Constitutional Court of Turkey: Legislative Act Against Minimum Tariffs for Professional Unions is Constitutional

Constitutional Court of Turkey, which is the final court of appeal in Turkey before the European Court of Human Rights, just released a judgement (on the Official Gazette dated 16 July 2015, page 43 -in Turkish) that is quite crucial as it shows the approach of the judiciary to the anti-competitive acts of professional associations.

Constitutional Court of Turkey

The story may be considered to begin in 2006 when Law no: 5477 amended the relevant article of the law of Turkish Medical Association (not the dentists) no: 6023 such that the association could not fix the minimum prices for medical services given by the physicians anymore. This amendment was quite controversial at the time but the amendment is still valid. It may not be a coincidence that this amendment was compatible with the official opinion of the TCA given as a result of the decision related to the preliminary investigation on Turkish Medical Association in 2003. There are other decisions and opinions of the TCA related to the professional unions, which are not mentioned here for the sake of a medium-long post (!). But if you are interested you can read this paper (Çokgezen and Toksoy 2013) and this expertise thesis (2004) about the struggle between TCA and professional unions – sorry both are in Turkish.

Well, in 2011, similar to the story of Turkish Medical Association, a legislative decree (KHK: 663 -in Turkish-) amended the article 11 of the Law of Turkish Dental Association, which is a professional union established by law and subject to governmental regulation in addition to having administrative authorities in many areas related to the dental profession. This article had authorized the association to set the minimum prices of dental consultation and treatments every year. With the legislative decree in 2011 this authorization was limited such that the association could only release guide tariffs and could not set the prices anymore.

After this amendment CHP, (Republican People’s Party, which is not the right wing party despite the connotation of its name) the main opposition party in the Great National Assembly of Turkey (GNAT), appealed against this to the Constitutional Court of Turkey saying that the association should have the authority to set the prices relying on the Article 135 of Turkish Constitution which declares that:

ARTICLE 135- Professional organizations having the characteristics of public institutions and their higher bodies are public corporate bodies established by law, with the objectives of meeting the common needs of the members of a given profession, to facilitate their professional activities, to ensure the development of the profession in keeping with common interests, to safeguard professional discipline and ethics in order to ensure integrity and trust in relations among its members and with the public; their organs shall be elected by secret ballot by their members in accordance with the procedure set forth in the law, and under judicial supervision…

However with its judgement (Dated 04 December 2014 and numbered E.2013/114 K.2014/184) the Constitutional Court rejected the claims of CHP and approved the relevant part of the amendment implemented by the above-mentioned decree. This judgement was also appealed and again it was overturned by the court.

While rejecting the request for annulment of the amendment, the constitutional court underscored that “although fixed minimum tariffs may be considered to be compatible with the ruling (facilitating professional activities, ensuring the development of the profession in keeping with common interests etc.) of Article 135 of the constitution, this article does not entail price fixing nor does entitle the organizations to fix the tariffs…” and “... fixed minimum tariffs are not a must for efficient and competent health services” and ruled that in the light of Article 135 entitling the professional organizations to fix prices shall be appraised by the legislative body.

This is not a judgement related to a specific TCA decision which is subject to supervision of administrative courts and the Council of State as the court of appeals. However it shows that the approach of the highest judicial court in Turkey, which is apparently compatible with the TCA’s opinions and decisions, declares that price fixing can not be considered as a vested right of the professional organizations according to the constitution.

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.

Fishing Expeditions – Reloaded

Those who are familiar with competition law know that conducting on-site inspections, so-called dawn raids, is crucial in unearthing violations. Overly broad use of this power, however, may cause problems. In recent years, the term ‘fishing expeditions’ has been used to describe situations that are beyond the fair scope of this power. Semantic aspect of this term implies that if you catch a big enough net, you will get an evidence on some kind of wrongdoing.

Last week, ECJ handed down essential judgments as to this issue in Case T-135/09 Nexans v. Commission and Case T-140/09 Prysmian v. Commission. You can also reach some comments on these cases at here (GCR), here (Kluwer Blog), and here (Kartellblog). In this post, however, we want to look at the implications in Turkish competition law.

Very similarly to other jurisdictions, officials of the TCA, while going for a dawn raid, carry with them an authorization certificate showing the subject-matter and purpose of the examination, and that an administrative fine shall be imposed if incorrect information be provided pursuant to Article 15 of the Act.  This certificate is issued by the TCA. Hence it is not necessary to get, at first, a search warrant from a court to conduct a dawn raid in Turkish competition law.

The first controversial issue is the subject-matter and purpose of the authorization certificate: How particular should the terms of the authorization certificate be? Is it adequate to state that the inspection relates to infringements of Article 4 of the Act? Is it necessary to specify titles of undertakings (and/or subsidiaries of them) in which the inspection takes places? Is it necessary to indicate relevant market(s), if so how much detail should be given? Up til now, claims on this issue have been rejected by the Supreme Administrative Court.

The second problematic part in authorization certificates is that if there are other illegal items found as an incident of a valid authorization certificate, there is nothing that precludes the TCA from adding to the charges against alleged undertakings. To the best of my knowledge, this kind of incident has never happened before. If it is the case, there are going to be harsh debates on whether inspection should be limited only to what was alleged in the authorization certificate and whether any other illegal material found as an incident to the inspection should be excluded.

The third issue is related to the search conducted on computers during on-site inspections. It is very controversial in Turkish competition law enforcement whether the TCA officials have a power to copy entire (or part of) hard drives. Hence officials can only conduct searches on computers and then print out the relevant documents. Therefore this issue seems plain in Turkish competition law side, which is contrary to EU side since the authorities use their power to copy hard drives of computers.

A Possible Class Action On A Follow-On Basis?

Anyone who is interested in Turkish competition law enforcement knows that the hot topic of these days is the ongoing banking investigation. Since it is one of our principles that not talking on the continuing investigations, we want to make it clear that we do not speculate on this investigation. Instead, we want to share a related and a very important development by basing on recent newspaper reports (they are available here and here in Turkish).

President of the Young Busineesmen Association of Ankara, Mr. Değer, talking to the daily Sabah, stated that they are going to bring an action for damages against banks if the Turkish Competition Authority (TCA) decides that the Act on the Protection of Competition is infringed. Mr. Değer added that they are going to cooperate with Ankara Bar Association on this issue and claim the high interests that their members paid.

Two days later, Ms. Eroğlu, President of the Association for Consumer Protection, told that they are waiting for the TCA’s decision and following the issue closely for their members. Moreover, the report gave a place to statements of Mr. Yücelen, the President of the Young Businessmen Association of Turkey, expressing that many businessmen want to claim their damages.

Finally, the rumor has is that there is also another damage claim against automotive distributors to which the TCA, in 2011, imposed the largest fine ever imposed in a single case (the amount of the fine was around 280 million Turkish liras). All of these developments can be regarded as an indicator of the emergence of the “real” private enforcement in Turkish competition law in the form of compensation claims. However it is my curiosity whether this trend will turn out a successful damage award: although there is a collective reddress mechanism in Turkish law, it is not possible to claim compensation through this collective action. Hence, qualifying these developments as the emergence of the “real” private enforcement may just be my optimism.

Minor Issues-I

I believe that one of the significant issues of Turkish Competition Law is that it does not have a provision which instructs a way to deal with the relatively insignificant restrictions (depending on the size of the undertakings or the market). Pursuant to the Act, any restriction of competition regardless of concerned undertakings’ size or the market shares would fall under the scope. As any colleague of mine would agree that this deficiency creates a large amount of job burden and causes time and labor loss. Cases that involve (bread) bakeries have always been among those troubled ones in my experience along with local bus line and traditional convenience store cases. When I was reading about the bakeries decision ruled by Croatian Competition Agency (CCA), which made me smile sadly, I thought that similar problems exist in different jurisdictions as well.

Being the first fining decision since the implementation of the new act in 2010, it is considered by the CCA as a deterrent measure and public warning to other entrepreneurs and their interest associations that may infringe competition law prohibitions. According to the decision, 17 bakeries in Osijek tried to fix prices under the leadership of local Craftsmen Association and symbolically fined of 66 Euros (for bakeries that attended to meeting but have not increased prices), 200 Euros (for bakeries which raised their prices) and 6600 Euros (for Craftsmen Association). In its decision, the CCA explained the reason of symbolic fining as follows:

“…distortion of competition in this case was not significant due to the fact that the 17 bakers-craftsmen who participated in the prohibited agreement do not have significant market power in a market in which they operate, and the agreement itself has had limited geographic scope (only in Osijek-Baranja County), lasted a short period of time and, in addition, not all bakers, though undoubtedly participated in the agreement, after the meeting actually raise the price of bread.”

Reading those lines I wondered whether spending scarce resources of both time and labor on that case worth it? For the CCA, the answer is apparently affirmative since the Agency used the decision to promote and introduce the “new” act. But how would it be like if you have to deal with such relatively insignificant cases frequently?

There are two ways of relieving such a burden. First one is using a prioritization mechanism which will allow Authority to ignore minor issues and focus on the major cases. I’m aware that this could be possible within the UK and EU competition law enforcement (more on this issue will be shared by Harun soon). Second and more suitable one for the Turkish jurisdiction is to implement a truncated process for those minor (depending on the size, market share or total income of the parties) violations instead of launching a full throttle investigation process. Such a shortcut could be applied without any amendments if the Authority abdicates it’s own time limits for investigation process.

Anyhow, until a mechanism to dodge those minor issues is developed TCA experts will be visiting small enterprises for interviews and dawn raids, spending worthy time on these cases.