"Negative matching" is a new concept recently introduced in Turkish competition law practice. We will be discussing the effects of this on competition law for some time.
What has the TCA been up to?
In April 2022, the Turkish Competition Authority ("TCA") published its Modanisa Decision1, which examined the non-bidding agreements in online search engine advertisements between two retailers in the clothing market. Considering different types of the online search engine bidding agreements, the decision concludes that among the other types, negative keyword-matching agreements damage competition the most. Later this year, in August 2022, TCA announced that it launched an investigation against four undertakings operating in the purchase and sale of second-hand motor vehicles2. The news indicates that this investigation is also about the negative matching agreements3.
While TCA clearly puts forth its concerns about negative matching agreements, the companies benefit from those agreements to protect their trademark. In this regard, negative matching agreements are of great importance regarding commercial interests of undertakings such as protection of trademark rights, effective budget management, and prevention of confusion among consumers. Therefore most of the times, company legal counsel usually and officially send warnings to other parties to respect their trademark rights.
What Are the Types of the Bidding Agreements?
Whenever you do a search online, adverts, in other words, paid search engine results, are displayed at the top of the result page before the organic search results depending on the search term. Keywords constitute the basis of ad campaign models in the Google Search Network, typically determined by an auction process. There are several keyword segments, one being "brand only" searches. These searches essentially include suppliers' brand keywords.
As a result, various agreements to restrict advertisements emerged between competitors over time. These are categorized into three types by several competition authorities around the world, including the Turkish Competition Authority4:
- Narrow non-brand bidding agreements: An advertiser does not add another advertiser's registered trademark as a keyword. In other words, advertisers do not bid on each other's registered trademarks.
- Wide non-brand bidding agreements: An advertiser agrees not to advertise with words consisting of the other's trademark and other phrases, including words that are not related to the brand name.
- Negative matching agreements: In case of a negative matching agreement, the advertisement of the advertiser, who added another brand to their negative keyword list, is not visible to users who searched if the search includes the relevant brand name on its own or together with other words.
What Are the Effects of Negative Matching Agreements on Competition?
The bidding agreements are pretty new for the competition law practice. The most comprehensive assessment of bidding agreements is included in the Industry Survey on Digital Comparison Tools Market Study by the UK Competition and Market Authority ("CMA"). CMA mentions that advertising restrictions may have effects on consumer welfare as well as restrict competition. These agreements are also analyzed by Federal Trade Commission ("FTC"), Dutch Competition Authority5, and the TCA in the Modanisa decision.
Each type of these agreements restricts the advertisement shown to users doing searches using specific keywords. On the other hand, they offer some efficiencies as they (i) prevent free-riding on brand owners' investments, (ii) reduce the risk of consumer confusion when searching for a particular brand, and (iii) reduce marketing costs to brand owners6. Even though these agreements seem similar at first glance, their impacts on adverts differ. Narrow non-brand bidding agreements are mostly deemed less restrictive in competition law; protecting the trademark and preventing unfair competition can be considered reasonable justifications.
An advertisement of a competitor can be displayed to the user using a brand as a keyword in its search because (i) the competitor actively bids on that brand or (ii) due to relevance. Narrow-brand agreements and wide-brand agreements prevent competitors from actively bidding on solely brands in the former and on brands with other phrases in the latter. Wide non-branding agreements limit the advertisements of the competitors to be shown in a query of the users including the brand name along with other phrases. Therefore, wide non-branding agreements are deemed more restrictive than non-branding agreements. As previously mentioned, negative matching agreements are implemented through the use of "negative keywords". Negative keyword matching agreements, in this regard, clear off the possibility of the ad being shown due to relevance, which cannot be eliminated through non-brand bidding agreements. In this regard, the potential harm is acknowledged to increase in negative matching agreements, as they reduce the choices of the users at most.TCA's Remarks on Negative Matching Agreements in its Recent Decisions
In its Modanisa decision, TCA took notice of the balance between competition law and the right to protect the trademark, which is granted to the trademark owner under the Industrial Property Law ("IPL") while assessing the agreement between Modanisa and its competitor. TCA noted that negative matching agreements have the most potential to damage competition, whereas narrow non-brand bidding agreements are the least restrictive among the abovementioned agreements. When negative keywords match any of the keywords in the users' query, ads that are shown to users despite narrow or wide non-brand bidding agreements are prevented from being displayed as well. As such, it is emphasized that negative matching agreements have effects similar to customer/market-sharing agreements between competitors.
The TCA further stated that only narrow non-brand bidding agreements are within the scope of the protection granted to registered trademarks under IPL. On the other hand, TCA stated that other broader obligations in the agreement are beyond the grounds of trademark protection and therefore restrict competition. In the end, the TCA ordered removing the clauses of negative matching to grant exemption to the non-bidding agreements between Modanisa and its competitor.
As Modanisa is an exemption decision over an ex-ante examination, the TCA did not explicitly set forth the possible adverse effects of the negative matching agreements except the decrease in the number of competitor's brand advertisements displayed. There was no debate about whether these agreements restrict competition by their object or effect. The decision was content with merely stating that limiting the display of the advertisements has similar effects to market sharing agreements. Based on that, it seems that the TCA focused on the effects of the negative matching agreements.
Shortly afterward, the TCA launched an investigation against second-hand car purchasers and sellers concerning allegations that they engaged in negative matching agreements. As this investigation has yet to conclude, the detailed analysis under which conditions negative matching agreements restrict competition is still being determined. That said, news regarding said investigation7 shows that the TCA rejected commitment applications by some of the investigated companies. According to the commitment procedure, TCA may reject the submissions to offer commitments if the practice is a naked and hardcore infringement. Although the TCA is yet to make its final decision on the current investigation, news in the press creates the impression that the TCA tends to analyze negative matching agreements as an object restriction, which differs from what we understand from the Modanisa decision.
Negative Matching Agreements: Restriction by Object or Effect?
Negative matching agreements have recently been under the radar of the competition authorities. Therefore, there is not much discussion on whether they constitute an infringement by object or whether the competition authorities should show their harmful effects on competition.
CMA, in its report, addresses both the harmful effects and efficiency gains of those non-bidding agreements. Examining the 1-800 Decision of FTC, The Court of Appeal finds the FTC's concerns about the negative word targeting policy reasonable. Still, it emphasizes that such agreements could also have anti-competitive effects. Similarly, Dutch Competition Authority's report touches on the cost savings created by those agreements in the hotel market and argues that these agreements can increase consumer welfare when the cost savings are transferred to the consumers.
Modanisa is the first decision in Turkey that analyses non-bidding. This decision expresses different types of non-bidding agreements and states that negative matching agreements have more harmful effects on competition than the other types. However, this decision did not explicitly discuss whether negative matching agreements restrict competition by object or effect. It may be argued from the lines of the decision that the TCA would analyze the effects of the negative matching agreements. On the other hand, the latest news stating that the commitment applications of investigated companies were rejected turns this implication away. It leads to whether negative matching agreements may violate competition law by object. The answer to this question remains unclear until a final decision comes out in the recent investigation. Until a such decision is rendered, precedents and practices of TCA show that, at the moment, negative matching agreements between competitors are under the strict scrutiny of the TCA.
Footnotes
1. Decision of the Turkish Competition Authority dated 25.11.2021 and numbered 21-57/789-389.
2. Investigation announcement of the TCA may be accessed here.
3. The relevant news release may be accessed here.
4. Decision of the Turkish Competition Board dated 25.11.2021 and numbered 21-57/789-389.
5. ACM (2019), Working paper Price effects of non-brand bidding agreements in the Dutch hotel sector.
6. CMA, 2017, p. 63.
7. The relevant news release may be accessed here.
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