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MARKET SHARE THRESHOLD UNDER THE COMMUNIQUE ON BLOCK EXEMPTION REGARDING VERTICAL AGREEMENTS

January 2009 - Corporate & Commercial. Legal Developments by Cerrahoglu Law Firm.

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A brand-new provision amended to the Communiqué on Block Exemption regarding Vertical Agreements No. 2002/2 (“Communiqué) has introduced a threshold for the market share, which shall be entitled to benefit from the block exemption under such Communiqué. Prior to the amendment all vertical agreements concluded between two or more undertakings operating at different levels of production or distribution chain with the purpose of purchase, sale or resale of particular goods or services were deemed to benefit from block exemption as per Article 2 of the Communiqué provided that provisions of such vertical agreements fulfill the conditions in the Communiqué. However, the new provision amended under the second paragraph of Article 2 provides that “The exemption provided under this Communiqué shall be applicable provided that the market share of the supplier in the relevant market where it provides goods or services, which are the subject of the vertical agreement, does not exceed 40 %.” This provision is meant to read that suppliers with a market share exceeding 40 % in the relevant market shall not benefit from block exemption even if they fulfill the criteria set forth under the Communiqué.


 

Article 3 of the EC Regulation No. 2790/1999 on the application of Article 81(3) of the Treaty to categories of Vertical Agreements and Concerted Practices (“Regulation”) applies a market share test for determining whether vertical agreements concluded by suppliers in the relevant market shall benefit from block exemption under the Regulation. The first paragraph of the said article states that the block exemption provided for in Article 2 of the Regulation shall apply on condition that the market share held by the supplier does not exceed 30 % of the relevant market on which it sells the contract goods or services.  

Entry into force of Market Share Cap in Turkish Law 

A brand-new provision amended to the Communiqué on Block Exemption regarding Vertical Agreements No. 2002/2 (“Communiqué) has introduced a threshold for the market share, which shall be entitled to benefit from the block exemption under such Communiqué. Prior to the amendment all vertical agreements concluded between two or more undertakings operating at different levels of production or distribution chain with the purpose of purchase, sale or resale of particular goods or services were deemed to benefit from block exemption as per Article 2 of the Communiqué provided that provisions of such vertical agreements fulfill the conditions in the Communiqué.

However, the new provision amended under the second paragraph of Article 2 provides that “The exemption provided under this CommuniquĂ© shall be applicable provided that the market share of the supplier in the relevant market where it provides goods or services, which are the subject of the vertical agreement, does not exceed 40 %.” This provision is meant to read that suppliers with a market share exceeding 40 % in the relevant market shall not benefit from block exemption even if they fulfill the criteria set forth under the CommuniquĂ©. 

Notwithstanding the general rule that the threshold must be calculated on the basis of the market share of the supplier, Article 2 provided the same exception as the one in the Regulation under paragraph 2 and it states that it is the market share held by the buyer to be taken into account in the case of vertical agreements containing exclusive supply obligations. Although such threshold was not provided for under the CommuniquĂ© before the amendment, the Turkish Competition Board (“Board”) referred to the threshold of 30 % in the Regulation in one of its decisions dated 22.04.2005 and numbered 05-27/317-80 and discussed whether our legislation on vertical agreements is in line with that of EU.  

In such decision, one of the suppliers stated that it has been clearly indicated in the Accession Partnership Document that it is required for Turkey to bring its legislation on vertical agreements in line with EU’s regulations and Turkey undertook to harmonize its relevant legislation with the Regulation in its National Program published on March 24, 2001. In this view, it was argued that although there is a threshold of 30 % market share in EU legislation, no compliance with the EU Competition Law was achieved until that date due to the fact that no threshold was envisaged in the CommuniquĂ©. Hence, the supplier submitted the argument that when an assessment is made under the CommuniquĂ©, such 30 % threshold must be taken into consideration. The Board ruled on such argument that since there is no difference between the CommuniquĂ© and the Regulation in terms of the criteria to be applied to a vertical agreement, the allegation of whether or not harmonization with EU legislation has been achieved is debatable. The Board stated that if there was a threshold under the CommuniquĂ©, one of the suppliers would not be able to benefit from block exemption but be subject to the assessment of individual exemption and in any case the assessment as to the withdrawal of block exemption would be no different than that as to the withdrawal of individual exemption. Ultimately the Board disregarded the threshold in its ruling and concluded that the exemption be withdrawn from both of the said suppliers despite the fact that market shares of such suppliers in the market at the time were respectively 20 % and 80 %.

This ruling of the Board reveals that prior to the amendment in the CommuniquĂ© the Board did not apply any threshold in rendering decisions with respect to the exemption granted to vertical agreements despite the fact that arguments based on such threshold had been raised before the Board. In two significant decisions of the Board regarding the withdrawal of block exemption for agreements concluded by suppliers with end sale points, the Board held that at the time when disputed agreements were executed by the supplier, they were benefiting from the block exemption under the CommuniquĂ©, however, enterprises with market share above 40 % in the relevant market were left outside the scope of block exemption due to the amendment made in the CommuniquĂ©.  In the decision dated 10.09.2007 and numbered 07-70/863-326, the Board ruled that since there is no obligation for notifying the agreements restricting the competition in the market within the meaning of Article 4 of the Law on the Protection of Competition numbered 4054 (the “Law”), enterprises with a market share exceeding 40 % threshold may benefit from individual exemption provided that they fulfill the conditions required for exemption provided for in Article 5 of the Law.  

Subsequent to the entry into force of the amended provision relating to 40 % threshold, the Board renewed its jurisprudence according to the changing legislation. In the decision dated 10.09.2007 and numbered 07-70/864-327, the Board ruled that no condition such as obliging the sale points to buy certain percent of the previous year’s sales should be imposed on the sale points, nor advantages relying on such condition should be granted. With respect to the measures to be taken on sale points by the supplier for the purposes of foreclosing actual exclusivity, the Board held that: a) Non-competition obligations laid down in the agreements concluded with end sale points, which are granted exclusive sale rights as the result of public and private sector tenders open to the participation of all undertakings organized in a competitive and transparent structure and under non-biased terms, may be applicable provided that they do not exceed the period of two years, b) Sponsorship agreements held on certain locations with the purpose of supporting certain sports, arts or entertainment events, where beverage supply is a secondary element for advertisement, may be applicable provided that they do not exceed 60 days in one year. 

Such decisions of the Board imply that an application for negative clearance should be filed to the Board for vertical agreements concluded by suppliers with a market share exceeding 40 % of threshold in order to ensure that the transaction does not qualify as the acts laid down by Article 4 of the Law, which aim for or effect or likely to effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services. For such agreements to qualify for individual exemption, following requirements stipulated under Article 5 of the Law must be collectively fulfilled: a) Ensuring new developments and improvements or economic or technical  development in the production or distribution of goods and in the provision of services,b) Benefiting to the consumer from the above-mentioned developments and improvements,c) Not eliminating competition in a significant part of the relevant market,d) Not limiting competition for more than what is obligatory for achieving the goals set out in sub-paragraphs (a) and (b).  

Authors: Seçil Abali Merve Ă–ralay     



 Regulation 2790/99 OJ [1999] L 336/21, [2000] 4 CMLR 398.

 Announced in the Official Gazette dated 25.05.2007 and numbered 26532 and entered into force on 01.07.2007.
 Board’s decision dated 10.09.2007 and numbered 07-70/863-326; Decision dated 10.09.2007 and numbered 07-70/864-327.
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