Miran Legal

Attorney

27.12.2022

Individual And Block Exemption İn Competition Law

The basic law of Competition Law is the Law on Protection of Competition. In accordance with the Law No. 4054 on the Protection of Competition, the issues prohibited in Article 4 takes place in practice by gaining compliance with the law via the possibility of exemption arising from Article 5 of the same law. This article will discuss the issues of individual exemption and block exemption within the framework of two relevant provisions of the LPC.

 

A. TERMS OF THE EXEMPTION

            According to Article 5 of the LPC, titled “Exemption"; “Agreements between undertakings, concerted practices and decisions of association of undertakings are exempt from the application of the provisions of Article 4 in the presence of all the following conditions:

a) Ensuring new developments and improvements in the production or distribution of goods and the provision of services, or economic or technical development,

b) The consumer benefiting from this,

c) Non-elimination of competition in a significant part of the relevant market,

d) The competition not being limited to more than what is necessary for achieving the objectives of paragraphs (a) and (b).”

 

Article 5 of the LPC made four conditions for undertakings to be exempt from the provisions contained in Article 4 of the law. These conditions are not optional; all conditions must co-exist. In individual exemption, the Board will come to a conclusion by specifically examining whether these conditions have been realized within the framework of each concrete event. While in block exemption, the inspection will be made abstractively by reviewing the conditions as a whole. The Competition Board is the only authorized body for granting and revoking individual and block exemptions.

 

The first two of the four conditions listed in the text of the law, Paragraphs (a) and (b), specify the positive elements that should be found in cooperations or undertakings. The conditions contained in paragraphs (c) and (d) contain negative elements that should not be present in cooperations or undertakings. If it is determined that these positive and negative conditions exist; in accordance with the LPC, it is not at the discretion of the Competition Board to make an exemption decision. If the conditions set out in the legislation are met, the exemption will automatically be provided to the related undertaking.

 

1. Affirmative Conditions

a. The Usefulness of the Agreement

            The first affirmative condition of the LPC is “Ensuring new developments and improvements in the production or distribution of goods and the provision of services, or economic or technical development”.

 

            Proof of the relevant provision's existence must be made by undertakings that want to benefit from the exemption opportunity. Considering the wording of the provision, it can be seen that the article of the law consists of two optional elements in the form of “ensuring new developments and improvements in the production or distribution of goods and the provision of services” and “ensuring economic or technical development”. However, it is obvious that there is no clarity on how to determine the presence of both elements. Therefore, the relevant enterprise will need to prove that the provision in question has been provided by them based on concrete facts. 

 

            In a decision related to the provision of LPC art.5/1-a, the Competition Board also examined the requirement of "usefulness of the current agreement". According to the decision, in accordance with the review conducted after the notification of the pool agreement between Airline X and Airline Y to the Board, although it is believed that it constitutes a violation of LPC Art.4, due to the fact that the agreement exceeds aviation legislation an individual exemption for a period of 5 years have been granted (taking into account that the exemption conditions are being met). The provisions of the relevant agreement, such as the determination of the capacities of airline companies together, the sharing of air traffic together, were considered useful and exemptions were granted in this context.

 

b. Consumer Benefit

In accordance with LPC art.5, “Consumer benefit” is also considered as one of the exemption conditions. In cases where the consumer does not have a tangible benefit, it will also not be possible to benefit from the exemption provision.

 

Although the concept of consumer is included in the provision of LPC art.5/1-b, a definition of it is not included in the law. Therefore, at this point, it is necessary to interpret the Law on Protection of Competition and the Law on Protection of the Consumer together. According to the provisions of Law on Protection of the Consumer, the consumer refers to a “natural or legal person acting for commercial or non-professional purposes”. Leading benefits that the consumer can provide are issues such as reducing sale prices, introducing quality products to the market, whether the maximum benefit is provided to the consumer in terms of price/performance. Therefore, the Competition Board is obliged to make a comparison of the benefit and harm of the consumer within the scope of individual or block exemption.

 

2. Negative Conditions

a. Non-elimination of Competition Completely

            In accordance with LPC art.5/1-c, the provision “Non-elimination of competition in a significant part of the relevant market” is included. The agreement to be established between the undertakings should not completely eliminate the competition that exists and should exist in the relevant market. In accordance with the Law on Protection of Competition, it was stipulated that competition should not be eliminated on a product basis but in a wider environment, that is, in the entire market. Therefore, it will not be possible to grant an exemption in the event of an agreement that will eliminate competition in the market or cause it to be eliminated.

 

            In the doctrine, it is generally accepted that an exemption will be granted in matters such as joint research and development, joint sales and advertising due to the fact that competition was not completely eliminated. In turn, in a relevant decision, the Competition Board considered the non-competition and production agreements between two undertakings containing competition-limiting provisions(such as determining the region), a violation of LPC art.4 and did not grant an exemption.

 

b. Limiting Competition No More Than Mandatory

            In accordance with LPC art.5/1-d, the provision “Competition shall not be limited more than mandatory to achieve the objectives of paragraphs (a) and (b)” has been introduced. The agreement in question should both be useful in nature and should not contain more competition-limiting elements than necessary to ensure that the consumer benefits.

 

            In a decision, the Competition Board decided that the provision on determining the sales prices of dealers by the company contained more competition-restrictive elements than was mandatory in a dealership agreement made by company X and its dealers, and decided not to grant individual exemptions.

 

B. TYPES OF EXEMPTIONS

Exemption is divided into individual exemption and block exemption.

1. Individual Exemption

            If all the conditions set out in Article 5 of LPC are met, individual exemption in cooperations made with the purpose of undertakings’ activities to be exempt from implementation of the provisions of Article 4 will be set forth. According to Article 5 of the law, the decision to grant an exemption can be conditioned on the fulfillment of certain conditions or obligations.

 

In accordance with the provision of the law before the amendment, it was required to notify the Competition Board in order for agreements limiting competition to benefit from the exemption. The amended paragraph includes the following rule: "The agreement covered by Article 4 shall be notified to the Board within one month from the date of making the concerted practices and decisions. Exemption provisions do not apply to unreported agreements. If an exemption is granted for notices that have not been made on time, the exemption is valid from the date of the notice". However, the Law on the Amendment of Some Articles of the Law on Protection of Competition and the notification requirement have been abolished. The termination of issuing administrative fines due to non-notification and the reduction of the workload of the Competition Board are the results of this change. Although notifying the Board is no longer mandatory, in practice, undertakings continue to give notice intentionally to eliminate hesitation and ensure legal certainty.

 

            The determination that the conditions for the existence of the exemption in question have been met is made by the Competition Board. The decisions made by the Board in this regard are decisions of an administrative nature. Therefore, in the process up until the Board's decision on the exemption is given, the nature of the undertaking's practices is the subject of discussion in the doctrine. The largely agreed opinion is that these practices will be pending and invalid. If the Competition Board decides to grant an exemption, it will take on a legal and valid nature from the date of the transaction. If an exemption decision is not made by the Board due to non-compliance with the conditions, then the practice of cooperation will become absolutely invalid. Of course, the exemption decisions related to the retarder condition will be valid from the moment the condition is realized.

 

            In individual exemptions, the Board will conduct a formal investigation and determine the truth. Accordingly, it will be able to request any document and information from the parties. Granting the exemption may depend on a certain period of time, as well as the fulfillment of certain conditions and obligations. Likewise, the granted exemption can be withdrawn if there is a deficiency in the existing conditions although they were provided at the beginning.

 

            If there is a change in any event that was the basis for making the decision, the decision to withdraw the exemption bears legal consequences from the date of the change. If the conditions or obligations related to the decision are not fulfilled, it will bear legal consequences from the date of the decision on exemption or negative declaratory. If the decision was made based on incorrect or incomplete information about the agreement in question, the decision will be considered not to have been made at all.

 

            The individual exemption, in contrast to the block exemption, has its provisions and consequences, including but not limited to enterprises that are parties to these cooperation practices. In practice, exemptions are widely provided for agreements on specialization, research, development, patent know-how licenses, joint ventures. In contrast, agreements that limit competition related to market sharing and price determination are not exempted.

 

            The Board's discretion is not absolute. In other words, if the conditions in the provision of the article are met, the exemption is required by law. However, it is possible that the Board may decide not to grant exemptions due to the fact that the conditions contained in the provision of the article are open to different evaluation according to the conditions of the period and the characteristics of each concrete event. However, the concrete justification for why the exemption was not recognized should be clearly stated in the decision.

 

            According to Article 125 of the Constitution, the provision that the judicial path is open to all kinds of actions and actions of the administration is also applicable to the decisions of the Board. Therefore, a person or persons whose interests are violated by the decision may apply for a judicial remedy.

 

2. Block Exemption

            In accordance with Article 5 of the LPC, “If the conditions set out in the first paragraph are met, the Board may issue communiqués providing for the granting of block exemptions to certain types of agreements on certain issues and indicating their conditions.” . It is seen that the provision authorizes the Competition Board. The block exemption, which the Board will provide with a communique, will be a general regulatory act in nature.

 

            In Turkish law, block exemption has been mentioned only in regards to agreements. Therefore, from the wording of the Law, it does not seem possible to grant block exemption to concerted actions and union decisions. In practice, while the Board says that concerted practices will be covered by the exemption, the decisions of the association of undertakings have been excluded from the scope of the exemption.

 

The block exemption communiqués issued by the Competition Board to date are as follows:

1. Communiqué on block Exemption on Vertical Agreements (2002/2)

2. Communiqué on Block Exemption on Technology Transfer Agreements (2008/2)

3. Communiqué on Exemption on Insurance Sector (2008/3)

4. Communiqué on Block Exemption on Specialization Agreements (2013/3)

5. Communiqué on Block Exemption on Research and Development Agreements (2016/5)

6. Communiqué on Block Exemption on Vertical Agreements in the Motor Vehicles Sector (2017/3)

 

In these communiqués, which are issued in general; The obligations covered by the exemption, the conditions and obligations outside the scope of the exemption and the situations in which the exemption will be withdrawn are regulated. It is not enough that the agreement contains provisions in accordance with the relevant communique in order for it to benefit from a block exemption. At the same time, it is also argued in the doctrine that the prescribed provisions should be obeyed.

 

1. Communiqué on Block Exemption in Vertical Agreements

In accordance with The Block Exemption Communiqué on Vertical Agreements (Communiqué No:2002/2), agreements (vertical agreement) between two or more undertakings that operate at different levels of a particular production or distribution chain with the purpose of purchase, sale or re-sale of certain goods and services are exempted provided that it meets the conditions of this Communiqué. It is not obligatory for the vertical agreements that meet the exemption conditions stipulated by this Communiqué to be notified to the Competition Board. However, the party who will benefit from the exemption has the opportunity to notify the Board. If it is determined that an agreement recognized as an exemption by this Communique has effects incompatible with the conditions contained in Article 5 of the LPC, it may be withdrawn by the Competition Board.

 

2. Communiqué on Block Exemption on Technology Transfer Agreements

In accordance with the Communiqué on Block Exemption on Technology Transfer Agreements (communiqué No. 2008/2), agreements in which the licensor gives the licensee permission to use the licenced technology for the production of the products subject to the agreement and agreements about technology transfer can benefit from the exemption under this Communiqué. The exemption will continue as long as the protection granted to intellectual property rights related to the licensed technology applies, and in the case of know-how, as long as the know-how remains confidential.

 

The competition Board can withdraw the exemption that was granted with this Communiqué if they determine that the technology of third parties’ entry into the market has been limited, for example, because of the cumulative effect of similar networks which prohibit the usage of these persons’ technology by licensees.

 

The limitations that exclude technology transfer agreements from the scope of block exemption are listed in Article 6 of this Communiqué. In this article, the conditions such as determining the sales price by one party, limiting the production and sales quantities, sharing customers and sharing the market are specified. If a technology transfer agreement includes any of the limitations set out in the relevant article, the entire agreement will not benefit from the block exemption.
 

3. Communiqué on Block Exemption on Insurance Sector

            In accordance with the Communiqué on Block Exemption on Insurance Sector (Communiqué No: 2008/3), some categories of agreements in the insurance sector are exempted as a block. Agreements limiting competition made by undertakings in the insurance sector for the purpose of determining, promoting and distributing calculations and tables have been exempted as a block. If it is determined that there are effects incompatible with the exemption conditions provided, it is possible for the Competition Board to withdraw this recognized exemption.

 

4. Communiqué on Block Exemption on Specialization Agreements

In accordance with the Communiqué on Block Exemption on Specialization Agreements (Communiqué No: 2013/3), specialization agreements concluded between undertakings are evaluated within the scope of block exemption. In general, agreements made between undertakings that have economic assets and activities that are subsidiary, regarding specializing in production or distribution or concerns market share(in cases where the parties’ total market share does not exceed 25% share in any of the relevant markets), can benefit from exemption under this Communiqué. If it is determined that there is an effect incompatible with the exemption conditions, the recognized exemption may be removed by the Competition Board.

 

5. Communiqué on Block Exemption on Research and Development Agreements 

In accordance with the Communiqué on Exemption on Research and Development Agreements (Communiqué No: 2016/5), there is a block exemption for R&D agreements. R&D agreements which are about the acquisition of technical information, product, technology or production processes being subjected to tests, making theoretical analyses and observations, making experiments including experimental productions, establishing the appropriate facilities for these issues and acquiring of intellectual property rights about the results are considered exemptions. The exemption is valid for the duration of the agreement. In case of joint use of the results of R&D, the exemption is valid for another seven years, starting from the date when the products subject to the contract are first introduced to the market within the borders of Republic of Turkey. If it is determined that the necessary exemption conditions have not been met, the exemption may be withdrawn by the Competition Board.

 

6. Communiqué on Block Exemption on Vertical Agreements in the Motor Vehicle Sector

            In accordance with The Block Exemption Communiqué on Vertical Agreements in the Motor Vehicle Sector (Communiqué No. 2017/3), it has been regulated that vertical agreements about purchase, sale or re-sale of motor vehicles, purchase, sale or re-sale of spare parts and supplying repair and maintenance services for motor vehicles will benefit from block exemption. Vertical agreements concluded between competing undertakings operating in the motor vehicle sector cannot benefit from the exemption. Agreements between the parties in which the provider is the manufacturer and distributor of the goods or services subject to the agreement, while the buyer is the sole distributor, may benefit from the recognized exemption. The Competition Board may withdraw the exemption if the vertical limitations provided for in the vertical agreement benefiting from the exemption cover more than 50% of the relevant market. In addition, the exemption may be withdrawn if it is determined that the conditions set out in Article 5 of LPC have not been met.

 

CONCLUSION

            Competition law contains the necessary regulations to ensure that economic decisions can be made freely between undertakings of goods and markets. Rules governing competition between undertakings are being developed within the framework of the Law on Protection of Competition. As a result of the fact that the competition of undertakings with each other in the market is subject to audit; some applications of undertakings are evaluated within the framework of the ban and sanctions are applied to the relevant undertaking. However, if the conditions specified in accordance with Article 5 of the LPC are met, the practices deemed to be contrary to the law will be evaluated within the scope of the exemption and will take on a legal outlook. In this regard, an exemption may be granted to certain undertakings individually, as well as to various blocks collectively, within the framework of the communiqués to be issued by the Competition Board.