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19 September 2019
Individual exemption assessment
Resale price maintenance allegations
On 24 May 2019 the Competition Board published the results of its preliminary investigation into Bfit Sağlık ve Spor Yatırım ve Tic AŞ (BFIT). The investigation was undertaken following a complaint by a franchisee that BFIT's franchising agreements included non-compete obligations and non-poaching clauses that violated Law 4054 and the Block Exemption Communique on Vertical Agreements (Communique 2002/2).(1)
BFIT is a gym franchise business which supplies equipment on a rental basis. It has 218 branded sports centres in Turkey. BFIT also carries out educational seminars on management and provides support for marketing, purchasing, public relations, accounting, decor and advertising.
In its assessment of the relevant product market, the Competition Board noted that:
The Competition Board noted that the allegations against BFIT concerned all of the services that it provided and concluded that the relevant product market for its investigation was the gym services market.
In its analysis of the relevant geographical market, the Competition Board noted that BFIT's gyms are located in different cities and therefore it is not plausible for a consumer to use gym services in another city if they want to change gyms. Although the Competition Board noted that BFIT is active in 48 cities, BFIT can grant franchise rights anywhere in Turkey and therefore the geographical market could be defined as Turkey. However, the Competition Board refrained from reaching a conclusive geographic definition.
BFIT grants franchisees the right to use its trademark to open gyms. The Competition Board's investigation revealed that in its franchise agreements, BFIT imposed a non-compete obligation on franchisees and their employees during the agreement term (ie, five years). These agreements also included:
In addition to non-compete agreements, franchising agreements included non-poaching clauses, which stated that "the franchisee cannot employ anyone who has worked or is currently working in BFIT or as a franchisee of BFIT or another competitor without written consent of BFIT". However, BFIT allowed personnel to be transferred between its fitness centres and to be employed by competitors if they provided equal or better conditions despite the non-poaching clause.
In its reasoned decision, the Competition Board referred to the US Department of Justice's approach to non-poaching agreements. From a US competition law perspective, non-poaching agreements deprive employees of the opportunity to negotiate better job opportunities and restrict competition in the labour market; therefore, they have similar effects as wage-fixing agreements. Wage-fixing agreements between competitors prevent wage increases over time by restricting employees' ability to find jobs with higher wages; non-poaching agreements indirectly have the same result.
In line with the US approach, the Competition Board found that non-poaching clauses can have an indirect effect on the labour market, as they result in wage fixing and therefore should be evaluated under Article 4 of Law 4054.(2) However, the Competition Board stated that if know-how and innovation are essential in the fitness sector and the duration of a non-poaching clause is reasonable, BFIT's franchise agreements could be exempt from Law 4054. Accordingly, the Competition Board concluded that BFIT's franchising agreements should be assessed under Communique 2002/2's block exemption, as BFIT's relevant market share was below the communique's 40% threshold.
Under Communique 2002/2, a non-compete obligation may be imposed on purchasers for a period following the termination of an agreement provided that:
The Competition Board found that BFIT's five-year non-compete obligations complied with Communique 2002/2. However, its non-compete obligations for the period following the termination of an agreement did not comply with the communique as:
As a result, the Competition Board concluded that BFIT's non-compete obligations and non-poaching clauses could not benefit from the block exemption.
The Competition Board also conducted an individual exemption analysis into the non-compete and non-poaching clauses and found that BFIT's franchising agreements restricted competition more than was necessary and did not grant an individual exemption because:
The Competition Board also examined allegations of resale price maintenance. It was claimed that:
The Competition Board concluded that:
The Competition Board decided not to launch an in-depth investigation and instead ordered BFIT to cease its infringing action under Article 9/3 of Law 4054. The Competition Board stated that BFIT had to revise its non-compete and non-poaching clauses in franchising agreements to comply with Law 4054 and Communique 2002/2 in terms of duration, geographical area and written consent.
In this context, the Competition Board ordered BFIT to:
In addition, the Competition Board indicated that:
Lastly, the Competition Board stated that clauses in BFIT's franchise agreements that enable resale price maintenance should be amended.
For further information on this topic please contact Gönenç Gürkaynak at ELIG Gürkaynak Attorneys-at-Law by telephone (+90 212 327 17 24) or email (email@example.com). The ELIG Gürkaynak Attorneys-at-Law website can be accessed at www.elig.com.
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