INTRODUCTION
Vertical agreements are agreements made between businesses operating at different levels of the production or distribution chain for the purpose of purchasing, selling, or reselling specific goods or services. These types of agreements are subject to special evaluation under the framework of Law No. 4054 on the Protection of Competition (the “Law”), as they can have both competition-enhancing and competition-restricting effects in competition law.
With the Communiqué No. 2002/2 on Group Exemptions for Vertical Agreements (“Communiqué“), under certain conditions, exemptions are granted from the competition-restricting provisions in Article 4 of the Law. The purpose of the Communiqué is to ensure that vertical relationships which enhance market efficiency, facilitate new entries, or improve distribution efficiency are carried out without unnecessary administrative scrutiny. However, certain vertical restrictions, particularly non-compete obligations and single brand restrictions, require more careful examination as they pose a risk of market foreclosure.
A. SINGLE BRAND RESTRICTIONS
Single brand restriction is defined in the Guidelines on Vertical Agreements (“Guidelines”) as a situation where the buyer purchases all or a significant part of its requirements for a particular product or product group exclusively from a single supplier. In practice, single brand restrictions particularly arise in cases where suppliers impose an obligation on buyers in their digital or physical sales channels not to offer products of other suppliers that could substitute the supplier’s own products. As explained in the Guidelines, this restriction is considered a non-compete obligation because it prevents the buyer from procuring goods or services from other suppliers for a specific product group. One of the primary risks associated with single brand restrictions is the potential foreclosure of the market. Market foreclosure for other suppliers may occur only when exclusive distribution is used together with a single brand restriction. In such a case, the sole distributor of a product in a particular territory may, for example, refrain from selling competing products due to a non-compete obligation. In this context, factors such as the supplier’s market share and the duration of the agreement become decisive.
B. CONDITIONS FOR EXEMPTION
When the provisions of the Communiqué are examined, Article 2 of the Communiqué states that the exemption granted under the Communiqué applies only if the supplier’s market share in the relevant market in which it supplies the goods or services covered by the vertical agreement does not exceed 30%. On the other hand, single brand restrictions may be characterized as a ‘non-compete obligation,’ which is defined under the Communiqué as ‘any direct or indirect obligation that prevents the buyer from producing, purchasing, selling, or reselling goods or services that compete with the contract goods or services.’ Pursuant to Article 5 of the Communiqué, a non-compete obligation imposed on the buyer that is of indefinite duration or exceeds five years is excluded from the scope of the exemption granted by the Communiqué. However, if the supplier’s market share exceeds this threshold or if the duration of the obligation exceeds five years, the agreement becomes subject to an individual exemption assessment by the Competition Board. According to the Guidelines, the main criteria considered in such individual assessments are (i) the supplier’s position in the market, (ii) the position of competitors in the market, (iii) barriers to entry, and (iv) buyer power. Among these factors, the ‘supplier’s position in the market’ is the primary element in determining the anticompetitive effects of the non-compete obligation. Indeed, such obligations are generally imposed by suppliers, who often enter into similar agreements with other buyers as well.
In the Competition Board’s decision dated 29.12.2010 and numbered 10-81/1691-643 concerning single brand restrictions, two provisions identified in the agreements Red Bull entered into with sales points were highlighted: (i) a clause prohibiting the sales point from selling products belonging to competing firms, and (ii) a clause stating that, in periods when Red Bull products could not be supplied, Red Bull would determine which energy drink the sales point could sell. In this context, the Competition Board examined whether the single brand restriction imposed by Red Bull on sales points could benefit from block exemption, taking into account market share thresholds and the duration of the non-compete obligation within the framework of the Communiqué.
Similarly, in its decision dated 28.01.2021 and numbered 21-05/59-26, the Competition Board examined a contractual provision imposed on Marka Mağazacılık that indicated a single brand restriction. Under the relevant clause, Marka Mağazacılık was prohibited from selling competing branded clothing and accessories listed in the annex to the agreement for the duration of the contract. In its assessment, the Competition Board concluded that since the agreement notified fell below the market share threshold of 40% (which was reduced to 30% in 2021) and the non-compete obligation was imposed for a duration shorter than five years, the agreement would not be excluded from the scope of the block exemption.
C. CONCLUSION
Single brand restrictions contained in vertical agreements constitute non-compete obligations, as they require the buyer to procure goods or services for certain products or product groups exclusively from a single supplier. The impact of such restrictions on competition varies depending on factors such as the supplier’s market power and the duration of the obligation. Under the Communiqué, for a vertical agreement to benefit from block exemption, the supplier’s market share in the relevant market must not exceed 30%, and the duration of the non-compete obligation must not exceed five years. Conversely, if the market share threshold is exceeded or the duration of the obligation is longer than five years, the restriction will fall outside the scope of the block exemption and will be subject to an individual exemption assessment. In this assessment, factors such as the supplier’s position in the market, the strength of competitors, barriers to entry, and buyer power will be taken into account.
In conclusion, to minimize competition law risks in vertical relationships containing single brand restrictions, (i) the supplier’s market share should not exceed the 30% threshold set out in the Communiqué, (ii) the duration of the obligation should be limited to a maximum of five years, and in particular, (iii) products in which the supplier holds a dominant position should be excluded from such obligations. Ensuring these conditions allows both parties to maintain an efficient commercial relationship within the framework of contractual freedom while safeguarding competition in the market.
