The Turkish Competition Board’s (the “TCB“) recently published Modanisa/Sefamerve decision (25.11.2021, 21-57/789-389) constitutes an important precedent revealing its current approach towards search engine dynamics and specifically, non-bidding agreements in online search engine advertisements. The TCB reviewed the the settlement agreement (“Settlement Agreement“) between two online retailers, namely, Modanisa Elektronik Mağazacılık ve Ticaret A.Ş. (“Modanisa“) and EST Marjinal Medikal Tanıtım ve İletişim San. ve Tic. Ltd. Şti. (“Sefamerve“) and at the end, declined to grant an individual exemption or a negative clearance to pursuant to Law No. 4054 on the Protection of Competition (“Law No. 4054“) as the TCB deemed ‘negative matching agreements’ as having effects similar to customer/market-sharing agreements between competitors.
The Parties to and the Subject Matter of the Negative Matching (Settlement) Agreement
Modanisa and Sefamerve, undertakings mainly active in pret-a-porter modest/conservative clothing business, executed the Settlement Agreement with the aim of preventing one party from using the other party’s officially registered trademarks as keywords in the online keyword advertising media.
The Settlement Agreement included three restrictive provisions: (i) negative matching obligation where the relevant keyword is added to the list of negative words, (ii) non-targeting obligation where the parties agree not to target each other directly or indirectly on the online platforms and also (iii) not to bid on specific keywords and the metagag obligation, where parties agree not to use the relevant word either in any online advertising or in metagag keywords. Within the scope of the first obligation, Modanisa undertakes not to target the words “sefa merve” and “sefa” and Sefamerve undertakes not to bid on the words, “modanisa” and “nisa” in mobile applications and/or desktop platforms, all internet media, all accounts that are available in Turkey and globally, including all the search engines and social media platforms. The parties explained their objective as ensuring that there there would be no confusion in the advertisements put on the internet with regards to their brands and related wordings.
Balance Between the Interests of the Parties’ and the Competition Rules
Even though the motives of the parties to protect their trademark is understandable from a trademark right point of view, the TCB provided detailed evaluations on the balance between competition law and the right to protect ones trademark, i.e. whether such registered brand names can be considered within the scope of the protection of the trademark. Before its detailed assessments on the matter, as will be discussed below, similar to UK Competition and Markets Authority’s (“CMA“) evaluation, the TCB initially segmented the relevant keyword matching into three different categories and provided an in depth analysis of the effects of such different types of agreements on competition law;
- Narrow non-brand bidding agreements, where the advertiser agrees not to bid on another advertiser’s brand name when a search term includes that brand name alone,
- wide non-brand bidding agreements, where an advertiser agrees not to bid on another advertiser’s brand name when the search term includes that brand name alone or with other – non-brand related- words and finally,
- negative matching agreements, the agreements that are deemed to have the most restrictive effects on competition, where an advertiser agrees to add another advertiser’s brand name to its “negative keywords” that prevents its advertisement appearing when the search term includes that specific brand name alone or with other – non-brand related words.
The TCB’s perspective on negative matching agreements
The TCB evaluated the effects of all the said non-brand bidding agreements and negative matching agreements by referring to various decisions of foreign competition authorities as well as the relevant studies. Amongst others, the TCB also referred to the CMA Digital Comparison Tools Market Study where competitive concerns and evaluations with respect to the non-brand bidding and negative matching agreements, categorizing advertising restrictions into three categories that are mentioned above, are set out in detail. Indeed, along with mentioning relevant efficiencies these types of agreements may offer, the CMA also expresses its concerns in the relevant study. As clearly put forth, the CMA’s fundamental concern with regards to these types of agreements is that, these agreements reduce the possibility of advertisements to show up at the top of a search engine result page, which in turn reduces the competition between the suppliers as well as the visibility of digital competition tools. Nevertheless, it is also mentioned that, such agreements may also have some benefits, such as preventing free-riding on brand owners’ investments, reducing consumer confusion risk when searching a particular brand as well as reducing marketing costs of brand owners, etc. With regards to the free-riding efficiency, the CMA expresses that it could hold for narrow non-brand bidding but it is less credible for wide non-brand bidding and especially for negative matching agreements. Consequently, similar to the TCB’s conclusion, the CMA underlines that potential harm increases as one moves from less restrictive terms and narrow non-brand bidding agreements towards the more restrictive ones, i.e. negative matching agreements. Having also referred to the Dutch Competition Authority’s and the Federal Trade Commission’s analysis of the relevant agreements, the TCB then passes on to considering the restrictions and obligations within the Settlement Agreement itself. Accordingly, it is concluded that the negative matching obligation has the characteristics of the negative matching agreeements, which are deemed to be the most harmful amongst different types of agreements that restrict advertisements, and that they have effects similar to customer/market sharing agreements between competitors. The TCB further concludes that both types of obligations, “Obligations regarding Texts, Metagag, Keywords, Adwords” and “Non-targeting Obligations” are of wide non-brand bidding agreement nature.
The TCB’s Negative Clearance Assesment
In its negative clearance assesment, the TCB first evaluates whether the Settlement Agreement was in line with the trademark protection that the Industrial Property Code (“IPC“) provides, requiring the presence of a registered trademark. Accordingly, the TCB underlines that since the words “sefamerve”, “modanisa” are registered as trademarks, they will enjoy trademark protection, however, not the words “sefa” ve “nisa”. Having that in mind, the TCB also states that, even though such registered trademarks do enjoy trademark protection, that doesn’t mean that all the advertisement restrictions of the registered trademarks are within the scope such protection.
As per the law, owners of a registered trademark can claim the protection of their rights within the scope of the IPC since the use of the registered trademark of someone as a keyword in internet is prohibitedif a permisson is not obtained. Indeed, according to Article 7(3)(d) of the IPC, provided that the person using the sign has no right or legal affiliation for the use of such sign, trademark owners have the right to request the prohibition of the usage of the sign or a similar sign in the internet domain, as domain names, router codes, keywords or similar manners in a way to create a commercial influence. Based on this, the TCB evaluates that the relevant article provides the brand owner a protection in case its registered brand is used on the internet without permission.
Consequently, by emphasizing the necessity to establish a balance between competition law and trademark protection, the TCB concluded that, amongst the identified categories of the above mentioned restrictioons; i.e. narrow non-brand bidding restrictions, wide non-brand bidding restrictions and negative matching agreements, only narrow non-brand biding restrictions would be within the limits of the trademark protection the IPC provides and the wide non-brand bidding and negative matching agreements go beyond such legal protection provided. It is further reasoned that;
- the non-targeting restriction only for the registered trademarks are of the nature of narrow non-brand bidding restrictions and therefore does not exceed the legal protection that the IPC provides for the beneficiaries,
- the non-targeting restriction of the unregistered keywords exceeds the trademark protection,
- especially the negative keywords obligation leads to the restriction of visibility of each other’s advertisements even if the parties do not target each other’s trademarks and, it has the potential to create similar effects of customer/market sharing conduct and therefore, exceeds the trademark protection that is provided with the IPC.
Accordingly, the TCB put forward that the Settlement Agreement which creates or has a potential to create anticompetitive effects due to the obligations it includes, is within the scope of the prohibition set out in Article 4 of the Law No. 4054 (which is akin to Article 101/1 of the Treaty of the Functioning of the EU). Consequently, the TCB rejected the negative clearance application.
The TCB’s Individual Exemption Assessment
Having rejected the negative clearance application, the TCB then proceeded with the individual exemption assessment, and evaluated whether the Settlement Agreement satisfied the conditions listed in Article 5/1 of the Law No. 4054 (similar to Article 101/2 of the TFEU) all of which must be fulfilled for an agremeent to be exempted from the application of Article 4 of the Law No. 4054. Accordingly, the TCB underlined the following:
- Article 5/1(a): The TCB noted that, even if it is claimed that the Settlement Agreement would reduce free-riding and advertising costs, that would only be true for the keywords which are registered as trademarks and only for the narrow non-brand bidding agreements. The TCB further stated that, the wide non-brand bidding agreements would limit consumer choice by exceeding the limits of the free-riding concern, therefore conluded that the first condition is not met.
- Article 5/1(b): the TCB assessed that the customers would be prevented from accessing these two closest competititor’s prices in the relevant market due to the Settlement Agreement. Besides, it is also noted that the narrow non-brand bidding agreements would suffice to prevent consumers from being mistaken, and that more restrictive measures would not be to the benefit of but instead, harm the consumers.
- Article 51(c): by evaluating the market structure, positions of other players that are active in the market, the TCB concluded that, since the parties’ market shares in different market definitions are low and the Settlement Agreement is limited to be applied between the relevant parties, the Settlement Agreement would not cause market foreclousure and not eliminate competition in a significant part of the market, thus this criterion was met.
- Article 5/1(d): the TCB held that the non-targeting restriction of the keywords in the Settlement Agreement, i.e. “nisa” and “sefa”, which are not registered as trademarks, exceeds the targeted benefits and restricts competition more than necessary. However, on the condition that it is only put into effect for the registered trademarks and restricted with non-targeting, the narrow non-brand bidding restriction is the least restrictive measure to be used to obtain the desired benefit. Therefore it is decided that this condition was not satisfied.
Based on the foregoing, considering that the Settlement Agreement did not satisfy all the conditions listed in Article 5/1 of the Law No. 4054, the TCB concluded that the Settlement Agreement could not benefit from individual exemption mechanism. However, it is also evaluated that the Settlement Agreement could benefit from such mechanism, if it is amended in a way that removes the non-targeting obligation of the keywords “nisa” and “sefa” and the negative matching obligation, thereby satisfying all the conditions required to receive an individual exemption.
The Modanisa/Sefamerve is an important decision which demonstrates the interplay between competition law and intellectual property law in the keyword advertising area. In addition to that, it also constitutes a landmark decision in terms of setting the TCB’s standards towards online advertasing mechanisms and specifically, the negative matching practice, which recently has also been under the radar of various competition authorities.
It is possible to argue that this decision itself is not enough to set forth whether such non-brand bidding agreements and negative matching agreements are considered to restrict competition by object or by effect, it does set standards of the proper legal limits between competition law and the IPC in the online keyword advertising. Although a portion of the TCB’s evaluation in this case converges to a rule of reason analysis, its approch on negative matching may be deemed rather rigid, as the market structure was almost entirely disregarded in this analysis. In addition to these, considering that the undertakings’ commitment applications were rejected in the ongoing investigation due to the negative matching agreements concluded which are deemed as having effects similar to customer/market-sharing agreements between competitors, it seems that such types of agreements are also in the radar of the TCB and that we will be witnessing more decisions in this area in the near future.
. Decision of the Turkish Competition Board dated 25.11.2021, no. 21-57/789-389.
. UK Competition and Markets Authority’s Digital Comparison Tools Market Study Final Report.
. Article 5/1 provides that only agreements that fulfil the four conditions below cumulatively can be granted an individual exemption:
- a) They must ensure new developments or improvements or economic or technical improvement in the production or distribution of goods, and in the provision of services,
- b) The consumer must benefit from the above-mentioned,
- c) They must not eliminate competition in a significant part of the relevant market,
- d) They must not restrict competition more than necessary to achieve the goals set out in sub-paragraphs (a) and (b).