
The Decision also affirms that the Board looked into other vertical restraints in the Agreement, as well as agreements with electro markets. Conclusively, the Board provided the following conclusions:
- The Agreement prevented BSH’s selective distribution system members that operate at the retail level from actively and passively selling to end users. Eventually, such restriction contravenes Article 4(c) of Communiqué No. 2002/2.
- The Agreement brought about exclusive purchasing restrictions requiring authorized dealers to purchase goods only from BSH, thereby infringing Article 4(d) of Communiqué No. 2002/2.
- With these two hardcore restrictions, BSH prevented cross sales between members of its selective distribution system. As such, the Agreement did not qualify for a block exemption.
- In terms of individual exemption for the Agreement, the restrictions meet none of the conditions prescribed under Article 5 of Law No. 4054.
- Lastly, the Board also found that BSH’s electro market agreement conditioned internet sales to the approval of BSH. However, although such practice would exclude this agreement from a block exemption assessment and would infringe Article 4 of Law No. 4054, individual exemption in this regard would be evaluated within the scope of the full-fledged investigation against BSH (dated 9 September 2021 and numbered 21- 42/617-M).
Conclusion
The Decision proves that the Board takes a clear position on prohibiting sales at online marketplaces. As such, the Decision provides substantive guidance on both how the Board considers global developments and how its jurisprudence on this issue can evolve in the future.
