The first Turkish Competition Board decision on the termination of a preliminary investigation with commitment was announced – Lexology
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The first Turkish Competition Board ("Board") decision on the termination of a preliminary investigation with commitments was announced on 1 November 2021. You may access the explanation text and the announcement on the Turkish Competition Authority's ("Authority") website here.
The Authority's Communiqu No. 2021/2 on Commitments for Preliminary Investigations and Investigations on Anti-competitive Agreements, Concerted Practices, Decisions and Abuse of Dominant Position ("Communiqu on Commitments") was published in the Official Gazette No. 31425 on 16 March 2021 and entered into force on the same day. The Communiqu on Commitments provides guidance for the submission of commitments by undertakings or associations of undertakings during preliminary and full-fledged investigations, implementation and observations of the commitments (you may also find our legal alert regarding the Communiqu on Commitments here).
The Board's assessment
Within the scope of the relevant decision, the Board determined that Trkiye ie ve Cam Fabrikalari A.. ("iecam") was in a dominant position in the glass production market, while iecam's subsidiary iecam evre Sistemleri A.. ("evre Sistemleri") held a dominant position in the market for furnace-ready cullet. During the preliminary investigation, the Board evaluated the allegations on price/margin squeeze. The Board concluded that iecam abused its buyer power, which it has due to its dominant position in the glass production market, by excluding its competitors in the upstream market where it operates through evre Sistemleri.
The Board found that competitors that are the suppliers of furnace-ready cullet are prevented from making profits due to evre Sistemleri's aggressive pricing and certain exclusivity provisions regarding the supply of waste glass, thereby excluded from the market.
In order to address the competitive concerns identified within the scope of the preliminary investigation, iecam and evre Sistemleri proposed the following commitments:
Conclusion and the importance of the decision
During the preliminary investigation , iecam and evre Sistemleri submitted an application to initiate the commitment process regarding the competitive concerns stated within the scope of the file. The Board, with its decision dated 21 October 2021 and numbered 21-51/712-354, concluded that the comprehensive commitment package submitted was sufficient to eliminate the competition law concerns, and thus, terminated the preliminary investigation.
All in all, the relevant decision is an important step for the Authority and the parties in the use of a novel legal mechanism, and the relevant decision shows that both the Board and the investigated undertakings now have another tool to consider for rapidly eliminating the competition law concerns at the earlier stages of a competition investigation, without going through a long-standing full-fledge investigation process – as well as eliminating the potential fines they could face.
The Authority clears the acquisition of Eaton Corporation by Danfoss, subject to commitments approved by the European Commission
On 4 May 2021, the Board cleared the acquisition of the sole control of Eaton Corporation plc's ("Eaton Corporation") hydraulic business by Danfoss A/S ("Danfoss") through its decision number 21-25/313-144. Due to competitive concerns identified, the Board decided to take the transaction into in-depth review (i.e. Phase II review). The Board terminated the Phase II review and cleared the transaction after finding that the commitments submitted to and approved by the European Commission ("Commission") will remove the competitive concerns in Turkey.
The Commission's assessment
The Commission took the transaction into Phase II review on the grounds that it raises competitive concerns in the "power steering components," "electro hydraulic valves," and "orbit motors" markets. To address the Commission's concerns, Danfoss offered the following commitments:
The Commission found that the commitments offered by Danfoss fully address the competition concerns raised by the transaction. Therefore, the Commission concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. The Commission has approved the offered commitments under the EU Merger Regulation and cleared the proposed acquisition on 18 March 2021.
The Board's assessment
In summary, the Board made the following evaluations regarding the relevant transaction:
The Board approved the transaction based on the commitments submitted by Danfoss to the Commission during the Phase II review. The Board considered that the commitments submitted to the Commission would eliminate overlaps in Turkey. Accordingly, the Board concluded that the transaction would not result in significant impediment of competition, and thus, should be authorized within the framework of the commitments submitted to and accepted by the Commission.
All in all, given the global nature of the competition and the competitive concerns, the commitments provided before the Commission to address global competitive concerns also eliminated competition concerns at a local level. Given the above, the decision constitutes one of the various examples where globally effective commitments provided before other competition authorities were sufficient for a clearance in Turkey and no additional Turkeyspecific commitments were needed.1
Allergan may refuse to supply a drug warehouse, the Board confirms
The Board's new Allergan decision dated 25 February 2021 and numbered 21-10/129-54 provides a good summary of what the Authority looks for when assessing refusal to supply claims against a dominant undertaking.
Between 2010 and 2020, Allergan lalari Tic. A.. ("Allergan"), which produces drugs, medical devices and biological products, had its eye care products exclusively distributed through Abdi brahim la A.. ("Abdi brahim"). In 2020, this arrangement ended, and Allergan began individually working with drug warehouses to distribute its products.
Meanwhile, Denge Ecza Deposu Tic. A.. ("Denge"), which is a drug warehouse mainly active in Istanbul and used to procure Allergan products from Abdi bdrahim, made a business offer to Allergan. Allergan turned down this offer, stating that it has enough distributors at the moment and it may consider this partnership in the future. In turn, Denge lodged a complaint before the Authority.
The Board made a twofold analysis. First, it examined Allergan's new vertical agreements with drug warehouses. Second, it assessed whether Allergan violated Article 6 of the Law No. 4054 by way of refusing to supply to Denge. Regarding the first issue, the Board found that these agreements do not provide for vertical restraints, which fall within the ambit of Article 4 of the Law No. 4054. Accordingly, Allergan does not impose any non-compete obligation or sales restriction or form a selective distribution system. It only prohibits its products' export, which does not concern Article 4 of the Law No. 4054, and regulates the maximum resale price, which is already required by sectoral regulations. As such, Allergan's drug warehouse agreements are even apt to qualify for a negative clearance from the Board.
Turning to Denge's complaint, the Board characterized this as a refusal to supply allegation, and respectively asked whether Allergan abused its dominant position (if any) by way of rejecting Denge's business offer. The Board answered this question in the negative for the reasons outlined below.
Is Allergan dominant?
Notably, the Board left this question open. It noted that Allergan has a market share of above 40% under certain potential market definitions. Yet, it did not reach a conclusion since, according to the Board, the second cumulative condition of an Article 6 infringement was not met in this case (i.e., the existence of an abuse).
Is there an abuse?
The Board examined whether Allergan violated competition law by refusing a potential customer's demand for supply as opposed ceasing an existing supply relationship.2 The Board enforced the three established conditions of refusal to supply: (i) indispensability, (ii) anticompetitive effect; and (iii) consumer harm. Yet, the heart of the case was Allergan's competitive relationship with Denge, or the lack thereof.
The Board acknowledged that a dominant undertaking may create anti-competitive market foreclosure by refusing to supply one of its customers who is not even a competitor. Yet, potential restrictive effects of this type of conduct would be lower compared to refusing to supply a customer/competitor. Yet, in light of the academic literature, decisional practice and EU legislation, a refusal to supply must nevertheless have the ultimate object or effect of excluding competitors.
According to the Board, potential or current competition is lacking when the supplier only provides the good for the purpose of resale. In other words, when the supplied product is not an input, which the downstream players add value to, refusal to supply would not raise competition law concerns.3 On the other hand, refusing to supply the distributor can trigger solid theories of harm when the supplier uses this as a tool to exclude competitors in the upstream market. Here, the supplier would ultimately aim to enforce single branding or exclusivity, in an effort to discipline the distributor.
Having established the above, the Board enforced the following three typical elements of refusal to supply cases:
By the virtue of Allergan decision, the Board reinforced the necessary elements to establish an abusive refusal to supply case. According to the Board, any undertaking, dominant or not, should be free to choose its contracting parties. The careful enforcement of elements that may establish an abuse suggest that the Board is particularly sensitive towards keeping the delicate balance between promoting competition in the market and respecting undertakings' constitutional right to property and contract.
The Board takes lenient approach on gun-jumping claim
The Board's recent Doanay decision, dated 29 April 2021 and numbered 21-24/280-125, provides a perspective for the criteria taken into account by the Board when evaluating the gun-jumping concerns.
The relevant transaction concerns the acquisition of 100% of the shares Doanay Gida Tarim ve Hayvancilik San. ve Tic. A.. ("Doanay") by Purple Beverages S.A.R.L., a special purpose vehicle (SPV) of the acquirer Taxim Capital Partners I Limited Partnership ("Taxim Capital"). Further to the parties' notification to the Authority submitted on 22 July 2020, the Board granted approval to the transaction through its decision dated 10 September 2020 and numbered 2041/566-251. The Board's approval decision was officially served to the notifying party on 18 September 2020.
Later on, with a decision dated 17 March 2021 and numbered 21-14/177-M, the Board decided to launch a preliminary investigation against 13 undertakings, including Doanay, which operate in the fast-moving consumer goods (FMCG) market, to determine whether the relevant undertakings have infringed Article 4 of the Law No. 4054. During the on-site inspection carried out at Doanay's headquarters, the case handlers found information and documents emphasizing that Taxim Capital may have intervened in Doanay's business before the Board's clearance decision. The case handlers suggested that the transaction was implemented before the Board's approval and thus, an administrative fine should be imposed on Taxim Capital.
The Board's assessment
During the on-site inspection, the case handlers found a WhatsApp chat and an e-mail correspondence between Taxim Capital managers/employees and Doanay employees where they discuss the sales prices of Doanay branded turnip beverages, potential price increase levels for the relevant product and the potential result of an increase in the (…..)4 prices in organized retail, in terms of bringing the prices in the traditional channel to the desired level.
In this context, the case handlers requested price changes specifically in relation to the markets located in the three big cities of Turkey for a specific time period and they observed that the prices were determined as discussed within the relevant correspondence obtained. However, the Board assessed that the evidences are not sufficient to conclude that Taxim Capital had a decisive influence over Doanay's prices.
Secondly, the case handlers requested Taxim Capital's explanations as to whether the sole control of Doanay was transferred to Taxim Capital on the dates mentioned in the WhatsApp chat. Taxim Capital responded that: (i) Doanay's sole control was not transferred to Taxim Capital during the dates of the correspondence; (ii) all of the people in the relevant WhatsApp group were related to Taxim Capital; (iii) the relevant price increase was made by Doanay without any instruction or influence of Taxim Capital; and (iv) one person in the relevant group was determined as the interim period observer and was authorized to monitor Doanay's daily management during this period pursuant to the relevant clauses of the share purchase agreement. The sole purpose of this authorization was to protect Doanay's financial strength until the closing. In light of Taxim Capital's explanations, similar to the above assessment, the Board has come to the conclusion that it cannot be definitively concluded that the change of control occurred before the clearance of the Board within the framework of the information and findings obtained.
Doanay decision is a recent decision demonstrating the Board's perspective on gun-jumping. It is observed that the Board evaluates evidence in a detailed and concrete manner and looks for solid evidence of a de facto acquisition of control before clearance. In the case at hand, while Taxim Capital's ongoing observations of daily management raised gun-jumping concerns, ultimately the Board did not find a violation as the evidence does not concretely establish that such "observation" amounted to a decisive influence in the decision-making process. .
The decision is also noteworthy as it shows the possibility of the case handlers to uncover potential gun-jumping concerns through separate probes (such as an unrelated preliminary investigation in this case) and the evidence showing improprieties can even consist of a WhatsApp chat.
The Authority concluded its investigation on mask manufacturers
On 22 December 2021, the Authority published on its website the Board's reasoned decision on its investigation against mask manufacturers.5 The Board launched the investigation to determine whether mask manufacturers violated Law No. 4054 by way of increasing their prices collectively during the COVID-19 pandemic. This investigation was part of the Authority's response to COVID-19 pandemic-related issues.
The Board's assessment
The Board conducted a detailed analysis regarding the type of masks and relevant regulations before delving into the definition of the relevant product market. After its technicality analysis of masks, the Board evaluated the demand-side and supply-side substitution between surgical and protective masks for the purposes of the relevant product market definition. Accordingly, the Board found that there is no demand-side substitutability between surgical and protective masks as they differ in terms of basic function, legislation, target group, usage method and price. In terms of supply-side substitutability, the Board evaluated the production process of surgical and protective masks and decided that there is no substitutability between surgical and protective masks. All in all, the Board defined the relevant product markets as "production and sale of surgical masks" and "production and sale of protective masks."
Before delving into the details of its analysis, the Board provided a detailed summary of its case law regarding concerted practice, along with the certain EU decisions. The Board stated that its case law in terms of concerted practice mostly consists of cases that includes evidence showing direct or indirect communication between the investigated parties. On the other hand, the decision indicates that the detection of concerted practice was purely based on economic evidence in some cases. The Board explained that it is important for both groups of the cases that there be no reasonable explanation for parallel behavior between competitors, other than a consensus between them. Moreover, the Board stated that parallel behavior is not considered as evidence of infringement unless the only reasonable explanation of this behavior is a consensus between undertakings.
The Board reviewed the documents collected during the on-site inspections and evaluated that: (i) the market was rather transparent and competitive during the first period of COVID-19 and before the pandemic; and (ii) the market has been heavily regulated after COVID-19's effects and started to be controlled totally by the state after the pandemic started. According to the decision, the Board did not detect any documents during the on-site inspections that might indicate an anticompetitive agreement between the undertakings. To that end, the Board concluded that it is not possible to state whether an anti-competitive agreement between the undertakings resulted in price increases during the pandemic as per the documents obtained during the on-site inspections.
Furthermore, the Board found that the mask producers had difficulty meeting demand due to the effects of COVID-19-related measures and they experienced difficulty in obtaining raw materials. Moreover, the Board stated that there was an increase of production of under-thecounter masks in an effort to take advantage of pandemic-related conditions and these productions played a role in terms of price increases in the market. Furthermore, the Board provided that the increase in demand resulted in a decrease in terms of price sensitivity and bargaining power of the customers.
The Board also evaluated the characteristics of the relevant product markets and found that there are a large number of players active in both of the markets and there are new entrants. The Board did not detect any common buyer or intermediary that could ease the information exchange or coordination between the undertakings. The Board concluded that its findings do not indicate market conditions suitable for entering into an anticompetitive agreement or sustaining such agreement.
Moreover, the Board conducted extensive economic analyses to understand the extent to which there was a correlation between the investigated parties' practices. In its analysis, the Board found out that the price increase of masks cannot be explained by the increase of the costs and that most of the undertakings enjoyed high profits. That being said, the Board did not find any evidence that might indicate the undertakings limited their supply to follow an agreement for price increase. All in all, the Board concluded that the structures of the relevant product markets are not suitable for an anticompetitive consensus and there is no evidence that might indicate a coordination between the undertakings in terms of price increase.
The Board found out that there is no correlation between the price increases of the undertakings and there are differences between the timing and amount of their price increases. Moreover, the Board's findings indicated that the investigated parties did not engage in supply restriction to follow an anticompetitive consensus. To that end, the Board stated that there is no parallel behavior among the investigated parties' practices, which is the most important factor of a concerted practice. Accordingly, the Board concluded that there is no evidence that indicates the investigated parties violated Article 4 of the Law No. 4054 during the pandemic by price increases through concerted practice.
All in all, the Board decided that the investigated undertakings did not violate the Law No. 4054 as per its analysis and thus, it did not impose monetary fines on the undertakings. The decision provides detailed insight regarding the Board's case law in terms of concerted practices and how the Board continued to apply competition law rules during the pandemic.
The Authority revised the turnover thresholds for mandatory merger control filings
On 4 March 2022, the Authority's Communiqu No. 2022/2 on Amending the Communiqu No. 2010/4 Concerning the Mergers and Acquisitions Requiring the Approval of the Turkish Competition Board ("Communiqu No. 2010/4") ("Amending Communiqu") was published in the Official Gazette. With the amendments, most importantly, the Authority increased the turnover thresholds for mandatory filings. The Amending Communiqu will enter into force on 4 May 2022.
New turnover thresholds
As background, the Communiqu No. 2010/4 deems a transaction subject to mandatory merger control filing on condition that it fulfills two cumulative conditions: (i) the transaction leads to a change of control on a lasting basis; and (ii) transaction parties' turnovers exceed the turnover thresholds set out under Article 7 of the Communique No. 2010/4. These existing thresholds have been in force since February 2013. Since then, the Board had not amended these thresholds. Yet, due to the foreign currency gradual appreciation against the Turkish lira since 2013, specifically the rapid increase in 2021, the Communiqu No. 2010/4 began catching more and more transactions in recent years. In numbers, the Board concluded 208 merger control cases in 2019, 220 in 2020 and 309 in 2021.
With this amendment, according to the revised Article 7 of the Communiqu No. 2010/4, transactions would be notifiable in cases where one of the below turnover thresholds are triggered:
(a) The aggregate Turkish turnover of the transaction parties exceeds TRY 750 million6 (approximately USD 84,364,454 or EUR 71,633,2387) and the Turkish turnovers of at least two of the parties each exceed TRY 250 million8 (approximately USD 28,121,485 or EUR 23,877,746).
(b) The Turkish turnover of the transferred assets or business in acquisitions or the Turkish turnover of any of the parties in mergers exceeds TRY 250 million 9 (approximately USD 28,121,485 or EUR 23,877,746) and the worldwide turnover of at least one of the transaction parties exceeds TRY 3 billion 10 (approximately USD 337,457,818 or EUR 286,532,951).
With this revision, the Board's merger control caseload could be expected to decrease significantly as the Communiqu No. 2010/4 will catch much fewer concentrations.
Special thresholds for tech firms
The Amending Communiqu introduces a new term into the merger control regime: "technology undertakings." The revised Article 4(1)(e) defines tech firms as "undertakings that have activities in the areas of digital platforms, software and game software, financial technologies, biotechnology, pharmacology, agriculture chemicals and health technologies, or assets related thereto." In the announcement on the Authority's official website dated 4 March 2022 (Friday), the Authority explains the rationale of this provision as follows: The Authority is highly aware of the rapid developments in tech-focused markets, including digital platforms. These developments may necessitate changes to competition law practices. Similar to other competition law watchdogs, the Authority sees it as a threat that acquisitions of start-ups by undertakings with high market power may fall outside the Board's jurisdiction due to the turnover thresholds. To increase the Board's oversight over the transactions concerning tech firms and prevent killer acquisitions, the Amending Communiqu envisions a special threshold for those.
According to the new Article 7(2) of the Communiqu No. 2010/4, the TRY 250 million thresholds prescribed in Article 7(1) will not apply to acquisitions of tech firms, which: (i) are active or have R&D activities in the geographical market of Turkey; or (ii) provide services to users in Turkey. The Authority notes that it carefully studied the recent revisions of merger control regimes in Germany and Austria and did not see fit to enact a transaction value threshold at this time. However, to remedy competitive concerns regarding acquisitions of newly founded and developing undertakings, the Authority put this exception into force.
The Amending Communiqu also re-emphasizes the Authority's continuing mission to enhance digitalization. In its announcement, the Authority heralds that it will soon turn all filings into electronic filings. Any requests for information and responses to these will also go under one electronic platform in the near future. This aims to allow the applicants to complete the missing information requested by the Authority in the filings more practically and quickly, and thereby, to be subject to a shorter review process. In the meantime, the Amending Communiqu provides for a positive legal base regarding the use of the Authority's Application Portal via e-government platform for filings, which was launched in 2018 and has already been widely used since the beginning of the COVID-19 outbreak.
In addition, the Authority revised the calculation of financial institutions' turnovers. This reflects the legislative changes that other public institutions and autonomous administrative bodies have brought about.
The Authority also revised its relevant guidelines on the assessment of concentrations (i.e. Guidelines on the Assessment of Horizontal Mergers and Acquisitions, and Guidelines on the Assessment of Non-Horizontal Mergers and Acquisitions). These revisions echo the introduction of the significant impediment to effective competition (SIEC) test to the Law No. 4054 in 2020. In addition, the Authority made some additions and updates to these guidelines on topics such as potential competition, closeness of competition analysis, as well as new theories of harm concerning digital and innovative markets. The guidelines now include general principles for the assessment of acquisitions of newly established and developing companies, in light of the updated theories of harm for concentrations (potential competitor/competitive harm theory, and killer acquisition theory).
Further, the Authority revised the notification form template, which is an annex to the Communiqu No. 2010/4 and is used for the applications, by detailing the requested information with the aim of ensuring that notifications are complete when submitted to the Authority. As an important note, per paragraph 2 of the preamble section of the new template notification form, transaction parties may fill out a "short form filing", which does not require detailed information on the affected markets, on condition that: (i) there is a joint to sole control case; or (ii) there are no affected markets in Turkey. As such, the Authority removed the 20% (for horizontal overlaps) and 25% (for vertical overlaps) market share thresholds for a mandatory "long form" filing which were previously in place. Thus, when the Amending Communiqu enters into force, any transaction which result in affected markets will necessitate a "long form filing" and the submission of detailed information on the relevant markets even if the transaction parties' market shares are very low.
The Authority significantly increased the turnover thresholds, triggering mandatory merger control filing, which is expected to cut down the Authority's merger control caseload and permit it to allocate its resources for antitrust investigations more effectively. Additionally, in parallel with several investigations and market inquiries undertaken in regard to digital markets in the recent years, the exceptional treatment concerning acquisitions of tech firms in the new regulation shows that emerging digital markets will also be on the Authority's radar through merger control. The reflections of these changes in practice will be observed as of 4 May 2022 when the Amending Communiqu comes into force.
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