WHAT IS THE EXCLUSIVE-DEALING ARRANGEMENT AND ITS SCOPE? 11 June 2021
I. General Concept of Exclusive-dealing Arrangement
An exclusive-dealing arrangement is an atypical agreement with a single seller party to sell goods produced by a manufacturer/producer in a specific geographic area. In practice, expressions such as "dealership agreement" or "distributor agreement" are also included instead of the exclusive-dealing arrangement. In this context, the exclusive-dealing arrangement is a contract between the manufacturer and the exclusive seller, which has the character of being a framework and includes the element of continuity. With this contract, the producer is obliged to send the goods that are produced to the exclusive-dealing, while the exclusive-dealer is obliged to increase the marketing level and sales of the goods in the relevant geographical region by selling the said goods on his own behalf and account. Regarding these obligations, it would be useful to refer to the definition of the Court of Cassation in its decision. According to this, “…exclusive-dealing arrangement is a framework and continuous contract regulating the legal relations between the supplier and the exclusive-dealer, and with this contract, the producer is obliged to send all or part of his products to the exclusive-dealer in return for a price in order to sell all or some of their products as having a monopoly in a certain region. The seller undertakes to take action to increase the sale levels of the goods by selling the contracted goods on his own behalf and account.”
As can be seen from the explanations above, although the exclusive-dealing arrangement contains more than one element, its most distinctive feature is that it provides the exclusive-dealer with the opportunity to be a monopoly in the determined geography. Finally, the violation of the elements of the exclusive-dealing arrangement, which those elements may differ in different cases, should be evaluated according to the provisions of the Law of Obligations.
II. Elements of the Exclusive-Dealing Arrangement
The exclusive-dealing arrangement involves the elements of different contracts. These elements can also be reached from the definition of the exclusive-dealing arrangement.
- Element of Continuity
Within the framework of this element, more than one sales contract will be concluded between the producer and the exclusive-dealer. Accordingly, while the continuity of the relationship between the producer and the exclusive-dealer also creates the framework for future sales contracts due to the nature of the contract. In this way, the existence of more than one sales relationship will be presented.
In addition, the exclusive-dealer is under the obligation to carry out the sale of the producer’s goods in a continuous basis. In this respect, the obligation to increase the sales of the relevant product and to market it becomes a continuous feature.
Considering that these two factors, which are included in the scope of the continuity element, are distinctive of the exclusive-dealing arrangement and the above points would lose their meaning in the absence of the continuity element, it is necessary to consider the continuity element as the essential element of the exclusive-dealing arrangement.
b) The Element of Acting in One's Name and Account
This element presents itself within the exclusive-dealer. Accordingly, the exclusive-dealer encounters all the risk in selling the goods that he has purchased to sell them to the consumers, and carries out the sale on his own behalf and account. Here, the producer does not enter into a sales action with the consumers himself and the exclusive-dealer carries out the sales transaction on his own behalf and account by being financially independent. From this point of view, it would be wrong to think that the exclusive-dealer has the title of representative of the producer.
c) The Element of Right to be a Monopoly to the Exclusive-Dealer
Right to be a monopoly, which is one of the distinguishing elements in the exclusive-dealing arrangement; should be considered in terms of time, place and the subject of sale. If the necessary restrictions are not made in terms of these issues, the economic benefits of the parties obtained by the exclusive-dealing arrangement will be in danger of being damaged.
Considering these, if it is agreed to purchase from one specific producer within the scope of the contract, it will not be possible for the exclusive-dealer to purchase the goods from any supplier other than the producer, who is a party to the contract. In parallel with this, the exclusive-dealer’s compliance with the specified obligation creates an obstacle for the exclusive-dealer to sell another good that would compete with the goods which are the subject for this agreement. In addition, the possibility of the producer to sell the goods directly to the consumer without selling to the exclusive-dealer would be eliminated. In the contract, it is possible that the exclusive-dealer’s obligation to buy from a single source is accompanied by the exclusive right to sell. Exclusive right of sale may occur by prohibiting the sale of the specific goods for the third parties other than the exclusive-dealer in the geographic location which is pursuant to the obligation of the producer which is in accordance with the provisions of the contract. In this respect, the monopoly opportunity of the exclusive-dealer shows itself to a great extent.
It would not be wrong to conclude that the right to be a monopoly will also present itself over this period, since the exclusive-dealer will fulfill the obligation to increase the marketing levels and sales over a certain period of time within the scope of the continuity element.
d) The Exclusive-Dealer’s Obligation to Increase the Marketing and Sales of the Good
This element emerges as one of the distinguishing features of the exclusive-dealing arrangement. Accordingly, the producer, which provides the right to be a monopoly to the exclusive-dealer, should gain the benefit of increase the marketing level and sales of the product within the determined geographical region and time as one of the returns for providing the right to be a monopoly. In other words, the exclusive-dealer has the obligation to increase the marketing levels and sales of the goods in return for the right to be a monopoly. In the fulfillment of this obligation, the exclusive-dealer must act with due care and diligence in accordance with the necessities of the market that the dealer is operating in and fulfill this obligation by analyzing the conditions of that specific market appropriately.
III. Rights and Obligations of the Parties
a) Rights and Obligations of the Exclusive-Dealer
Obligation to Pay the Price for the Goods That is Subject to Sale and to Receive Them: The exclusive-dealer, as the party with the monopoly right in the determined geographical region, is under the obligation to receive the goods that is subject to sale from the producer and to pay the price for the goodsthat is subject to sale.
Obligation to Increase the Sales: Increasing the marketing levels and sales of the product in return for the monopoly right to the exclusive-dealer can be considered as a benefit that is obtained by the producer. As mentioned above, obligation to increase the sales and marketing levels are activities that the exclusive-dealer must perform with care and diligence.
Obligation to Fulfill Services for the Customers: As a result of the producer not performing a sales action with the consumer, the obligation to fulfill the services for customers belongs to the exclusive-dealer in this context.
In addition to the debts listed above, the exclusive-dealer will also have obligations as seen in the continuous performance contracts. These; may appear as obligations such as loyalty to the producer, providing information to the producer, keeping secrets of the legal relation between them, and not to compete with the producer.
b) Rights and Obligations of the Producer
Regularly Ensuring the Delivery of the Goods That is Subject to Sale in Compliance with the Continuity Element: The sales contracts that the exclusive-dealer with the monopoly right wishes to make with the producer regarding the subject of sale in accordance with the continuity element of the exclusive-dealing arrangement must be accepted and performed by the producer. Because, the conclusion and performance of more than one sales contract between the exclusive-dealer and the producer in the process that is within the framework of the continuity element is one of the factors that constitutes the nature of the exclusive-dealing arrangement.
Obligation to Show Loyalty and Support to the Exclusive-Dealer: The usage of the monopoly right that is provided by the producer to the exclusive-dealer within the framework of the continuity element is based on the trust relationship between the exclusive-dealer and the producer. In this context, the fact that the producer does not perform activities that will harm this monopoly right takes its roots to the obligation of loyalty to the exclusive-dealer. The obligation of the exclusive-dealer to increase marketing levels and the sales of the goods is a benefit to be obtained by the producer. For this reason, the producer will have to show support to the exclusive-dealer in fulfilling this obligation. In this context, the documents and information that the producer can provide regarding the good that is subject to sale or the legal relationship with the exclusive-dealer can be considered within the scope of the support to be shown.
Obligation to not to sell directly: This obligation is also an obligation that protects the monopoly right of the exclusive-dealer. In this respect, the authority to perform a sales action with the consumer is given only to the exclusive-dealer, and the producer does not have the opportunity to establish a sales contract with the consumer through third parties other than the exclusive-dealer.
Obligation to Guarantee the Quality of the Goods That is Subject to Sale: Since the producer is the only party from which the exclusive-dealer can receive the specific goods, it is the producer’s responsibility to keep the quality of the subject goods in the required level.
IV. Termination of the Exclusive-Dealing Arrangement
The first important variable of the termination is whether the contract is a term or indefinite contract. At this point, a fixed-term exclusive-dealing arrangement will expire at the end of the term. However, if the contract becomes unbearable for the parties, the parties will also be able to use their right to terminate for good cause.
Ordinary or extraordinary termination may be applied to terminate an indefinite exclusive-dealing arrangement.
As a result, in case the exclusive-dealing arrangement is terminated in any of the situations mentioned above, there will be no change in the status of the sales agreements concluded until the expiration.
In case of death, bankruptcy or loss of capacity of one of the parties, the contract will also be terminated. However, after the contract has expired, the exclusive-dealer must return the goods, which are the subject of the sale, together with the information, documents and materials that the producer provided within the scope of its support obligation. With the expiration, the exclusive-dealer’s obligation of not to compete with the producer will begin.
V. Evaluation of the Exclusive-Dealing Arrangement in Terms of Competition Law
Although the exclusive-dealing arrangement provides a monopoly right to the exclusive-dealer, it seems to indicate the existence of a monopoly situation in terms of competition law, when evaluated on case basis, it is seen that there is an advantageous situation for the consumer when the exclusive-dealing arrangements are considered to deliver the goods that are subject to sale to the consumer.
In this context, it is seen that the exclusive-dealing arrangement does not harm the competition within the scope of competition law if it meets certain conditions. Considering the provisions of the Article 4 of the Communiqué on Exemption on Vertical Agreements and the Block Exemption Communiqué on Vertical Agreements in the Motor Vehicles Sector, should be evaluated at this point. It is understood that the the specific conditions for the exclusive-dealing arrangements would be harmful to competition are pre-determined.
