Turkish Consumer Electronics Sector under Antitrust Investigation

Atari“The prayer of an angry gamer is so powerful that server gods hear it instantly and help the one. Thus if  you don’t want to face the rage of the gods you’d better not piss a gamer off.”

A legend from the age of empires.

In February the TCA opened an investigation into the following undertakings which operate in computer and video game consoles retail business in Turkey: Aral Game, Bimeks, D&R, Teknosa and Vatan Computer.

The reason behind this investigation was the alleged RPM aggreement and anticompetitive cooperation between Aral Game, which is a (or the) major video game importer/distributer in Turkey, and abovementioned retailers. This investigation was welcomed by the Turkish gamers as they celebrated this intervention and expected that it would solve the rocket prices in video games in Turkey. A quick googling shows that the gamers were already discussing the high video game prices and the pricing policy in forums even with a petition, with over 10,500 petitioners, calling gamers to a boycott. They also blamed world-wide game developers like Ubi-Soft, Sony and Microsoft for not acting against those high prices in Turkey.

Well, the story does not end here. A couple of days ago the TCA announced that Gold Computer and Kliksa which are other two major technology retailers, were also included in this investigation while it widened the scope of the investigation from video/console games to consumer electronics and three more undertakings, LG Electronics Turkey, Media Markt Turkey, and Türk Philips, were also included.

With this last decision almost all major electronic distributors, retailers and  producers, including international chains,  in Turkey are now under an antitrust investigation which had started with a focus on just video games but then its scope extended covering the markets for consumer electronics. The investigation may be regarded as industry wide since it would be very difficult for a Turkish consumer to think about any other electronics retailer apart from those under investigation. The widened investigation is still about the breach of Article 4 of the Act No: 4054 which is on anti-competitive agreements.

Guidelines on Horizontal Cooperation Agreements are released

Turkish Competition Board released the long-awaited Guidelines on Horizontal Cooperation Agreements (Horizontal Agreements Guidelines) and the Block Exemption Communiqué Concerning Specialization Agreements on 26 June 2013.

The Horizontal Agreement Guidelines were in fact very similar to the EU guidelines on horizontal cooperation agreements while former ones are adapted to Turkish anti-trust practice and relevant legislation. Those guidelines have been also demanded by and their absence has been subject to criticisms from the European Commission in the progress reports (2012 here) saying that “…Turkey still needs to align with the acquis on horizontal cooperation agreements…” for a couple of years.

Those guidelines set the basic criteria for evaluation of non-vertical cooperation agreements especially R&D agreements, joint production agreements,  joint purchasing agreements, commercialization agreements and -lastly- standardization agreements from  the competition law perspective. The guidelines also lay a stress and have a specific part on information exchange among competitors.

It is expected that those guidelines to be welcomed by the undertakings and anti-trust law practitioners since they set the basic principles of appraising whether an agreement or information exchange among competitors breaches the law or not or may be subject to exemption. The guidelines have also quasi-de-minimis thresholds (while there is no any de-minimis regime in Turkish competition law) saying that specific agreements between competitors having less than that market share  -like %15 market share for joint purchasing agreements- are not expected to have a negative affect on competition as a result of lack of market power while it is reserved that the restriction of competition by object would breach the law irrespective of an effect exists or not.

On the other hand the Block Exemption Communiqué Concerning Specialization Agreements provide an exemption for the specialization agreements, like unilateral or reciprocal production agreements, among competitors as long as the total market share of the parties is below 25% and some other conditions are met.

Banking Investigation: Grand Finalé

the-endOn Friday the March 8th the TCA has announced its long waited final decision on banking investigation: guilty as charged! Decision has set new all time high fining records due to the size of the sector and the undertakings (check out Harun’s post for details). Investigation on 12 banks (including 3 state-owned banks) had started in November 2011 and banks were alleged to had agreed to jointly set maximum deposit rates and credit card fees and charges as well as to increase loan rates between 2007 and 2011.

Being the Authority employees we have abstained from making comments on the ongoing investigation process as you know. Before seeing the reasoned decision we still have a little to say on the investigation but there are a few things to mention about.

First of all banking sector executives kept tacitly implying during the process that the “sector” must be exempted from the competition rules due to the “special circumstances” of the sector. Accordingly one of the first impacts of the decision was a press release by the Banks Association of Turkey (BAT) which says as follows:

 “…In addition, in order to avoid such a situation which is far from reflecting the realities of the industry and, therefore, is fundamentally unjust, the relevant legislation needs to be reviewed to take into account sector characteristics. For this purpose, under the supervision of the relevant institutions and organizations, it has been put on the agenda of the BAT to work on the legislative amendment proposals.”

According to the statement of the BAT, so the banks, are going to use their powers to create a competition law exemption for the sector. But why? I believe that the TCA’s investigation was built upon tangible evidence and the decision is just antitrust wise. I suppose such a statement can be interpreted as the Turkish Banking Sector’s standard operating procedure has been collusion and instead of complying with the law they want to amend it (a good example of how collusion worked back in 90’s, can be found here in Turkish).  Moreover reading bank executives statements following the decision, it is attracted my attention that they are confused about some basic competition law concepts such as object, effect and information exchange, even after having two different investigations within three years. Here is the statement of the Garanti Bank CEO for instance:

“..It is said that a number of conversations and e-mails have been identified. People who know each other, talk to each other in all sectors. This does not mean that a violation of the competition. It must be examined if we did give any instruction to branches thataway. Do we have a common interest rate applied through the all branches of the banks? No, not. So how competition are being violated?”

Another issue that caught my attention during the investigation was the wording of some lawyers during the oral hearings. I have observed watching the hearings that some attorneys chose to speak ill of the rapporteurs and the investigation report itself instead of pointing out to the weak points of the report sedately and picking a hole in it. It’s not a much wise strategy in so many ways.

Last thing I’d touch upon is the private litigation process which probably will follow the decision. Articles 56, 57 and 58 of Turkish Competition Act allows competitors and consumers to claim damages they suffer as a result of the infringement of competition, that is to say the difference between the cost they paid and the cost they would have paid if competition had not been limited. During the investigation some NGOs had announced that they would appeal to the court for compensation against the banks once the violation is detected by the TCA. Since the private litigation way has never been implemented successfully within the Turkish Jurisdiction so far and the wording of the Act is disputable, those litigation cases will illuminate the road. I personally wonder how the Judges approach this case. The biggest challenge that they may face is the calculation of the damages while another important issue is the determination of grounds for triple damages. The Act states that if the resulting damage arises from an agreement or decision of the parties, or from cases involving gross negligence of them, the judge may, upon the request of the injured, award compensation by three-fold of the material damage incurred or of the profits gained or likely to be gained by those who caused the damage.

All in all the fat lady has sung her song and the decision has taken its place as a remarkable one within the Turkish Competition Law cases and we may expect to hear more of its impacts sooner.

TCA Hits Banks With Record Fines

In Friday evening, after the closing of stock exchange, the TCA has announced its long-awaited decision regarding major banks of Turkey. The TCA hits 12 major banks with record fines totalling 1,11 billion Turkish liras (around 480 million Euros). This amount exceeds the total fines imposed by the TCA since its establishment. Here are the percentages of the fines imposed on banks today (indicated by the red slice) compared to the total amount of the fines up to date.

banka cezalar1

This decision also broke another record in the history of the TCA which will celebrate its 16th anniversary next Friday. As can be seen in the graphics below, the fines imposed on five banks (indicated by red columns) have taken its place among the highest fines imposed on a single undertaking.

banka cezalar

The allegations investigated in the case include determination of deposit and credit interest rates, exchange of information, collusion on the increase of credit cards’ fees, and bid-rigging. Notwithstanding, the infringement was not regarded as a cartel. Hence the TCA started the calculation of fines in the range of 0.5%-3% instead of 2%-4%.

When we come to the adjustment factors, the TCA has not increased the fines because of the repeated infringement although it also imposed fines in 2011 on some of the banks that are fined today. On the other hand, the TCA applied mitigating factors in today’s decision.

All in all, the decision has already taken a significant place in the TCA’s history. It can also be asserted that the Authority has proved its maturity and sent a clear message to businesses that it will not tolerate any behaviour contrary to the Act how big or important you are for the economy as a whole.

Stories on the Fining Regulation (2): A New Hope?

In the episode IV of the epic movie Star Wars, Luke Skywalker shows up to restore justice in the galaxy before all hopes are wiped out by the tyrannical Darth Vader, formerly known as Anakin Skywalker who is the father of Luke. At this point, drawing an analogy with the  Fining Regulation seems just a little bit (!) exaggerated or bizarre. The strong belief in and confidence to the Fining Regulation among commentators and practitioners, however, might lead us to think that the Fining Regulation could save the Turkish competition law village if not the galaxy.

As outlined in my previous post on the Fining Regulation (available here), it was nearly expected to emerge an enlightened age from the Fining Regulation in the early days of its adoption. One of the areas in which there are high expectations is cartel behaviour since the Regulation provides specific provisions to them in order to ensure the long-awaited deterrence. For instance, the Regulation sets out different starting range (2-4%) for cartels, includes exclusive aggravating factor (maintaining the cartel after the notification of investigation decision) while accepts the termination of infringements as a mitigating factor except cartels, provides leniency plus mechanism to destabilise cartels, and finally determines 3% lower limit for individuals in cartels.

Herein, one can reasonably wonder whether these provisions specific to cartels have achieved their goals. Giving another important figure in addition to the ones in our previous posts on this matter (see here and here) might help understanding this crucial question. You can see from the figure below that the number of undertakings and the ranges of their respective rates of fines.

Ceza yüzdeleri

As can be clearly seen in the figure, most of the rates are below 2 per cent. Literally, 180 out of 206 undertakings got fined below 2 per cent. Considering that 172 of these 180 undertakings have infringed the Article 4 of the Competition Act, which prohibits agreements and/or concerted practices between competitors, it becomes highly questionable whether the specific starting range in calculating fines for cartels has served the purpose. The situation becomes more dramatic when we look closely on the infringements committed by these 172 undertakings since at least 168 of these undertakings’ behaviour is related to horizontal collusion.

At this point, it can be also useful to make a comparison with the EU Commission’s statistics since these statistics are about to the ratios, not to the amount of fines. As of November 2011, the same statistics for the EU enforcement are as follows (please note that the EC has ended to share this statistic on that date).

percentages-undertakings

Unlike Turkish competition law enforcement, the fines imposed by the EU Commission came closer to the 10 per cent cap in a surprisingly large number of occasions. To be more precise, 14,5 per cent (22 out of 151) of undertakings got fined within the range of 9-10 per cent.

All in all, although the Fining Regulation gave new hopes to us in the early days of its adoption, it is hard to say that it has achieved its goal to fight effectively with cartels and the track record of  the TCA in this regard can hardly be resembled to an advanced competition law regime.