• Tying Practices
  • December 3, 2015
  • Law Firm: Erdem Erdem Law Office - Istanbul Office
  • Introduction

    In general, tying practices indicate the cases in which the sale of a product is tied to the sale of another product. The first product demanded by the buyer is defined as the ‘tying product,’ and the product purchased together with the tying product is called the ‘tied product.’ There can be a variety of motivations prompting undertakings to perform tying. The intention to increase the sale of less appealing products is an example of such motivations.

    Tying practices do not always create anticompetitive results. Undertakings usually choose to perform tying in an attempt to serve higher quality products to their customers and to reduce the costs. The anticompetitive outcomes of such practices that are frequently observed in business life occurs when evaluated within the scope of the fourth article of the Law on Protection of Competition (“LPC”) governing agreements restricting competition, and the sixth article regulating abuse of dominant position. Within this context, the anticompetitive impacts of tying practices, such as exclusion of competitors, foreclosure of the market, restriction of entry to the market, and endamaging of buyers, may lead to competitive concerns.

    Types of Tying

    In business life, tying practices may be performed in numerous forms. Such types may be exemplified as contractual tying, requiring a buyer to exclusively purchase the tied product from the specific undertaking, tying via refusal to supply, technical tying in which the tied product is physically integrated into the tying product, and bundling[1].

    There are certain aspects of bundling, differentiating it from other types of tying practices. In bundling, tied products cannot be purchased individually and sold in specific ratios. Such differences make it difficult to regard bundling as a type of tying practices. Undertakings often choose to apply bundling in order to minimize their distribution costs and to make their pricing effective.

    Tying Within the Scope of Agreements Restricting Competition

    Anticompetitive impacts of tying practices are regulated under paragraph (f) of Article 4 of the LPC, which provides an example of agreements restricting, disrupting and limiting competition.

    Such Article regulates tying practices within its scope and considers the conditions that oblige the purchase of a certain good or service, together with a distinct good or service, or clauses entailing the buyers, who are considered as intermediary undertakings, to display certain goods or services, along with the ones they have requested, or provisions pertaining to resubmission of already supplied goods or services. It would be helpful to understand and evaluate the term of “customs of trade” as indicated under such Article, in accordance with the Turkish Commercial Code.

    The Competition Board considers whether the agreements executed between two undertakings consists tying provisions within the same scope. For example in the Competition Board (“Board”) decision[2] rendered against Liman Isletmeleri ve Nakliyecilik Sanayi Ticaret A.S and Densay Denizcilik ve Ticaret A.S the two companies agreed by way of an agreement that the ships which approach to Çukurova dock shall only engage with Densay AS as their agent. The Board decided that such an agreement preventing other agencies activities is a tying agreement and against the Article 4 of the LPC.

    The Guidelines on Vertical Restraints (“Vertical Guidelines”) analyzes the cases where tying practices result in vertical restraints. Article 2 of the Block Exemption Communiqué on Vertical Agreements numbered 2002/2 (“Communiqué”), considers the events in which the market share of the vertical agreement exceeds 40%, with regard to the tying and tied products, within the scope of the exemption, provided that all other conditions stipulated under the Communiqué are met. It is significant to evaluate the dominance of the suppliers, compared to their competitors in the tying product market; this evaluation clarifies the amount of possible anticompetitive impacts (such as entry barriers) of the supplier.

    Tying in Accordance with the Abuse of Dominant Position

    Another provision of the LPC regulating the tying practices is Article 6 that pertains to the abuse of dominant position. Tying practices provided under Article 4 are also an example of the abuse of dominant position. Contrary to Article 4, Article 6 does not include the expression “contrary to the nature of the agreement and commercial customs.”

    Guideline on the Assessment of the Exclusionary Abusive Practices by the Undertakings in Dominant Position (“Guideline”) also provides rules regarding tying practices. Tying practices of undertakings in the dominant position may lead to a decrease in the number of potential customers of their competitors, or may create entry barriers.

    In accordance with Guideline, determination of the illegal tying practices of the undertakings in the dominant position is subject to two conditions: Tied and tying products shall be different, and closure of the market in an anti-competitive way shall be possible.[3]

    In the Digitürk decision[4], the Board evaluated the package sale of images of nine match highlights played within a week to the broadcasters as a tying agreement in terms of Article 6 of the LPC. Board in its evaluation regarded two factors listed in the Guideline together with the buyers product selections and decided that Digitürk is abusing its dominant position in the market.

    In order for the products to be different, the Board considers that the tied product shall be a product to be sold, or having the potential to be sold, without the tying product. In the Digitürk decision the Board regarded match highlights as different products since the products in question can be requested separately. Factors such as the market practices of the undertakings having different products, pricing of the products, option to sell the products separately, and the effects of separately selling the products with respect to quality, may be taken into consideration. In the Akinsoft decision in determining the seperability of the products, demand of buyers for the tied product is considered however in conclusion Akinsoft is not regarded as an undertaking in the dominant position and the Board decided that there is no abuse under Article 6 of LPC[5]

    On the other hand, pursuant to Vertical Guideline, the products shall be assessed in accordance with the perspective of the buyer. That is to say, if the products may be purchased from different markets, they are considered as different products. However, if the products are expected to be sold together in accordance with the commercial customs, or if selling the products separately causes technical inconveniences, the sale of these products together is deemed as a usual practice in commercial life.

    Undertakings in the dominant position may use tying agreements as a means of price discrimination or predatory pricing. For instance, undertakings may tie two products and sell them at a price much lower than the total price of the two products. In such cases, the undertakings aiming to provide pricing advantages to their competitors use the tying practices as a tool.

    Practices in European Community (“EC”)

    Tying practices of the EC provides an insight for competition practices in Turkey. In accordance with the EC competition law, and also in accordance with Turkish law, closure of the market, creating entry barriers, and thus, harming the buyers by an undertaking in the dominant position via abuse of its dominant position, are considered illegal. As it is provided in Guideline, illegality of a tying practice by an undertaking in the dominant position makes clear that there are two different products, and the market is closed in an anti-competitive manner[6].

    With the Microsoft[7] decision being one of the most important decisions regarding tying agreements, the Commission assesses the fact that Microsoft Internet Explorer was tied to the Windows software system. The Commission evaluated whether tied and tying products are different in accordance with the buyers demand, and decided that certain undertakings sell only the tied product (software system), and the two products are different in terms of their functions. Microsoft undertook that they will provide the option to choose different web browsers after their illegal tying practices were subjected to the investigation, and the Commission accepted the relevant undertakings[8]. Article 102 of the Treaty of the European Community provides that obliging the buyer to purchase the tied product is an element of abuse of the dominant position. Although the buyer does not seem to be obliged to purchase the software system in the above mentioned Microsoft case, the Commission deems the fact that removal of the system is not possible as a result of the technical tying to be obliging of the buyer. Paragraph 53 of the Commission’s Guidance on Article 102 Enforcement Priorities provides that the technical tying is a strict method as compared to contractual tying, considering that separating the products is more difficult and expansive.

    Conclusion

    Tying practices is implied by the undertakings in commercial life as decreasing distribution expanses, increasing the sales of the non-preferred products, and creating price advantages. These practices are illegal so long as they are considered within the scope of Articles 4 and 6 of the LPC.

    Closure of the market in an anti-competitive way, creating entry barriers and harming buyers, are deemed as abuses of dominant positions. In addition, undertakings in dominant positions use tying practices for price discrimination and predatory pricing, and such practices create competitive concerns. Turkish competition law is in compliance with EC competition law in this respect. Decisions of the Commission, such as the Microsoft decision, also provide insight for Turkish practice.

    [1] Whish, Bailey, Competition Law, Oxford, 689.

    [2] Competition Board Decision dated 16.5.2002 and numbered 02-29/339-139.

    [3] Guideline on the Assessment of the Exclusionary Abusive Practices by the Undertakings in Dominant Position par. 86.

    [4] Competition Board decision dated 7.9.2006, numbered 06-61/822-237.

    [5] Competition Board decision dated 5.3.2009, numbered 09-09/192-59.

    [6] EC Treaty Article 102.

    [7] Regarding the Microsoft Case, please see: http://ec.europa.eu/competition/sectors/ICT/microsoft/.