A Roadmap for Companies Under Competition Investigation in Turkey

 

1. Introduction

The amendments to the Law on Protection of Competition No. 4054 (“Competition Law”) dated 24 June 2020, introduced new mechanisms into the Turkish Competition Regime. The mechanisms, which have been in practice in European jurisdictions for some time, aim to resolve and eliminate competition infringements in a fast and efficient manner to ensure the efficient use of public resources and aid the conclusion of investigations. The mechanisms are the de minimis principle, the commitment mechanism, and the settlement procedure.

Following the amendments, the Turkish Competition Authority issued secondary legislation[1] and clarified the rules and principles for the application of the de minimis principle, the commitment mechanism, and the settlement procedure. As the new roads are now clearly open for companies, in this article we will draw a roadmap that explains the brand-new mechanisms and under which circumstances companies can apply for them.

1. The Roadmap for Undertakings

 

 

A.  A Basic Classification of Competition Infringements

i. Cartels are agreements between competing companies designed to limit or eliminate competition and to increase the companies’ profits or protect their interests. Agreements on (i) price-fixing, (ii) profit margin or cost fixing, (iii) market allocation, (iv) supplier allocation, (v) customer allocation, (vi) limiting production, (vii) restricting output or imposing quotas, and (viii) collusive tendering are regarded as a cartel.[2] Cartels constitute the most severe violation of competition law.

Available Procedures: Members of a cartel can consider applying for a leniency program and commencing the settlement procedure. A leniency program and the settlement procedure can be carried out simultaneously.[3]

Within the context of the de minimis principle and the commitment mechanism, cartels constitute evident and severe violations.[4] Therefore, the de minimis principle does not apply to cartels, and cartel members cannot invoke the commitment mechanism.

ii. Exchange of Information refers to the direct or indirect exchange of commercial information between competing firms. Information exchange could occur indirectly among competitors through third parties such as distributors, undertaking associations, professional organizations that conduct market research, or publicly available sources.[5] The consequences of information exchange under competition law depend on the nature of the information exchanged. Since the exchange of competitively sensitive information could lead to tacit collusion or cartel, such exchanges may give rise to competition concerns.[6]

Available Procedures: The procedures available to an undertaking will depend on the nature of the information exchanged. In the case of exchanging competitively sensitive information, undertakings can only commence the settlement procedure. Within the context of both the de minimis principle and commitment mechanisms, sharing competitively sensitive information such as future pricing and production or sale quantities are regarded as evident and severe violations. Therefore, during an investigation based on such information exchanges, undertakings can neither defend themselves under the de minimis principle nor apply for the commitment mechanism. 

However, in the case of investigations based on the exchange of other kinds of information, undertakings may defend themselves under the de minimis principle provided that the relevant thresholds are not exceeded. Similarly, such undertakings can consider commencing the commitment mechanism in order to end an investigation or preliminary investigation by offering commitments. Finally, they can also apply for the settlement procedure.

iii. Resale Price Maintenance refers to agreements or concerted practices between a supplier and a distributor (i.e., undertakings active in different stages of production or the distribution chain) under which the supplier sets out the price for resale of the product or service.  Resale price maintenance can also occur through indirect means, for instance, a supplier can fix the distribution margin or the maximum level of discount that a distributor may grant from a prescribed price level. From the view of competition law, specifying the minimum price or fixing the price constitutes a severe restriction. Suppliers can set maximum resale prices or recommend resale prices to distributors unless such practices become minimum or fixed price practices.[7]

Available Procedures: In such cases, undertakings can only commence the settlement procedure. Within the context of both the de minimis principle and commitment mechanisms, maximum or fixed resale price maintenance is regarded as a severe and evident violation.[8] Therefore, undertakings subject to allegations of resale price maintenance cannot benefit from the de minimis principle regardless of whether their market share falls within the thresholds. The commitment mechanism is also unavailable in these circumstances.

iv. Other horizontal and vertical agreements refer to agreements or concerted practices other than those mentioned above. In contrast to cartels and maximum or fixed resale price maintenance agreements, the primary purpose of other restrictive agreements is not to distort or limit competition. Such agreements are prohibited to the extent that they restrict competition by their effects on the relevant product market.[9]

Available Procedures: In the case of other restrictive agreements or concerted practices, the first thing to consider is whether the thresholds for the de minimis principle have been exceeded. If the answer is no, undertakings should defend themselves under the de minimis principle and try to convince the Competition Board not to initiate an investigation. If the answer is yes, the undertakings can either commence a commitment mechanism or apply for the settlement procedure.

v. Abuse of Dominance occurs when a dominant firm distorts competition through discriminatory or exclusionary unilateral conduct. Conduct such as predatory pricing, excessive pricing, exclusive dealing, loyalty rebates, tying and bundling, and refusal to deal constitute abuse of dominance.[10]

Available Procedures: In cases of abuse of dominance, undertakings can either commence the commitment mechanism or apply for the settlement mechanism.  

B. What Alternative Mechanisms Are Available?

i. Leniency

A leniency program refers to cooperation, which is often maintained under confidentiality, between the Competition Authority and cartel members in order to reveal a cartel.[11] Accordingly, a cartel member that provides the Competition Authority with the required documentation as evidence of the cartel to which they are party, and maintains this cooperation throughout the entire investigation process, can benefit from total immunity or the reduction of monetary fines depending on the timing.[12]

When and How to Apply? Under the Turkish Competition Regime, there is a limited timeframe for leniency. To be more precise, cartel members can invoke a leniency program until the date that they receive an investigation report[13]. Once a cartel member receives an investigation report submitted by the Competition Authority, they can no longer apply for leniency. A leniency application can be made by submitting the required documents (i.e., evidence of cartels).[14] 

What Advantage Does It Provide? If a cartel member invokes the leniency program before the initiation of a preliminary investigation, provided that other members of the cartel have not  yet applied for the leniency program, they will be given immunity from the resulting administrative monetary fine.[15] However, in the event that a cartel member has coerced competitors to participate in the cartel, they will be prevented from benefitting from immunity, but can benefit from a reduction in the monetary fine.[16]  Cartel members that apply for the leniency program after the initiation of a pre-investigation will receive a reduction in the administrative monetary fine at rates between 16.6% and 50%, depending on the sequence of their application.[17]

ii. The Commitment Mechanism

The commitment mechanism refers to the designated procedure that eliminates competition law violations without the need to complete ongoing pre-investigation and investigation procedures. Accordingly, undertakings can offer commitments voluntarily to the Competition Board during a pre-investigation or investigation.[18] If the Competition Board finds these commitments sufficient to eliminate its competition concerns, it will make them binding for the undertaking. In such cases, the Competition Board will not launch an investigation or will end an ongoing investigation without imposing an administrative fine.[19]

Depending on the nature of the competition concerns, both structural (i.e., commitments that result in a change in the market structure such as transfer of shares and assets) and behavioral commitments (commitments that modify an undertaking's actions and activities without leading to a change in the market structure) can be submitted.[20] Since undertakings have only one shot at modifying commitments in cases where the Competition Board finds them insufficient,[21] undertakings must formulate commitments in a diligent manner.

The commitment mechanism is not available for evident and severe competition law infringements. Evident and severe violations are as follows: (i) horizontal agreements, concerted practices, and associations of undertakings’ decisions regarding price-fixing, allocation of customers, output, territory or trade channels, output limitations or quotas, and collusive tendering, (ii) the exchange of competitively sensitive information such as information on future pricing, output, or sales quantities among competitors, (iii) resale price maintenance agreements, concerted practices, and associations of undertakings’ decisions that impose fixed or minimum prices on distributors.[22]

When and How to Apply? The commitment mechanism begins with a written request from undertakings.[23]  In order to apply for the commitment mechanism during the investigation stage, undertakings must submit their requests within three months of receiving an investigation notice.[24] A request can be submitted during all stages of the pre-investigation.

What Advantage Does It Provide? The commitment mechanism enables companies to end a pre-investigation or investigation without being charged with administrative monetary fines. Since, in certain circumstances, offering commitments could be less advantageous from a commercial perspective, undertakings should make their decisions strategically by comparing the nature and severeness of a violation and the estimated amount of an administrative fine, on the one hand, and the possible commitments that are likely to be found sufficient by the Competition Board, on the other hand.

iii. Settlement Procedure

The Settlement procedure refers to settlements between the Competition Board and undertakings being investigated to resolve competition law infringements and end investigations in an efficient and fast manner. The Competition Board can only settle with undertakings that acknowledge the existence and scope of a violation.[25] At the end of the settlement procedure, the Competition Board will give a final decision that includes the infringement and the amount of an administrative monetary fine.[26] Once a settlement is ensured, undertakings cannot file a lawsuit to challenge the terms of the settlement and the amount of the administrative monetary fine stipulated in the final decision.

When And How To Apply? Settlement procedure can be commenced after an investigation is initiated. In order to apply for the settlement procedure, undertakings must submit a written request to the Competition Authority before an investigation report is officially served.[27] However, the Competition Board is not obliged to commence the settlement procedure, and it is at the Competition Board's discretion whether to begin the settlement procedure.[28]

What Advantage Does It Provide? At the end of the settlement procedure, the Competition Board may reduce an administrative fine by up to 25%.[29] In the event that undertakings are entitled to receive a reduction in monetary fines through the leniency program, both reductions will apply simultaneously.[30]

iv. De Minimis Principle

The de minimis principle refers to the Turkish Competition Board’s discretionary power not to initiate an investigation in cases of violations based on agreements, concerted practices, or associations of undertakings’ decisions that do not eliminate competition in an appreciable manner.[31] The scope of such violations is determined according to thresholds in relation to the parties’ market shares.

The de minimis principle does not apply to evident and severe competition law violations. Evident and severe violations are as follows: (i) horizontal agreements, concerted practices, and associations of undertakings’ decisions regarding price-fixing, allocation of customers, output, territory or trade channels, output limitations or quotas, and collusive tendering, (ii) the exchange of competitively sensitive information such as information on future pricing, output, or sales quantities among competitors, (iii) resale price maintenance agreements, concerted practices, and associations of undertakings’ decisions that impose fixed or minimum prices on distributors. [32]

What Are the Thresholds? Agreements and concerted practices fall within the scope of de minimis principle as follows: (i) in cases of horizontal agreements among competitors where the combined market share of the undertakings does not exceed 10% in any affected market, and (ii) in cases of vertical agreements among non-competitors where the market share of each undertaking does not exceed 15%. If a particular agreement cannot be classified as horizontal or vertical, the first threshold will apply.[33]

What Are the Consequences? If the thresholds are not exceeded, the Competition Board can choose not to initiate an investigation even though the particular agreement or concerted practice constitutes a violation.[34]

 

[1] Communique No:2021/2 on Commitments Offered During Pre-Investigation and Investigation on Restrictive Agreements, Concerted Practices, Decisions of Undertakings Associations, and Abuse of Dominance (“Communique No: 2021/2”); Communique No: 2021/3 on Agreements Concerted, Practices, Decisions of Undertakings Associations that Do Not Appreciably Restrict Competition (“Communique No: 2021/3”); Draft Regulation on the Settlement Procedure for Investigations on Anti-competitive Agreements, Concerted Practices, Decisions and Abuse of Dominant Position (“Draft Settlement Regulation”). This Draft Settlement Regulation, the draft second legislation on the settlement mechanism that provides details of the mechanism’s application, is issued by the Competition Authority on the grounds of Article 43 of the Competition Law, which sets forth the settlement mechanism that is therefore already applicable in Turkey, in order to obtain public opinion. The Competition Authority has not issued the original regulation yet, and therefore this article was drafted in light of the Draft Settlement Regulation. In the event that the provisions of the Draft Settlement Regulation are amended by the original regulation, we will publish a news alert on this matter to provide information and clarification.

[2] Article 3/c of the Regulation on Active Cooperation for Detecting Cartels (Active Cooperation/Leniency Regulation) (“Leniency Regulation”).

[3] Article 7/3 of the Draft Settlement Regulation.

[4] Article 4/1(a) of the Communique No:2021/2; Article 4/1(a) of the Communique No:2021/3.

[5] Guidelines On Horizontal Cooperation Agreements, para. 40.

[6] Guidelines On Horizontal Cooperation Agreements, para. 49.

[7] Guidelines On Vertical Agreements, para.17.

[8] Article 4/1(a) of the Communique No:2021/2; Article 4/1(a) of the Communique No:2021/3.

[9] Article 4 of the Competition Law.

[10] Article 6 of the Competition Law.

[11] Article 1 of the Leniency Regulation.

[12] Articles 4 and 5 of the Leniency Regulation.

[13] Article 5/1 of the Leniency Regulation.

[14] Article 6 of the Leniency Regulation.

[15] Article 4 of the Leniency Regulation.

[16] Article 9/5 of the Leniency Regulation.

[17] Article 5 of the Leniency Regulation.

[18] Article 43/3 of the Competition Law..

[19] Article 10/2 of the Communique No:2021/2.

[20] Article 9 of the Communique No:2021/2.

[21] Article 10/3 of the Communique No:2021/2.

[22] Article 4/1(a) of the Communique No:2021/2.

[23] Article 5/2 of the Communique No:2021/2.

[24] Article 5/1 of the Communique No:2021/2.

[25] Article 43/5 of the Competition Law.

[26] Article 43/6-7 of the Competition Law; Article 9 of the Draft Settlement Regulation.

[27] Article 43/5 of the Competition Law.

[28] Article 43/5 of the Competition Law; Article 5 of the Draft Settlement Regulation.

[29] Article 43/6 of the Competition Law; Article 4/4 of the Draft Settlement Regulation.

[30] Article 7/3 of the Draft Settlement Regulation.

[31] Article 41/2 of the Competition Law.; Article 1 of the Communique No:2021/3.

[32] Article 4/1(a) of the Communique No:2021/3.

[33] Article 5 of the Communique No:2021/3.

[34] Article 6 of the Communique No:2021/3.