Category: Turkiye

Today’s sociocultural system is demanding the people to be online, transferring money, marketing products, corresponding with counterparties, or storing business data in cloud systems and in many other daily business functions.

The invisible border separating the real and virtual worlds vanished a long time ago. Just as the outstanding scientist Stephen Hawking puts it “We are all now connected by the Internet, like neurons in a giant brain”; the Internet connects people and creates a virtual and living environment built on ones and zeros; called the Cyberspace.

The advent of the Cyberspace has brought about numerous security risks both for the users and the security agencies of nation states. Attackers using cyberspace can inflict crucial damage by targeting financial institutions, accessing and leaking national secrets or compromising the physical security of critical infrastructure exposing states to cyber-attacks, such as the Stuxnet worm which targeted Iran’s nuclear facilities and many more which are not even publicly disclosed. Some of the other globally known instances may be summarized as follows;

In 2014, one of the biggest banks in the world lost 2.7 million customer data, damaging its credibility and reputation.

In 2016, the leading ride hailing company famous with its application was hacked and personally identifiable information (PII) of 57 million drivers and customers was stolen. 

It became public in 2017 that one of the leading audit firms (which was ranked as the best cybersecurity firm in 2012) have been hacked since 2016 and 143 million US customers and 400.000 European customers’ PII was stolen.

In 2016 it became public that the Turkish Social Security Institution (SGK) was hacked for an unknown period of time and vast amount of PII was stolen, incurring an estimate of TRY 6 million damage. 

It is quite challenging to identify the cyber attackers, because they rarely leave traces behind them. In most cases, cyber attackers do not need expensive or exceptional instruments to conduct adversarial action. As a matter of fact, facilitating the access to public IT resources and its growing importance in the operation of both public institutions as well as private organizations result in increased vulnerability. With the exception of few attack types, such as distributed denial-of-service (“DDoS”) attacks, most cyber threats exploit the security holes of the target system and exploit the lack of sufficient countermeasures. Most of the time victims are not even aware of these weakness in their defenses which makes it quite difficult to foresee, disarm, and deter cyber adversaries and gives the attackers an asymmetric advantage. 

Therefore, the key indicator of how seriously nations are prone to cyber threats lies in countries’ own cyber capabilities awareness. Unfortunately, the developments in the cybersecurity policies, legislation and national capabilities of Turkey a long way to go and a huge potential to fulfil. However, Turkey is an interesting case, since as of 2017; 66,8% of Turkish citizens have Internet access (97th place globally), yet the country has been the 5th biggest originator of cyber-attacks all across the world in the past. Hence, we believe that Turkey has a huge potential in R&D and HR which are essential for long-term success in cyber operations, if government planning can be merged with the private sector efforts.

Cyber-attacks were often handled as minor issues that require the application of civil law and public order actions and some of them turn into national security issues if left unattended. Cybercrime was first introduced in Turkish Criminal Code with an amendment on 1991 defining “Information Technology Crimes” as illegally obtaining software and other electronic data from a computer or the use, transmission or copying of such with the aim to harm any party.  Later on, the definition was even expanded on 2004 and the concept of Cybercrime was implemented.

In addition to such limited pieces of legislation including some other provisions, the Turkish administration drafted and started to publish Action Plans in 2012. Despite some setbacks in first years, it passed by without a solid plan, leaving aside any action in 2016, and it was decided to activate legal arrangements concerning cybersecurity and draft a Cybersecurity Law which has not yet even proposed to the General Assembly. Since it takes usually years for a draft law to be enacted, we have to be realistic and be ready to wait for many years to come.

Hence, there’s a whole heap of work to be done in Turkey, we should take real steps as soon possible to catch up with international innovations and technological developments in order to be able to prevent cyber-attacks and maintain a safer and stable economy. Accordingly, legislations should be enacted expeditiously and meticulously in order to cover cybercrimes and deter cyber-attackers.

Even in the presence of all possible national legislations and government policies, we believe that sustainable security and safety in cyberspace will be not be fully utilized until governments agree on an internationally recognized basis for legal actions and address the legal problematic of “jurisdiction” and “attribution of a crime” which constitutes a huge obstacle  for all legal practitioners and law enforcement agencies fighting cybercrime.

By Efe Kınıkoglu, Partner, Moral Law Firm

The Turkish Competition Authority (“Authority”) completed its work in progress on revising the Guidelines on Vertical Agreements (“Guidelines”) that was issued based on the Block Exemption Communiqué on Vertical Agreements (“Communiqué No. 2002/2”).

It took approximately 2 years for the Authority to finalize its work. The Authority has published the updated version of the Guidelines on its official on March 30, 2018 (Friday). Below is the summary of amendments made in the Guidelines:

I. Internet Sales

The Authority’s announcement on revision of the Guidelines indicates that internet platform’s emergence as a new distribution channel provides consumers with the ability to (i) access to a large set of information without difficulty, (ii) compare prices, (iii) access more products and more sellers. On the other hand, it enables suppliers to market their products to wider geographical markets with lower costs. For that reason and due to the rapid increase in internet sales’ yearly average developing rate in Turkey, a regulation on internet sales has become a necessity. The Authority’s announcement further states that the amendments seek a balance between (i) re-evaluation of competition law rules with respect to sales through internet, thereby ensuring preservation of internet’s contribution to consumers and resellers and (ii) protection of suppliers’ commercial interests. On that note, the Authority has added a couple of articles to sections regarding sales through internet. Please find the brief notes on the amendments below:

1. A restriction on sales through distributors’/dealers’/buyers’ websites imposed by a supplier is restriction on passive sales. Within this context, purchases made through consumers’ (i) visits to dealers’ websites, (ii) contacts with dealers or (iii) requests to be auto-informed by dealers are considered to be passive sales. Offering various language selections by dealers on their website does not change the fact that they are passive sales. Accordingly, the restrictions below in particular on internet sales will not benefit from the exemption under the Communiqué No. 2002/2.

i. Restriction on a (exclusive) distributor’s website to consumers located in another (exclusive) distributor’s region or diverting such consumers’ access to supplier’s or the other (exclusive) distributor’s websites: Restriction on sales requested through internet from a particular region or customer group will be considered as a hard-core restriction.

ii. (Exclusive) Distributor’s termination of transaction after realizing the customer is not located in its (exclusive) region regarding the customer’s delivery, mail, credit card, etc. address information: Restriction on sales requested through internet from a particular region or customer group will be considered as a hard-core restriction.

iii. Restriction on share of sales through internet in total amount of sales: On that note, setting a maximum sales limit for internet sales will be considered as a hard-core restriction. A condition setting forth that a distributor should sell a particular portion of its total sales through physical stores as to preserve those stores’ efficiency without restricting internet sales or conditions as to ensure compatibleness of internet sales and general distribution system are excluded from the scope of this restriction.

iv. Condition providing that a distributor should pay more to its supplier for products that it resells through internet than products supplied in physical stores: Applying different bulk purchase prices directly or indirectly (e.g. rebate systems) will be considered within this scope. Supplier’s power to affect the distributor’s preference of its distribution channel by increasing the price difference between internet and physical store sales may obstruct distributors to operate through internet sales. Nevertheless, suppliers are entitled to pay fixed amounts to their distributors regardless of their sales income and amount, as to support their reselling efforts (through internet or physical stores).

2. To that end, restrictions above are considered to be restriction of passive sales. However, internet sales made to a particular exclusive region or a particular exclusive customer group of another distributor through promotion or similar methods will be deemed active sale and one can argue that such sales will be within the scope of the exemption. Advertisements directed to a specific group of customers and/or a specific geographical region and (unrequested) e-mails will be considered as active sales. For instance, advertisements directed to a particular geographical region that are published through third party platforms or market places are active sales for that region’s residents. Accordingly, one can consider making payments to search engines or internet advertisement providers to publish ads for customers located in a specific region as an active sale.

3. On the other hand, a supplier may impose certain conditions on the use of internet distribution channel as it can also do for physical stores or catalogues that publish ads and promotions. For example, suppliers may require quality standards for the website or may require provision of certain services to the customers purchase through internet:

i. Especially within a selective distribution system, the supplier may require its distributor to possess at least one physical store; however, such requirement should not aim excluding the suppliers that only sell through internet (pure player) from the market or restrict their sales. Suppliers may also impose additional requirements to their distributors, but more importantly such requirements should not aim to directly or indirectly restrict distributor’s internet sales. Justifications for the imposed requirements should be objective, reasonable and admissible with respect to the aspects that enhances the distribution’s qualifications and quality, brand image and/or potential efficiencies. Likewise, supplier may require the distributor to resell only through “sales platforms/market places” that fulfil certain standards and conditions. However, this requirement should also not aim restricting the distributor’s internet sales and price competition. One may consider general restrictions on sales through platforms without any objective and uniformed justification regarding the product’s propriety and qualities as an infringement. 

ii. Even though requirements imposed on physical sales and internet sales should not be identical due to their difference on sales conditions, both requirements should (i) serve to the same purpose, (ii) ensure comparable consequences and (iii) be able to verify the intrinsic differences of the two distribution channels (“equivalence principle”). In other words, the conditions should not restrict internet sales directly or indirectly. Therefore, one can consider requirements as hard-core restriction if they (i) violate the equivalence principle and (ii) discourage distributors to use internet as a distribution channel.

4. A website launched for reselling through internet by a distributor within a selective distribution system, will not be considered as a new physical sales point. 

II. Most Favored Customer Clause (“MFN”)

The Authority’s announcement indicates that MFN clause is one of the frequently examined issues recently by the competition authorities throughout the world and the competition law practitioners and thereby a necessity of establishing a new regulation on this matter has arisen. 

1. In principle, an agreement containing MFN clauses may benefit from block exemption on the conditions that the market share of the party that is beneficiary of the clause does not exceed 40% and that the other conditions stipulated in the Communiqué No. 2002/2 are met. The evaluation of MFN clauses in the traditional markets differs from those in the online platforms. For example, while the party that is the beneficiary of the clause is the buyer in the traditional markets, it may be either supplier, buyer or intermediary in the online platform markets depending on the relevant product market. Therefore, Communiqué No. 2002/2 does not provide any indication as to which party’s market share should be taken into account. Accordingly, the Communiqué provides that one should consider the market share of the beneficiary party of the agreement. In case the market share thresholds are exceeded, it is necessary to consider the explanations on individual assessments in the Guidelines:

i. For instance, retroactive MFN clauses which allow the beneficiary buyer to get more favorable offers in all cases or which increase the supplier’s costs for making discounts to buyers that are not party to the clause (payment of the difference between the (i) low prices offered to buyers that are not party to MFN clause and the (i) price offered to the buyer party to MFN clause, to the relevant buyer), are likely to harm competition much more than other clauses do. Besides, in the instances where parties to MFN clause have market power compared to their competitors in the market, one may evaluate that such clauses are likely to harm competition more. In such situations, these clauses may lead to exclusion of competitors that are not party to the relevant agreement and foreclosure of market to the competitors. Moreover, the use of these clauses in the concentrated markets is more risky than the use of these clauses in non-concentrated markets from a competition law perspective. This is because, the likelihood of rival buyers that are not party to the clause, to find an alternative supplier is relatively lower in the concentrated markets. In addition to this, in the cases where the use of MFN clauses have become widespread and thus a significant portion of the market has been subjected to these clauses, it is necessary to adopt a more skeptical approach in the evaluation of these clauses. This is because, it is more likely that the restrictive effects arising from the clauses cumulatively increase, where these clauses have become widespread in the market, and thus the likelihood of restriction of competition is higher. 

ii. On the other hand, MFN clauses may not result in a competition concern under certain circumstances. For example, in the instances where both parties to an agreement containing MFN clauses do not have a market power, it is unlikely that implementation of these clauses would create competition concerns. In case small-scale buyers with no market power use MFN clauses, it would have a positive effect on the competition in the market given that these clauses allow relevant buyers to benefit from favorable price and conditions in the market. In the instances where concentration level of the upstream market is low (i.e. upstream market is sufficiently competitive), competitive harm may not exist given that in such a situation current and potential competitors may choose the alternatives. In case of a non-transparent market, the negative effects of MFN clauses would be relatively low given that in such situations it is unlikely to effectively monitor the implementation of these clauses in the market. 

2. As for the direct or indirect methods of determining the resale price, an MFN clause incorporated in agreements concluded between undertakings which may decrease suppliers’ incentives to supply goods under more favorable price and conditions to buyers other than beneficiary buyers may reinforce the influence of direct or indirect methods of determining the resale price. However, supporting practices which reinforce the efficiency of MFN clauses and resale price should not be evaluated as practices which result in determination of the resale price.

By Gonenç Gurkaynak, Managing Partner, Elig, Attorneys-at-Law

(First published on Mondaq on April 3, 2018)

Turkey recently enacted an amendment to the Turkish radio and television legislation that will regulate radio, television and on-demand broadcasts provided through internet and have these services and their providers (media service providers and platform operators – please see their definitions under II) under the supervision and authority of the Radio and Television Supreme Council (“RTUK”).

The amendment entered into force on March 28, 2018. Providers of radio, television and on-demand services through internet and platform operators transmitting these broadcasts will need to obtain a license from the RTUK as of this date.

The amendment does not only relate to local broadcasters in Turkey, but also concerns and covers foreign media service providers and platform operators targeting audience in Turkey, regardless of whether they provide their service and broadcasts in Turkish language. 

This amendment was included in “the Draft Law Amending the Tax Law, Certain Laws and Certain Decrees”, which was enacted on March 21, 2018 with the law number 7103 (“Law No. 7103”) and published in the Official Gazette of March 28, 2018 and entered into force on the publication date. The amendment proposes addition of a new article (Article 29/A) to the Law No. 6112 on the Establishment and Broadcasting Services of Radio and Television Enterprises (“RT Law”) with the title “Broadcasting services through internet”.

This amendment had wide media coverage and created a serious public discussion throughout its legislative process. The initial text of this amendment was quite controversial and raised concerns as to whether RTUK will be vested with an authority to regulate, monitor and supervise all contents in the internet medium and to impose restrictions on social media websites, video sharing platforms and other websites. By virtue of these discussions, the text of this amendment was subject to certain modifications before its enactment, in a way to make its scope clearer.

I. Legislation Prior to the Amendment

RT Law was previously not applicable to and RTUK did not have authority over broadcasts through internet. The scope of the RT Law covered the services that are provided by conventional broadcast entities operating under a license obtained from the RTUK who broadcast directly to customers, such as radio programs or television channels operating under an authorization obtained from RTUK. 

RT Law defines media service providers under Article 3 as legal entities that have the editorial responsibility to choose content for radio, television and on-demand-broadcast services and who choose the way to regulate and broadcast these services. As per RT Law, media service providers are obliged to obtain broadcast license from RTUK to broadcast through means of terrestrial, satellite and cable transmissions. RT Law also defines platform operators as enterprises which transform multiple media services or multiple signals into one and provide their transmission, through satellite, cable and similar networks either in an encoded and/or decoded form that is accessible directly by viewers. As both definitions did not refer to broadcasts through internet and only refer to means of terrestrial, satellite or cable transmission, RTUK did not have authority over broadcasts through internet under the legislation.

However, now that the new amendment (Article 29/A) entered into force, RT Law is applicable to certain broadcasts through the internet. 

II. Changes Introduced by the Amendment 

According to first paragraph of Article 29/A of RT Law, which has been introduced by the recent amendment, even if the services are provided through internet, media service providers willing to broadcast their radio, television and on-demand broadcast services through internet are obliged to obtain a broadcasting license from RTUK and platform operators willing to transmit these broadcasts are obliged to obtain broadcast transmission authorization from RTUK. The article also states that media service providers which have temporary broadcast right and/or broadcast license from RTUK (e.g. radio and television channels operating under a license and/or right

issued by RTUK) may broadcast through Internet and in accordance with the RT Law and the Law No. 5651 on Regulation of Broadcasts via Internet and Prevention of Crimes Committed through Such Broadcasts (“Law No. 5651”). In other words, RTUK is now authorized to monitor such broadcasts and their contents, and decide on measures such as banning broadcasts or imposing monetary fines that are determined within the scope of RT Law. 

The reasoning of the foregoing as explained in negotiation process of the amendment indicates that “Due to technological developments in information technologies sector and the widespread use of broadband internet services, radio and television broadcasts started to gravitate to the internet. Special contents to be broadcasted through internet are also being produced frequently. Media service providers making licensed broadcasting through terrestrial, satellite and cable means started to broadcasting through internet at the same time. Additionally, many institutions that do not have a license obtained from RTUK began to broadcasting their radio and television contents through internet without permission.”. Taking into account the reasoning and the letter of the law together, the main purpose behind this article appears to be to regulate institutions that are broadcasting through both conventional means and internet such Fox TV, CNN Turk or the institutions broadcasting radio and television contents through internet such as BluTV.

The second paragraph of Article 29/A states that, in the event that RTUK determines that broadcasting services of real persons or legal entities who do not have temporary broadcast right and/or broadcast license or whose broadcasting license has been cancelled are transmitted through internet, criminal judgeships of peace may render a decision for removal and/or access ban of contents upon RTUK’s request. While the initially proposed version of second paragraph stated that criminal judgeships of peace decisions shall be sent to Access Providers Union for execution, the final and published version of Article 29/A refers to Information and Communication Technologies Authority (“ICTA”) instead of Access Providers Union. Criminal judgeship of peace judge shall render its decision within twenty four hours at the latest, without hearing. However, it is still possible to appeal such decisions within the scope of provisions of the Turkish Code of Criminal Procedure. The article also refers to third and fifth paragraphs of Article 8/A of the Law No. 5651 which requires access ban decisions to be rendered regarding specific URL addresses and sets forth monetary fines for those who do not comply with access ban decisions, respectively.

The newly introduced Article 29/A further states that even if the content or hosting provider is in a foreign country, the foregoing principles and restrictions also apply to transmission of broadcasting services of platform operators or of media service providers that are under the jurisdiction of another country if RTUK determines these broadcasts to be in violation of RT Law, international treaties which the Republic of Turkey is a party to and RTUK’s assigned position; and in terms of broadcasting institutions which broadcast in Turkish through internet targeting Turkey or in another language but targeting Turkey and including commercial broadcasts. The provision explicitly dictates that such entities are obliged to broadcast license if they fall under the definition of media service operators; or transmission authorization certificate if they fall under the definition of platform operators.

The initial text of Article 29/A (prior to modifications) consisted of four paragraphs. However, the latest published version includes an additional paragraph, which is the main change that is made on the amendment before it became effective. This additional paragraph (paragraph four) clarifies the concerns on the scope of this regulation and states that, notwithstanding, duties and authorizations of ICTA, individual communication cannot be considered within the scope of Article 29/A and platforms that are not dedicated to transmitting radio, television and on-demand broadcast services through internet medium and real persons and legal entities who only provide hosting services to radio, television and on-demand broadcast services shall not be considered as platform operators within the scope of this article. 

The last and fifth paragraph of Article 29/A provides that RTUK and ICTA shall jointly issue a regulation that determines the procedures and principles regarding presentation of radio, television and on-demand broadcasting services through internet, transmission of such services, broadcast license for the media service providers through internet, broadcasting transmission authorization for platform operators, monitoring of broadcasts and implementation of Article 29/A. 

III. Conclusion

The latest changes on the amendment certainly brought some degree of clarity to the scope of this provision and RTUK’s authority over internet medium. Still, as the implementation and interpretation of this new article is yet unknown, all broadcasters and platforms whose services could fall under the scope of Article 29/A will need to assess whether this provision will be applicable to them, whether they would need to obtain a license from RTUK and adjust the contents of their broadcasts in line with the RT Law to avoid potential restrictions on or penalties related to their services in Turkey.

(First published in Mondaq on March 28, 2018)

By Gonenc Gurkaynak, Managing Partner, Ilay Yılmaz, Partner, and Burak Yesilaltay, Associate, ELIG, Attorneys-at-Law

On October 15, 2017, the Council of State (“Court”) upheld¹ the Turkish Competition Board’s (“Board”) 2014 decision on Turkiye Petrol Rafinerileri A.S. (“Tupras”)².

The Board had imposed a fine on Tupras for abuse of dominance, which amounted to 1% of Tupras’s total turnover in the previous financial year (approximately EUR 141.6 million)³. This is the highest fine ever imposed on a single undertaking by the Board.

Tupras appealed against the Board’s decision, which had found that Tupras was dominant in the markets for the wholesale (i) unleaded gasoline, (ii) diesel, and (iii) black petroleum products. According to the Board’s decision, Tupras had abused its dominance by (i) pricing unleaded gasoline and diesel excessively for a period of three months between October 2008 and December 2008, and (ii) tying rural diesel with other products, including gasoline, fuel oil and jet oil for OMV Petrol Ofisi A.S. (“POAS”) and tying black liquid petroleum products (i.e., fuel oil and heating oil) with white liquid petroleum products (i.e., gasoline, diesel, gas oil and jet fuel) for Altınbas Petrol ve Ticaret A.S. (“Alpet”). 

The Court’s judgment includes a detailed analysis with respect to both procedural and substantial arguments put forth by Tupras, and a number of its findings are particularly noteworthy. The Court assessed, inter alia, (i) whether using “such as” in Article 5(2) of the Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Limiting Competition, and Abuse of Dominant Position (“Regulation on Fines”) complies with the law, given that this phrase allows the Board to determine the fine amount based on factors other than those listed in this provision, (ii) whether the Board had a quorum to determine the fine amount, (iii) the legal test to be applied for establishing excessive pricing, and (iv) the legal test to be applied for establishing unlawful tying.

Whether the Unlimited Criteria in Article 5(2) of the Regulation on Fines for Determining the Base Fine Complies with the Law

Article 5(2) of the Regulation on Fines sets out a non-exhaustive list of criteria for determining the base fine against anti-competitive practices. This list includes “issues such as the market power of the undertakings or associations of undertakings concerned, and the gravity of the damage which has occurred or is likely to occur as a result of the violation shall be taken into account” (emphasis added). Tupras claimed that using “such as” herein, and not limiting the criteria that will factor into the calculation of the fine amount, violates the principle of legality and leads to uncertainties regarding the application of the law. 

In its assessment, the Court cited Article 124 of the Turkish Constitution, which entitles public entities to issue by-laws in order to implement laws, provided that these by-laws do not contradict the underlying laws. Accordingly, the Turkish Competition Authority (“Authority”) has discretion to adopt regulations to provide and establish the criteria that are applicable to the fine calculation. The Court further held that the same criteria that the Board adopted in Article 5(2) of the Regulation on Fines are also listed in Article 16 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”), and therefore, these criteria had already been recognized by the law. The Court also decided that the Regulation complied with Article 17 of the Law of Misdemeanors No. 5326 applicable to administrative fines, which provides that “when determining the amount of the fine, the wrongfulness of the misdemeanor and the perpetrator’s culpability and economic condition will be taken into account.” Accordingly, the Court concluded that the Authority had not exceeded its discretion, and thus the provision did not violate the principle of legality, nor did it lead to any legal uncertainties. 

Since the Regulation on Fines entered into force in 2009, the Council of State has dealt with, and dismissed, numerous requests for the annulment of this regulation in part or in whole⁴. In the case at hand, the phrase “such as” in Article 5(2) of the Regulation on Fines was specifically challenged and, not surprisingly, the Council of State once again refused to annul a provision of the regulation. 

Whether the Board had a Quorum to Determine the Fine Amount

Tupras’s main plea on procedure is related to the quorum required for the Board to decide on an administrative fine for competition law infringements. In the Tupras case, seven members attended the Board meeting for the final decision and five attendees voted in favor of a ruling that a violation of Article 6 of the Law No. 4054 had occurred. Of these five attendees, three voted for a fine of 1% of Tupras’s total turnover in the previous financial year, one Board member voted for a fine of 0.5%, and one Board member voted for a higher fine. As the Board members did not reach a consensus on the fine amount, Tupras claimed that the Board had lacked a quorum to determine the fine amount.

Under Article 51 of the Law No. 4054, for final decisions, at least five Board members—including the Chairman or the Deputy Chairman—must be present at the Board meeting, and at least four members must be in agreement (i.e., vote the same way) in order to reach a valid decision. The law, however, does not provide any guidance on how the requirement that “at least four board members shall vote the same” should be interpreted when the Board members’ view on the appropriate fine amount is too diverse to achieve the required majority. 

As the Law No.4054 is silent on this particular matter, the Court held that Article 229 of the Code of Criminal Procedure No. 5271 shall apply by analogy, and that the least favorable vote for the defendant shall be added to the votes on the closest fine amount until the required majority is achieved. In the case at hand, as three members had voted for a fine of 1% of Tupras’s turnover, one member had voted for 0.5% and another member had voted for a higher fine, the Court decided that the last vote should be added to the votes favoring 1% fine. After applying this methodology, the Court found that the threshold for imposing 1% fine had been met and, therefore, dismissed Tupras’s plea. 

The Law of Misdemeanors No. 5326, which sets forth the general principles applicable to administrative fines, refers to the Code of Criminal Procedure No. 5271 in certain provisions⁵. Applying criminal law principles to administrative procedures is therefore not uncommon in Turkish law. Procedural rules related to imposing administrative fines, however, are not among those referring to the criminal procedure. The Court therefore expanded the scope of criminal law principles applicable to administrative law procedures. Further, this is the first decision where the Court applied the Code of Criminal Procedure No. 5271 to an issue related to competition law.

The Legal Test for Establishing Excessive Pricing 

Tupras asserted a number of pleas related to the Board’s excessive pricing analysis. In theory, excessive pricing may distort competition and thus can be prohibited as an abuse of dominance under Turkish competition law. In practice, however, the Authority follows a similar approach as its counterparts in most other jurisdictions and is usually reluctant to intervene against businesses’ pricing strategies. Indeed, so far the Authority has considered such a practice an infringement only in a few cases with exceptional circumstances⁶. The Turkish courts affirmed that the Authority’s intervention in excessive pricing may be justified in “markets where there is no competition, the market cannot correct itself, excessive pricing does not encourage new entry, barriers to entry are high, and information flow is not homogeneous.”⁷

In the present case, the Board found Tupras dominant in all the three relevant markets where Tupras’s market shares were 56%, 91% and 97.8%, barriers to entry were high and there was no significant countervailing buyer power. Further, following a price comparison analysis based on Platts Italy CIF Med (i.e., an international company providing reference prices for petroleum trade) prices and export market prices as a benchmark, the Authority concluded that Tupras’s domestic market refinery sales prices were approximately 15% – 20% higher than the market prices for the last three months of 2008, and thus excessive. 

On appeal, Tupras first challenged the Board’s dominance analysis and argued that the Board had failed to consult other actors in the market such as importers and distributors. Second, Tupras claimed that the Board’s excessive pricing analysis had been flawed because (i) excessive pricing could only be applied by legal or natural monopolies, (ii) due to the nature of the industry, the most accurate cost metric the Board should have used in its price-cost analysis was “total costs” instead of “product-based costs” (iii) for excessive pricing to occur, the relevant pricing policy should continue for a long period of time, whereas Tupras had allegedly applied excessive prices for only three months, (iv) there is no generally accepted benchmark that can be used to determine whether a price is excessive, and further, in its previous decisions, the Board had found profit margins that were higher than those of Tupras to not be excessive, (v) the Board should have conducted a price comparison analysis by reference to adjacent geographical markets with similar conditions, instead of comparing Tupras’s prices in a domestic market with Platts Italy CIF Med and export prices, and (vii) the Board’s decision did not account for the economic crises in 2008, which lead to fluctuations in petroleum prices as well as exchange rates, and ultimately caused Tupras to suffer a financial loss during the relevant time period. 

The Court dismissed all these pleas and affirmed the Board’s finding that Tupras is dominant in the markets and abused its dominance. In its assessment, the Court held that (i) Tupras had maintained a high market share in the relevant markets despite fluctuations over the years, (ii) the relevant markets were characterized by substantially high barriers to entry, (iii) distributors did not possess significant countervailing buyer power against Tupras, and that (iv) Tupras was the only player in the petroleum refining market in Turkey. 

As regards the arguments against the Board’s excessive pricing analysis, the Court found the Board’s price comparison methodology valid as the market conditions did not allow a geographic price comparison due to dissimilar market conditions in adjacent markets. In its assessment, the Court first cited Article 10 of the Law No. 5015 on the Petroleum Market, which provides that “the pricing for the purchase and sales of petroleum shall be determined according to the nearest accessible global free market conditions.” Second, the Court emphasized that the European Court of Justice (“ECJ”) had not limited the methodology for the Economic Value Test and, on the contrary, had acknowledged that other methods can also be used for price comparisons. The Court also rejected the argument that the Board cannot deviate from the time period and profit-margin levels it used to assess excessive pricing in previous cases, and held that these factors would be considered on a case-by-case basis.⁸ 

Besides upholding a record fine for an exceptional type of infringement, this Court decision is also prominent given its detailed assessment of the legal test applicable to excessive pricing cases. In order to determine whether the Authority’s test was accurate, the Court used the approach employed in the EU as a reference point. In particular, the Court cited the ECJ’s United Brands decision, where excessive pricing was characterized as a strategy where the price charged “has no reasonable relation to the economic value of the product supplied.”⁹ This ECJ decision sets out a two-step test: (i) whether the difference between the actual costs and the price is excessive, and if so, (ii) whether the price is either unfair in itself or when compared to competing products. For the second step of the test, prices are usually compared geographically (e.g., United Brands¹⁰, Lucazeau¹¹), and across competitors’ prices (e.g., United Brands, British Leyland¹²). 

The Court emphasized that the Turkish competition law regime usually applies a two-step test as well, but unlike the European approach, the Board prioritizes price comparison over a price-cost analysis and only compares prices with costs if costs can be calculated with certainty¹³. Moreover, the Court noted the lack of EU and Turkish precedent regarding a standard duration or profit margin that would be applicable to all cases for assessing whether a price is excessive, and that the competition authorities do a case-by-case analysis. In this respect, the Court affirmed the Board’s methodology, which demonstrated that Tupras’s prices had been approximately 15%-20% higher on average than Platts Italy CIF Med prices for about three months. 

Another noteworthy aspect of the decision is the Court’s finding that a dominant firm can abuse its position regardless of whether it recorded profit or loss in the relevant period. The Court declared that the assessment of excessive pricing allegations should focus on whether consumers were harmed by the investigated practice rather than whether the company made a profit or sustained a financial loss during the relevant period. This approach is in line with previous Board decisions on excessive pricing, where the Board rejected financial loss defenses and determined that such pricing practices may harm consumers even if the relevant undertaking did not earn a profit in the relevant period.¹⁴

The Legal Test for Establishing Tying

The Court’s decision also includes an extensive analysis on Tupras’s pleas against the Board’s findings with respect to tying practices. Tupras argued that (i) the Board’s assessment on tying practices had been based on an inadequate review, (ii) the Board had not specifically identified tying and tied products, (iii) the Board had not investigated whether Tupras’s alleged tying practices foreclosed the market, (iv) the relevant practices concerned issues of contract law rather than competition law, and (v) Tupras’s practices had aimed to maintain refinery production balances and thus had an objective justification.

In line with the Board’s recent decisions¹⁵ and Paragraph 86 of the Authority’s Guidelines on Exclusionary Practices of Dominant Firms of 2014 (“Dominance Guidelines”), the Court held that the following three conditions must be cumulatively met for tying practices to be prohibited as an abuse of dominance: (i) the undertaking must be dominant in the market for the tying product, (ii) there must be separate markets for the tied and tying products, and (iii) tying practices must carry a potential of foreclosing the market. The Court also referred to the recent change in the Board’s decisional practice regarding the third condition and affirmed that, for tying practices to be deemed unlawful, the Board must prove actual or potential foreclosure of the relevant market.¹⁶ 

As Tupras’s dominant position had already been established through the excessive pricing analysis, the Court focused on the other two conditions and referred to the Board’s findings with respect to the business strategies that Tupras had employed against POAS and Alpet from 2007 to 2009. According to the Board’s decision, Tupras had repeatedly warned POAS that unless it purchased a certain amount of rural diesel from Tupras, Tupras would not supply other products in the amounts that POAS had requested. Since POAS had not increased its rural diesel purchases, Tupras restricted the supply of certain products to POAS, including gasoline, jet fuel and fuel oil. The Board further found that POAS had not been able to find an alternative supplier in a reasonable time, and thus, had been unable to sell certain products to its customers and failed to fulfill its obligation to maintain national reserves. Consequently, POAS had agreed to increase its rural diesel purchases from Tupras, and only then did Tupras end its supply restrictions against POAS. By the end of the year, POAS was forced to increase its purchases to the amount that had been specified by Tupras. 

As regards Tupras’s other customer (Alpet), the Board found that Tupras warned Alpet to purchase both black liquid and white liquid petroleum products in similar amounts. Given that Alpet’s white liquid petroleum product purchases were lower than what Tupras had requested for the relevant period, Tupras subsequently decreased the quantity of its supply to Alpet for all products by 20%, except for heating oil. After continuing this supply restriction strategy for approximately three months, Tupras informed Alpet that if Alpet did not buy white liquid petroleum products in the amounts that Tupras specified, Tupras would stop selling heating oil to Alpet in the amounts that Alpet requested as well. Consequently, Alpet was forced to significantly increase its purchases of white liquid petroleum products compared to previous months. 

Based on these findings, the Court first held that the Board had explicitly identified the tying product and the tied product separately and dismissed Tupras’s plea. The Court also upheld the Board’s conclusion that Tupras’s tying practices had anti-competitive effects because Tupras’s customers had to make their purchases from Tupras instead of being able to switch to alternative suppliers¹⁷. In light of these findings, the Court held that all three conditions for an unlawful tying practice had been satisfied in the case at hand. Furthermore, the Court did not find Tupras’s objective justification defense plausible. 

Conclusion

The Court’s Tupras decision not only upheld the highest fine ever imposed on a single undertaking in Turkish competition law history, but also shed light upon crucial and (to a certain extent) unprecedented procedural and substantive issues in abuse of dominance cases, as well as competition law practice in general. 

This decision may pave the way to filling certain procedural gaps in the Law No. 4054 on the Protection of Competition and the application of criminal law principles to administrative law proceedings. Given the detailed analysis in the decision with respect to the two legal tests used for abuse of dominance assessments, it would also be reasonable to expect that the Court will not shy away from similar complex discussions in the near future and will continue to critically review the Board’s substantive analyses. 

This decision is particularly important due to its emphasis on a less interventionist and more effects-based approach to tying practices. It also recognizes the Authority’s discretion to choose the appropriate methodology that should be employed in excessive pricing cases, to determine what price level should be considered excessive in a given market, and how long the pricing strategy should continue for the conduct to be found to restrict competition. 

Footnotes

1. The Council of State, 13th Division, Decision no. E. 2014/2458 K. 2017/2511.
2. Tupras, Competition Board Decision of January 17, 2014, no. 14-03/60-24.
3. The Euro amount is calculated on the basis of the EUR/TRY average exchange rate for the year of the judgment (i.e., 2014). 
4. See e.g., Council of State, 13th Division, Decision no. E. 2011/4084, Decision no. E.2011/2500, Decision no. E. 2011/2499, Decision no. E. 2013/225, Decision no. E. 2011/4484, Decision no. E. 2012/337.
5. Articles 22(4), 28(5), 29(1), 29(5), 40(2) of the Law of Misdemeanors No. 5326.
6. Tupras, Board’s Decision of January 17, 2014, no. 14-03/60-24; Tupras, Board’s Decision of November 4, 2009, no. 09-2/1246-315; Atakoy Marina, Board’s Decision of April 24, 2008, no. 08-30/373-123; Belko, Board’s Decision of July 8, 2009, no. 09-32/703-163, OTAS/EGO/İZGAZ/İGDAS, Board’s Decision of March 08, 2002, no. 02-13/127-54; Çakıroğlu, Board’s Decision of May 12, 2010, no. 10-36/577-207; TMST, Board’s Decision of June 10, 2010, no. 10-42/756-243; and Bereket Jeotermal, Board’s Decision of February 14, 2008, no. 08-15/146-49.
7. Decision of the 10th Chamber of the Court, dated December 5, 2003, and numbered 2001/4817 E., 2003/4770 K.
8. Tupras also argued that the petroleum market is regulated by the Turkish Energy Market Regulator (EPDK), and therefore, the Authority did not have jurisdiction in this case, and that the EPDK had investigated the same allegations but had not found a violation of the law. The Court dismissed this plea stating that the Turkish Competition Authority still had jurisdiction in competition-law-related matters in the energy market, even though the market is regulated by another public body. Furthermore, the Court noted that Tupras had been free to set the prices for the relevant products because they had not been subject to the EPDK’s 2006 tariffs for petroleum. 
9. ECJ Case 27/76 United Brands, 14 February 1978.
10. Ibid.
11. Judgment of 13 July 1989, Lucazeau and Others v Sacem and Others, Joined C: 110/88, 241/88, 242/88, EU:C:1989:326.
12. Judgment of 11 November 1986, British Leyland Public Limited Company v Commission, C: 226/84, EU:C:1986:42.
13. For instance, in the Soda decision (Board’s Decision of April 20, 2016, no. 16-14/205-89), the Board compared the prices of Soda with its competitors’ prices in order to assess whether Soda’s prices were excessive. A similar methodology was applied in other decisions, such as Belko and Tupras.
14. See, e.g., Belko, Board’s Decision of April 6, 2001, no. 01-17/150-39; Congresium, Board’s Decision of October 27, 2016, no. 16-35/604-269.
15. See e.g., Google, Board’s Decision of December 28, 2015, no. 15-46/766-281; TFF, Board’s Decision of November 26, 2014, no.14-46/834-375; Coca-Cola, Board’s Decision of February 26, 2014, no. 14-08/159-69; Ziraat Bankası, Board’s Decision of December 5, 2013, no. 13-69/935-395; Siemens, Board’s Decision of November 15, 2012, no. 12-57/1540-553; TTNET, Board’s Decision of September 30, 2010, no. 10-62/1287-488. 
16. In a number of decisions in the past, the Board had referred only to the first two conditions and had found tying practices to be unlawful regardless of their actual or potential foreclosure effects (see, e.g., Digiturk, Board’s Decision of September 7, 2006, no. 06-61/822-237). However, in its recent case law as well as in the Dominance Guidelines, the Board has adopted a more effects-based approach and has acknowledged that tying practices must at least have a potential to foreclose the relevant market in order to infringe competition law rules. 
17. It should be noted that, following the Authority’s investigation, two of the five case handlers dissented from the majority view that Tupras’s tying practices were unlawful. The Board decision does not elaborate on or provide the reasoning of the dissenting opinions 

(First published in Mondaq on March 13, 2018)

By Gonenc Gurkaynak, Esq., Burcu Can, Esq., Baran Bas, Ceren Gokturk and Deniz Benli, ELIG, Attorneys-at-Law