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Competition Board issued a landmark decision on the interplay of competition and intellectual property laws in the search-based advertising field

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On Friday, 15 April 2022, the Turkish Competition Board’s (“Board”) reasoned decision concerning the negative clearance and individual exemption application of an e-commerce undertaking, mainly active in the ready-made modest/conservative clothing business, regarding a settlement agreement (“Settlement Agreement”) dated 4 April 2017, with a competitor e-commerce undertaking (together, “Parties”) was published on the Competition Authority’s website. You may access the original Turkish version of the reasoned decision dated 25 November 2021 and numbered 21-57/789-389 here (“Decision”).

The Decision provides that, according to the Settlement Agreement, the Parties agreed not to bid on each other’s names or registered trademarks as keywords in search advertising and to list such names and trademarks as “negative keywords” on all internet channels, accounts, search engines, social media channels, mobile applications and/or desktop platforms, both locally and globally, such that they do not appear in search results in relation to themselves. The Parties stated that the reason for signing the Settlement Agreement was to ensure that their brands and related phrases are properly recognized and that there is no confusion in the advertisements placed on the internet.

The Settlement Agreement contained three restrictive sections, namely the “negative matching obligation”, “non-targeting obligation” and “obligations regarding Text, Metatag, Keywords and AdWords”. To provide some background on these obligations:

  • Negative matching: Parties agreed to list the respective other party’s name and/or trademark (in various forms) as negative keywords with various online advertising platforms.
  • Non-targeting: Parties agreed not to directly or indirectly target online advertising using the other party’s name and/or trademarks as keywords on the relevant online platforms and/or to bid on each other’s keywords.
  • Metatag: Parties agreed not to use the respective other party’s names in the text of any online advertising on certain platforms, nor to use the other party’s name in metatag keywords.

The Board’s approach to the keyword related online advertising

In line with the practice of popular online search-based advertising service providers, the Board segmented the keyword matching as “broad match (plus match),” “phrase match” and “exact match” accordingly, along with their market statistics. The methods can be briefly described as below:

  • Broad match” focuses on the meaning rather than the precise text of the query, so an ad may appear when the search engine determines that the query is sufficiently relevant to a keyword upon which a merchant has bid.
  • Phrase match,” can appear only when the query contains the exact keyword, although additional words before or after that keyword are permitted.
  • Exact match” means the ad will appear only when the query contains the exact keyword and nothing more.

Based on this understanding, the Parties requested to designate “negative keywords” to ensure that their ads would not appear when a consumer’s query included the given keywords. Therefore, it explained the negative restrictions as “negative broad matches,” “negative phrase matches” and “negative exact matches”. By this methodology, the Parties would either not be able to bid so that the other one’s ad would not appear, or an ad would be automatically removed.

The Board’s approach to the relevant product markets

Both Parties are fundamentally e-commerce platforms with overlapping categories such as clothing — although the applicant undertaking provides a wider range of features to consumers. The Board assessed that since the Settlement Agreement aimed to prevent ads for each product category of the other party, alternative markets that could be affected by the Settlement Agreement were also defined. Accordingly, the Board firstly noted that the product market could be affected by this agreement would be the “e-commerce services market” in a broader sense, considering the dynamic nature of the online ecosystem and the possibility of widening categories. However, taking into account that the Parties’ activities mainly focus on ready-made modest /conservative clothing, the narrower markets that could be affected by the agreement were provided as “e-commerce of ready-made clothing” and “e-commerce of ready-made modest/conservative clothing products.”

In addition, since the Settlement Agreement would also affect the online advertisement bidding procedures and the bid prices within advertising possibilities (regardless of their search-based or non-search-based nature, since the effects would be the same), another market that could be affected by the agreement would be the “online advertising bidding market”.

The Board’s assessment of the Settlement Agreement
a) The Board’s negative clearance assessment

Within their negative clearance application, in addition to their competition law-related explanations, the Parties also argued that the Settlement Agreement was in line with the “trademark protection” provided by Article 7 of the Turkish Industrial Property Code (IPC) which prohibited the use of another’s brand as a keyword in an advert. Registered trademark owners can request the protection of their rights within the framework of IPC. As per the Article 7/3-d of IPC, right holders has the right to restrict behaviors as using identical or similar signs on internet media as domain names, router codes, keywords or similar manners with a commercial impression; provided that the person using the sign has no right or legal affiliation for the use of that sign. Article 29 of the IPC clearly provides that the conducts set out in Article 7 are considered as an infringement of the trademark rights. While the Board acknowledged the Parties’ right to demand protection under this article, the Board also noted that there has to be a balance between the borders of trademark protection and restriction of competition.

As a result, the Board also had to analyze the limits of the legal protection provided by the IPC and how to balance the trademark protection needs with competition policy. In this context, the Board assessed three potential alternative restriction types: (i) “narrow non-brand bidding” (where a restricted advertiser agrees not to bid on another advertiser’s brand name when the search term only includes that brand name); (ii) “wide non-brand bidding,” (where the restricted 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 (iii) “negative matching,” (where the restricted advertiser agrees to add another advertiser’s brand name to its ‘negative keywords’, which prevents its ad appearing when the search term includes that brand name alone or with other (non-brand-related) words).

Eventually, the Board provided that in order not to run afoul of the Article 4 prohibition, the advertising restrictions in the Settlement Agreement must not exceed the protections provided the IPC itself. In this sense, only a “narrow non-brand bidding restriction” did not go beyond the legal protection provided by the IPC. The Board further reasoned that:

  • The non-targeting restriction for the unregistered keywords would exceed the limits of trademark protection, as there are no registered trademark to grant such protection,
  • The negative keywords obligation would lead to restriction of the visibility of each other’s advertisements even in cases where the Parties would not advertise over each other’s trademarks, which eventually could lead to anti-competitive effects of a market sharing / customer allocation conduct, and exceed the limits of the trademark protection.

As a result, the Board provided that a narrow, trademark-limited approach would neither harm consumers’ access to various options, nor exceed the limits of a legitimate trademark protection. However, wider approaches would restrict competition for each relevant product market. Considering the broad limitations included in the Settlement Agreement, the Board rejected the negative clearance application.
b) The Board’s individual exemption assessment

Having rejected the negative clearance application, the Board then assessed whether the Settlement Agreement could benefit from an individual exemption under Article 5 of the Law No. 4054 on Protection of Competition. The exemption conditions and the Board’s respective assessment are as follows:

  1. The agreements must ensure new developments, or economic or technical improvements, in the production or distribution of goods and in the provision of services: Although the Parties provided that negative matching, non-targeting obligations would reduce advertising costs, free-riding, and litigation costs, the Board found that the Settlement Agreement produced no visible efficiency or quality gains. As a matter of fact, the Board also provided that the broader restrictions in the agreement would actually only provide benefits to the Parties themselves, and therefore considered that this condition was not met.
  2. Consumers must benefit from the new developments or improvements, or economic or technical improvements, given in the subparagraph above: The Board noted that the Settlement Agreement would prevent consumers’ price comparison access to the two closest competitors within the markets, especially the “e-commerce of ready-made modest/conservative clothing products” market to a certain extent. Therefore, the Board concluded that the Settlement Agreement including wide keyword restrictions would result in decreasing consumer choices and an increased risk of quality decreases and price increases, which in turn would hurt consumer welfare.
  3. Restrictions caused by the agreement must not eliminate competition from a significant part of the relevant market: The Board did not raise substantive concerns for this criterion as the Parties’ market shares under different market definitions would not be high enough to create market foreclosure. All in all, considering the structure of the relevant markets, Parties’ market shares, competitors’ positions in these markets, and the fact that the Settlement Agreement is limited to the Parties themselves, the enforcement of the Settlement Agreement would neither eliminate competition from a significant part of the relevant market, nor cause a substantial effect within the relevant markets. Therefore, the Board concluded that this criterion is met.
  4. Agreements must not restrict competition more than necessary to achieve the goals set out in subparagraphs (a) and (b): The Board provided that non-targeting keyword related obligations and negative matching obligations would exceed the reasonable limits. On the other hand, a narrower protection within the limits of trademark protection itself would not restrict competition more than necessary. In this respect, the Board decided that the Settlement Agreement could be granted an individual exemption if negative matching obligations along with targeting non trademark keywords obligations are removed from the Settlement Agreement.

To sum up, the Board concluded its assessment as below:

  • The Settlement Agreement would violate Article 4 of the Law No. 4054, and therefore could not be granted negative clearance.
  • The Settlement Agreement would also not benefit from an individual exemption, considering that it did not fulfill all four of the individual exemption criteria.
  • The Settlement Agreement could be granted an individual exemption on the condition that the wide non-targeting keyword restriction and negative matching obligations are removed from the agreement.

Conclusion

The decision makes a critical assessment regarding the interplay of trademark protection and competition law when it comes to agreements restricting parties’ ability to bid on each other’s brands as keywords in search advertising. The assessment demonstrates that, while the IPC indeed offers protections against use of another’s brand as a search advertising keyword, the Board will carefully police the limits of any restrictions to ensure that they do not exceed the proper legal limits and curtail legitimate competitive conduct in search advertising. As such, companies should carefully observe the limits set by the Board’s decision when making settlement agreements in regard to trademark protection claims based on keyword bidding on their trademarks.