The Turkish Competition Board (the “Board”) has recently had its hands full with several cases regarding digital marketplaces. Continuing this trend from another perspective, the Board's decision on BSH Ev Aletleri Sanayi ve Ticaret A.Ş. (“BSH”) concerns a request for an exemption from restrictions on internet retail sales. After an extensive review of the case, the Board ruled against granting an exemption for the relevant provisions restricting retailers from making online marketplace sales. Further, the Board found that no exemptions can be granted from the restriction against active or passive sales to end users by members of a selective distribution system, or from the prevention of purchases and sales among the members of a selective distribution system by imposing a one-stop purchasing obligation on authorised dealers.
1. Background
1.1. The distribution system of BSH
BSH carries out the retail sale of its products under the Bosch, Siemens and Profilo brands through a selective distribution network. While the agreements with the retailers/authorised dealers regarding Bosch and Siemens are constructed as exclusive distributor agreements, this is not the case for Profilo.
The Board notes that a guide containing some standards/rules has been published regarding the sales made by authorised dealers on their own websites. This guide prohibits BSH's authorised dealers from using BSH brands in the domain name of their websites or to use expressions that evoke or identify with these brands.
BSH also distributes its products through consumer electronics retailers (i.e., Mediamarkt1 and Teknosa2), which are outside the selective distribution system. However, as seen from the contracts, certain conditions and criteria have been determined regarding the retailers, which are under the obligation not to act contrary to BSH's corporate identity and brand image. Ultimately, it is understood that BSH has established a reseller relationship with the relevant retailers. Nevertheless, the agreements between BSH and the retailers do not contain an exclusivity provision (i.e., the retailers are not prohibited from selling the products of BSH's rivals).
1.2. BSH's request
BSH has requested an exemption/negative clearance for the practice of prohibiting BSH's authorised dealers from selling on online marketplace platforms such as N11, Amazon, Trendyol, Morhipo, and Hepsiburada.
This prohibition is put in place via a circular prepared by BSH, which states that authorised dealers are prohibited from making sales via online marketplaces, on the grounds that there may be misleading information about BSH products and content, such as statements and pictures, that do not comply with corporate identity, brand image, quality and safety standards. According to the circular, in case of a violation of the sales ban, the authorised dealer will be warned in writing by BSH to end the violation. If the violation is not resolved within the specified timeframe, the contract of the authorised dealer may be terminated by BSH for just cause.
1.3. Selective distribution systems under EU and Turkish regimes
Considering the possible effects of selective distribution agreements on competition, the Board states that this system has the potential to adversely affect intra-brand competition in terms of restricting the number of distributors and prohibiting sales to unauthorised distributors. At this point, the question of how to assess the selective distribution system within the scope of competition law and the Court of Justice of the European Union's (“CJEU”) Metro decision3 comes to the fore. Accordingly, it is considered that a distribution system that meets the following conditions is not within the scope of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”): (i) the criteria adopted for the selection of the reseller should be applied on a uniform and non-discriminatory basis for all potential resellers, and (ii) restrictions on the reseller should be of a nature that serves the purpose of maintaining the quality of the product and ensuring the appropriate use of the product and should not go beyond this purpose.
Turkish competition law has a similar point of view with regards to selective distribution systems. Pursuant to the Turkish Competition Authority's Block Exemption Communiqué on Vertical Agreements (“Communiqué No. 2002/2”), restricting the active or passive sales to be made by system members operating at the retail level to end users, and preventing the purchases and sales of system members among themselves, without prejudice to the right of a system member to operate in a place where it is not authorised, is not deemed eligible for a block exemption. Passive sales bans to be imposed on system members in selective distribution systems are excluded from the block exemption.
1.4. Restrictions on internet sales
The European Commission's Regulation No. 330/2010 on the application of Article 101(3) of the TFEU to categories of vertical agreements and concerted practices, the Guidelines on Vertical Restraints (“EU Guidelines”), Communiqué No. 2002/2, and the Authority's Guidelines on Vertical Agreements (the “Vertical Guidelines”) include similar assessments concerning internet sales bans. These prohibitions are seen as passive sales restraints and are considered as hard-core restrictions that take such agreements outside the scope of a block exemption.
Furthermore, the CJEU's Pierre Fabre decision4 is noted as a turning point for case law regarding internet sales restrictions. In this decision, the CJEU determined that such restrictions shall be a restriction by object unless there is an objective justification arising from the characteristics of the product. This is also noted in paragraph 60 of the EU Guidelines: “Hard-core restrictions may exceptionally be objectively necessary for the existence of an agreement of a particular type or nature”.
In the Antis I decision,5 which is noted as the first on the subject, the Board examined the contract signed between the supplier and its authorised dealers, which includes a provision that sales over the internet depend on the permission of the supplier. In this particular case, the Board pointed out that the use of a skincare product suitable for the skin structure of the consumer is necessary in order to obtain the expected maximum benefit from the product. Considering that the brand image targeted by the manufacturer might not be secured via online sales—on the grounds that mistakes could be made in determining the consumer's skin type or that there may be incomplete information provided on the use of the product—the Board decided that this restriction was necessary for the benefit of the consumer. Additionally, the Board stated that in the absence of any restrictions on sales made between authorised distributors, the prohibition of sales over the internet would not significantly affect intra-brand competition and that the competition between brands was already at an adequate level. In conclusion, the Board granted an individual exemption for five years; later, in Antis II,6 the Board adopted a similar assessment and exempted the relevant agreement indefinitely.
On the other hand, in Yatsan,7 the Board, while evaluating the complete prohibition of internet sales of the relevant products, made a distinction between active and passive sales, contrary to the Antis decisions. The Board further emphasised that, in principle, every reseller should be allowed to sell over the internet, and based on the approach in the EU Guidelines, decided that no exemption could be granted.
The Board also refers to its 2017 decision8 concerning BSH, which is similar to this case in terms of its subject. Allegations that BSH restricts the internet sales of its dealers is examined based on a contract provision stating that “BSH retains its rights and authority regarding the sale and marketing/electronic commerce of the contracted products over the internet, and the dealer cannot actively sell the contracted products on the internet without the prior written consent of BSH”. On-site inspections in this case revealed evidence that BSH warned some dealers that were selling on online marketplaces such as N11. The Board also identified that the online sales tab of the dealers' websites redirects users to BSH's website, which is considered as a restriction of the internet (passive) sales of the dealers, and thus cannot benefit from an exemption.
With this decision, the Board re-evaluated its decision from 20159 granting BSH an individual exemption. Referring to EU legislation and case law, the Board stated that even if there is no passive sales restriction in the contract, it is possible to de facto restrict passive sales in practice, noting that the distributor's website redirects the customer to the supplier's website, and this is listed as one of the cases of limiting passive sales in the EU Guidelines. The Board did not accept the claim that internet sales were restricted on the grounds of protecting brand image and decided as follows:
- to withdraw the block exemption granted to the contract in question;
- that there is no need to launch a full-fledged investigation on the grounds that there are significant competitors in the market and the fact that no concrete sanctions have been imposed on dealers due to their online sales;
- the agreement may be put into effect if it is amended to be compatible with the block exemption conditions or if an individual exemption is granted by the Board; and
- to inform the undertaking on the necessity of avoiding any practices that may have the effect of restricting competition.
It should also be noted that the Vertical Guidelines, the updated version of which was published in 2018, includes specific provisions concerning sales platforms/marketplaces. The relevant provisions set forth that the supplier may put certain conditions regarding internet sales, however, these conditions must be objective, reasonable and acceptable in terms of the factors such as increasing the nature and quality of the distribution, brand image and/or potential efficiency. At this point, the principle of equivalency is especially pertinent due to the differences between brick and mortar shops and internet sales. The conditions must not aim to prevent internet sales as a whole or price competition via internet sales. The Board's assessments are also shaped through this point of view.
2. Assessments
2.1. Restrictions on the dealer's ability to sell on online marketplaces
Within the framework of its decision, the Board referred to the draft EU Guidelines, which emphasises that the restriction of online marketplace sales involves certain competition law risks. Such a restriction is likely to lessen intra-brand competition at the retail level. Furthermore, small and medium-sized sellers are expected to be deprived of an essential sales channel, which may lead to restriction of competition in the market and in turn, cause market foreclosure.
The European Commission states that restricting the use of online marketplaces in particular may lead to efficiencies, including brand protection, ensuring a precise service quality, and the prevention of counterfeiting.
In its Adidas10 and Asics11 decisions, the German Competition Authority (Bundeskartellamt) adopted a rather strict approach with regard to restricting the use of online marketplaces. The Bundeskartellamt considers that the protection of brand image and the prevention of free-riding problems cannot be regarded as objectively essential criteria to ban online marketplace sales. In addition, the Bundeskartellamt indicated that free-riding is a problem both in traditional sales channels and internet sales channels. However, this problem can be resolved by including quality standards for the sale of the contracted products to be adopted by the authorised sellers. Moreover, the Bundeskartellamt accepts that both consumers and manufacturers have an interest in the protection of brand image. On the other hand, this does not justify limiting the use of online marketplaces completely. The Bundeskartellamt stresses that the existing criteria that are adopted to preserve brand image can be adapted to online sales channels.
The Board also attributed particular importance to the CJEU's Coty judgement.12 In Coty, the CJEU acknowledged that the restriction of online marketplace sales indeed serves the aim of preserving brand image. Subsequent to the CJEU's landmark Coty judgement, the European Commission resolved that the restriction of sales of “high quality” and “high-tech” products on online marketplaces in selective distribution networks does not constitute a violation of competition law, provided that they satisfy the Metro Criteria.
2.2. Assessments regarding the dealership agreements and the selective distribution system
The qualitative and quantitative criteria concerning selective distribution systems—which are first defined by the CJEU and are known as the “Metro Criteria”—are stated in paragraph 171 of the Vertical Guidelines as:
- the nature of the product necessitating such a system to preserve its quality and ensure proper use;
- that objective, qualitative criteria are used to choose resellers;
- to not go beyond what is necessary.
The Board stated that certain retailers are selected as authorised dealers by BSH and that certain qualitative criteria are introduced. Therefore, it is possible to conclude that the first condition is met by accepting that BSH applies a selective distribution system to dealers and retailers. The Board evaluated that if it is accepted that there is a selective distribution system consisting of only dealers, it can be said that the second condition is also met. However, assuming that some retailers are authorised dealers, and considering that the retailers are selling BSH-branded products through their own stores on online marketplaces, it is understood that the aforementioned conditions are not applied uniformly and proportionally between dealers and retailers.
Furthermore, the Board, taking the Coty case13 into account, notes the grounds for the principle of proportionality for such restrictions. In this line, the Board assesses how brand image, which is claimed to be protected, may be damaged if authorised dealers sell the products through online marketplaces and whether the relevant ban complies with the Metro Criteria. Despite BSH's extensive arguments on grounds such as the obligation to login from third-party websites, the possibility of incomplete and misleading information about its products, the solution of consumer problems, and delivery and return processes, the Board assessed that these restrictions do not coincide with the object of protecting brand image and the principle of proportionality.
Therefore, the Board considers that the prohibition of sales from online marketplaces implemented/to be implemented by BSH to ensure the effectiveness of the selective distribution network, the restriction of active and passive sales of the dealers to end users in the dealership agreements, and the dealers' obligation to procure the products from BSH are not aimed at protecting the interests of pure qualitative selective distribution and that the practices in question violate Article 4 of Law No. 4054.
2.3. Individual exemption assessment of BSH's circular to authorised sellers
Based on the determination that the situation regarding BSH is within the scope of Article 4, the Board made an individual exemption assessment at this point. In this regard, the Board assessed that BSH's complete restriction of online marketplace sales by authorised sellers will be considered as a severe competition restriction on the grounds that it is against the principle of equivalency and as such removes the agreement from the scope of the block exemption.
With the block exemption ruled out, the Board took the conditions for an individual exemption into account. These conditions are determined under Article 5 of Law No. 4054 as: (i) contributing to improving the production or distribution of goods, and in the provision of services, or promoting technical and economic progress; (ii) allowing consumers a fair share of the resulting benefit; (iii) not eliminating competition in a significant part of the relevant market; and (iv) not restricting competition more than necessary to achieve the goals.
For the first condition, BSH argues that it is aiming to prevent free-riding and to protect the efficiency of the distribution system and its brand image. However, the Board took into account that trying to protect brand image through a ban on internet sales is not often preferred by other competitors in the industry. The Board further states that it is not sufficiently explained how these restrictions would provide a more efficient system and prevent free-riding.
On the second condition, the Board pointed out that a restriction on online shopping curtails consumer preferences and consumers' product search and price comparison opportunities. Moreover, sales made through online marketplaces reduce the costs of consumers by saving time and reaching lower prices, and these sales enable businesses to offer their products to wider areas and reach more consumers, thus enabling consumers to reach products more easily. Considering that an important purpose of restrictions on internet sales in general is to prevent price competition, the Board considers that consumers will be adversely affected by such a restriction.
Regarding the third condition, the Board assesses that these restrictions may reduce intra-brand and inter-brand competition, hinder market entry, prevent authorised dealers from accessing a significant part of the internet sales channel, and distort competition in the market against relatively small and weak undertakings.
For the fourth condition, the Board refers to its Tefal decision14 and its Philips15 and Arnica16 decisions, which were both concluded with settlement. Accordingly, the Board states that the behaviour examined within the scope of “suppliers' interference in the internet sales of authorised dealers”, including online marketplaces and the behaviour of resale price maintenance, are intertwined. Closing online sales channels to dealers where price competition is prominent reduces intra-brand competition, and this may provide a basis for the suppliers to keep the resale prices of their authorised dealers under control. This method, if widely used in the market, may bring prices to the same level in the long run and harm inter-brand competition. In light of these assessments, the Board finds that an individual exemption may not be granted.
2.4. Assessments on the dealership agreements
Certain restrictions are imposed on authorised dealers who are already members of the selective distribution system through dealership agreements. The Board evaluated that banning active sales to end users and imposing a one-stop purchase obligation on authorised dealers will further restrict the behaviour of authorised dealers, complicate their activities in the market, and further limit intra-brand competition, which is currently restricted by the selective distribution system. With the additional restriction, the Board concludes that the conditions for creating efficiency, providing economic and technical development and thus providing benefits to the consumer will not be realised. Therefore, these agreements are not granted an individual exemption, as they do not fulfil the first two conditions.
The Board also noted the contract signed with Mediamarkt, as the provision of subjecting internet sales to BSH's permission without specifying any objective criteria is considered as a restriction of passive sales. Nevertheless, the Board considers it appropriate to examine the individual exemption assessment regarding the relevant restriction within the scope of the investigation currently carried out against BSH, Arçelik, Samsung, LG, and their distributors with the Board's decision dated 09.09.2021 and numbered 21-42/617-M.
Conclusion
This decision serves as a reference point with regards to the Board's outlook on restrictions on internet sales and especially restrictions on sales through online marketplaces. After a comprehensive review, considering case law from many different authorities, taking opinions from BSH, its competitors and authorised dealers as well as conducting a survey to understand the tendencies of the sellers and customers, the Board came to a rather strict conclusion. Consequently, even though such restrictions may be foreseen under certain terms and conditions, the Board found that the restrictions in question go against the principle of equivalency and they do not serve the purpose of protecting the brand image, the efficiency of the distribution system and preventing free-riding.
Footnotes
1 Media Markt Turkey Ticaret Limited Şirketi
2 Teknosa İç ve Dış Ticaret Anonim Şirketi
3 Case 26/76 Metro v Commission (I) (1977).
4 Pierre Fabre, Case C-439/09 [2011].
5 The Board's Antis I decision, dated 05.05.2008 and numbered 08-32/401-136.
6 The Board's Antis II decision, dated 24.10.2013 and numbered 13-59/831-353.
7 The Board's Yatsan decision, dated 23.09.2010 and numbered 10-60/1251-469.
8 The Board's 2017 BSH decision, dated 22.08.2017 and numbered 17-27/454-195.
9 The Board's 2015 BSH decision, dated 06.10.2015 and numbered 15-37/573-195.
10 Bundeskartellamt's Adidas decision, dated 27.06.2014 and numbered B3-137/12.
11 Bundeskartellamt's Asics decision, dated 26.08.2015 and numbered B2-98/11.
12 CJEU, Coty, Case C-230/16 [2017].
13 Coty, Case C-230/16 [2017].
14 The Board's Tefal decision, dated 04.03.2021 and numbered 21-11/154-63.
15 The Board's Philips decision, dated 05.08.2021 and numbered 21-37/524-258 (The case is closed with settlement and the Board's reasoned decision has not been published).
16 The case is closed with settlement and the Board's reasoned decision has not been published.
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