Evaluation Of Exclusive Distributor Agreements In Terms Of Competition Law

Introduction

The exclusive distributor agreement is one of the most frequently encountered agreements in commercial life and is one of the most important agreements in terms of competition law. The exclusive distributor agreement is characterized as a sui generis framework agreement in the doctrine within the scope of the Law of Obligations.

With the exclusive distributor agreement, which regulates the legal relations between the supplier and the sole seller, the supplier undertakes to provide its products and/or services to the sole seller with exclusive rights in the territory specified in the agreement, and the seller undertakes to sell the products and/or provide the services on its own behalf and account.

It should be noted that the right of exclusivity granted to the seller under the exclusive distributor agreement includes the obligation not to compete. In this context, exclusive dealing agreements may be considered to be in violation of the Law Numbered 4054 on the Protection of Competition ("Law"). However, even though the agreement may have anticompetitive effects, since the agreement has benefits for the economy and the consumer, the exemptions mentioned in this article have been recognised under certain conditions in relation to exclusive distributor agreements.

Definition and Elements of Exclusive Distributor Agreement

There are different definitions and explanations in the doctrine regarding the exclusive distributor agreement. Accordingly, an exclusive distributor agreement, which is referred to as a framework agreement with continuous performance in the doctrine within the scope of the law of obligations, is generally a framework agreement that determines the legal relations between a supplier and a sole seller. Under this agreement, the supplier undertakes to deliver all or part of its products/services exclusively to a sole seller in a certain geographical area. The sole seller will endeavour to increase the sales of these products/services by selling the contractual products/services on its own behalf and account. This agreement brings various advantages and obligations for both the supplier and the sole trader. While the provider has a reliable business partner for the distribution and sale of its products in a certain region, the sole reseller has the opportunity to increase its market share in a certain region as the sole authorized reseller of these products.

In the exclusive distributor agreement, the supplier authorizes the exclusive reseller to monopolize sales in a certain region. However, this monopoly right should be limited in terms of time, place and goods, and the agreement should not excessively restrict the economic freedom of one of the parties; otherwise, it may be considered immoral. It should also be noted that the exclusive dealing agreement involves a continuous relationship between the undertakings.

Evaluation in terms of Competition Law

The main purpose of competition law is to protect the competition order between undertakings. The main purpose is regulated in the first article of the Law as preventing agreements, decisions and practices that prevent, distort, or restrict competition in the goods and services markets, and preventing abuses by undertakings that dominate the market. Article 2 of the Law regulates the scope of the Law, accordingly, the Law covers all agreements, practices, and decisions of undertakings operating in or affecting the markets within the borders of Türkiye that prevent, distort, or restrict competition, as well as mergers and acquisitions that may significantly reduce competition.

Article 4 of the Law prohibits agreements, concerted practices and decisions that may prevent competition and lists the characteristics of these agreements. Within the scope of this regulation, exclusive distributor agreements that restrict competition are also included in the scope of prohibited agreements.

Exemption for Agreements

Prohibited agreements that may violate competition law may receive group exemption when they fulfill certain conditions. The reason for this is that these agreements are not necessarily restrictive of competition but may also increase market competition and have positive effects on consumers and society. Article 5 of the Law regulates the exemption to be applied to agreements, concerted practices and decisions of associations of undertakings, accordingly, exemption is granted in the presence of all of the following conditions

1. New developments and improvements in the production or distribution of goods and the provision of services, or economic or technical progress,
2. The consumer benefits from this,
3. Competition is not eliminated in a significant part of the relevant market,
4. Competition is not restricted more than is necessary to achieve the objectives in subparagraphs (a) and (b).

In addition to Article 5 regulating the exemption, exclusive distributor agreements, which are prohibited due to their anticompetitive nature, may be exempted from these prohibitions by obtaining group exemption when they meet certain conditions. The Competition Authority has granted group exemptions and the qualifications that these agreements must meet are determined by the Communiqué. Accordingly, the Communiqué on Group Exemption for Vertical Agreements ("Communiqué") sets out the conditions for group exemption of vertical agreements from the application of Article 4 of the Law. First of all, it should be noted that in order to benefit from the exemption regulated pursuant to the Communiqué, the shares of the supplier and the sole purchaser in the relevant product/service market in which they operate should not exceed 30%. Furthermore, pursuant to the Communiqué, vertical agreements containing the following restrictions, which are intended to prevent competition directly or indirectly, shall not benefit from the exemption

1. Prevention of the buyer's freedom to determine its own selling price. Provided that; it is possible for the supplier to determine the maximum selling price or to 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.
2. Restrictions on the region or customers to which the buyer may sell the goods or services subject to the agreement, except in the following cases
3. 1. Restriction of active sales to an exclusive territory or exclusive customer group allocated by the supplier to itself or to a buyer, provided that it does not cover sales to be made by the buyer's customers,
   2. Restriction of sales to end-users by the buyer operating at the wholesaler level,
   3. Restricting members of a selective distribution system from selling to unauthorized distributors,
   4. in the case of parts supplied for the purpose of assembly, restricting the buyer from selling them to competitors of the supplier acting as manufacturer.
3. Restriction of active or passive sales to end-users by system members operating at retail level, without prejudice to the right to prohibit a system member from operating where it is not authorised in the selective distribution system.
4. In the selective distribution system, prevention of buying and selling among system members.
5. In the case of goods created by assembling parts, in the agreements between the supplier who sells these parts and the buyer who assembles them, prohibiting the supplier from selling these parts as spare parts to end users or to repairers who are not authorised by the buyer to maintain or repair the goods.

Notification to the Competition Authority

In order for undertakings to benefit from the exemption under the Communiqué, there is no obligation to obtain authorization from the Competition Board or to make a notification. Accordingly, it is sufficient to fulfill the exemption conditions set forth in the Law and the Communiqué. However, undertakings may prefer to notify the Competition Board of the relevant exclusive distributor agreement and apply for exemption in order to prevent misinterpretation and to avoid any sanctions in the future.

Withdrawal of Exemption

If it is determined that an agreement granted exemption by the Communiqué has effects incompatible with the conditions set forth in Article 5 of the Law, the Competition Board may revoke the exemption granted to the agreement by this Communiqué based on Article 13 of the Law.

In addition, the Competition Board is authorized to conduct examinations, investigations and, inquiries, upon application or ex officio, regarding the activities and legal transactions prohibited by the Law, and upon determining that the provisions of the Law have been violated, to take necessary measures to put an end to these violations and to impose administrative fines on these persons. In this context, even if an exemption is granted to an exclusive distributor agreement, this decision may be revoked in the presence of the conditions specified in the Law. In addition, in the event that an exemption is granted in violation of competition law, this agreement will be invalid, and this violation will be deemed null and void as of the date of conclusion of the agreement.

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.