(1) Introduction
This article aims to provide information regarding the ancillary restraints under Turkish Merger Control Regime and also analyses the
(2) Assessment of Ancillary Restraints under Turkish Merger Control Regime
As per paragraph 48 of the
The Board's precedent and paragraph 54 of the Guidelines provide that as a rule of thumb, restrictive covenants that are imposed on the parties within the scope of a transaction should be limited to three years. That being said, paragraph 54 of the Guidelines also indicates that in case there is a high level of know-how and customer loyalty for the transferred business, a longer period than three years should also be considered ancillary to the transaction. Indeed, there are numerous cases where the Board has found non-compete clauses as ancillary restraints that were envisaged to be in force for five years.2
Paragraph 57 of the Guidelines indicates that restraints concerning the seller itself and those economic units and agencies which constitute an economic unit with the seller may be accepted as reasonable, while any non-competition obligations beyond them, especially those concerning the dealers of the seller or users, shall not be accepted as necessary and related.
According to paragraph 55 of the Guidelines, as a rule, non-compete obligations must be limited to those goods and services comprising the area of operation of the economic unit to be acquired before the transaction. In fact, in a previous case, the Board indicated that the non-compete obligation within the scope of the relevant transaction imposed restrictions in terms of other activities that were out of the scope of the activities of the joint venture and therefore could not be regarded as an ancillary restraint.3
The geographical scope of a non-competition clause must be limited to the area in which the seller offers the relevant products or services before the share transfer, since the purchaser does not need to be protected against competition from the seller in territories, which have not been previously penetrated by the seller. In fact, in a previous decision, the Board remarked that the non-compete obligation could only be considered as an ancillary restraint if its geographic scope would be limited to the city of
(3) Alternative Approaches for Dealing with Ancillary Restraints in Merger Control Filings from a Practical Standpoint
Since the entry into force of Communiqué No. 2010/4 on Mergers and Acquisitions Requiring the Approval of the Competition Board ("Communiqué No. 2010/4"), and specifically, under
Based on the foregoing, if the transaction parties consider that the non-compete/non-solicit obligations would not be deemed as excessive and beyond an ancillary restraint, the parties might consider not explicitly discussing it within the merger control filing and provide detailed explanations as to why such restrictions are directly related and necessary for the transaction, and thus should be accepted as ancillary restraints. However, if the parties have doubts as to whether the relevant restrictions would qualify as ancillary restraints, in order to reach full legal certainty, the prudent approach might be to disclose the non-compete/non-solicit clauses and provide as many arguments as possible in the merger control filing. As an alternative, the parties might also restructure/amend the relevant clauses prior to the notification in a manner to ensure that the scope of such restrictions does not extend beyond the limit that is reasonable to qualify as ancillary restraints if this is feasible from a commercial perspective.
All in all, there are broadly two approaches when dealing with ancillary restraints in merger control filings. The first approach is to discuss the non-compete/non-solicit obligations explicitly in the notification form and provide reasons as to why such provisions are directly related and necessary, and thus should be accepted as an ancillary restraint. The second approach would be not to provide any representations of the restrictions in the notification form. If the parties prefer representing the non-compete/non-solicit obligations within the notification form, the parties would also need to formulate solid arguments to justify why these restrictions ought to be considered directly related and necessary to the transaction.
(4) The Board's Assessment in Vinmar/Arısan Decision
The transaction concerns the acquisition of sole control over Arısan and Transol Arısan (i.e., the
Aside from the competitive assessment of the transaction, the Board indicated that the transaction agreement included non-compete and non-solicit obligations which would remain in effect for four years following the transaction, would be limited to
Considering that there are numerous cases where the Board allowed for non-compete/non-solicit obligations whose duration was five years and determined that such obligations would quality as ancillary restraints, it might be argued that the Board's assessment in the case at hand that the relevant obligations should be reduced from four to three years, despite the parties' detailed explanations regarding the justification of the duration, had been too strict. In that case, it seems questionable as to whether the Board's approach to interfere with the relevant clauses/obligations might constitute excessive enforcement, in particular since the transaction at hand did not result in any substantive competition law concerns. This point was previously raised in the dissenting opinion of the then Chairman of the Board (Prof. Dr.
(5) Conclusion
The decision sheds further light on the Board's recent viewpoint regarding the assessment of non-compete/non-solicit obligations in mergers (i.e., as to whether they would qualify as ancillary restraints in certain conditions) and allows transaction parties to reconsider whether they would prefer to discuss such restrictions in the merger control filing explicitly. The Board's decision might mark the beginning of an era in which ancillary restraints are scrutinized more rigorously and the Board adopts stricter criteria for non-compete/non-solicit obligations to qualify as ancillary restraints. If that would be the case, the transaction parties might prefer not to open these restrictions into the discussion with the case handlers of the Authority by elaborately explaining them in the merger control filing. Instead, if the transaction parties suspect that the Board might find the restrictions unreasonable and excessive for the purposes of the transaction, they might prefer to amend the relevant clauses in the transaction agreements that stipulate such restrictions prior to the notification to make sure that they would qualify as ancillary restraints in line with the Guidelines and the Board's decisional practice.
Footnotes
1. The Board's Vinmar/Arısan decision, dated
2. The Board's Ren/Bimed decision dated
3. The Board's Jantsa/MW decision dated
4. The Board's
5. The Board's QTerminals/Port Akdeniz decision dated
6. The Board's
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Gönenç Gürkaynak Esq.
ELIG Gürkaynak Attorneys-at-Law
Citlenbik Sok. No: 12
Yildiz Mahallesi 34349
Besiktas
E-mail: gonenc.gurkaynak@elig.com
URL: www.elig.com/
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