IN TURKISH COMPETITION LAW “DE MINIMIS” APPLICATION BEGINS

  • Posted on: 01 Dec, 2020
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1. The Concept of De Minimis

“De minimis non curat lex / de minimis non curat praetor ie” which means that law / judge does not decide upon trivial issues is one of the principles in Roman law and Anglo-American law. Although this principle is not familiar to Civil Law, it has also found a place in the application of EU Competition Law since Competition Law is originated from the USA.

According to the de minimis rule, undertakings that are parties to agreements, decisions or practices may not be subject to the supervision of the competent competition authority, if they do not exceed the specified thresholds. Therefore, the competition authority will not examine agreements, decisions or practices that are deemed not to significantly restrict competition, and will spend time and effort on more severe violations.

Per Law No. 7246 published in the Official Gazette dated 24.06.2020 and numbered 31165, some amendments have taken place in the Law on the Protection of Competition (“LPC“). With the paragraph added to the Article 41 of the LPC, the concept of “de minimis” regulated in EU Community Law has been introduced to Turkish Competition Law. Per the said “de minimis” institution, the Competition Board (“Board”) may not operate the control mechanism for concerted practices, agreements and decisions and practices of the association of undertakings that do not significantly prevent or restrict competition. The legislator has given the Board the task of issuing the relevant communiqué regarding procedures and principles. In this short article, changes brought by the “Draft De Minimis Communiqué” (“Draft Communiqué“) published by the Board on 23.10.2020 will be examined by comparing with its source legislation “de minimis” notice (“EU Notice”) issued by EU Commission on 25.06.2014.

2. Application of De Minimis in the Source EU Competition Law

The history of de minimis application in EU Competition Law goes back to 1970s. Pursuant to the first de minimis notice published in 1970, the “de minimis” principle has been introduced, which ensures that insignificant agreements are excluded from the control mechanism in the evaluation of practices restricting competition. The “de minimis” notice published in 1970 was revised in 1977, 1986, 1994, 1997 and 2001. The version issued on 25.06.2014 is currently in force.

One of the purposes of “de minimis” rule is to channel competition authority’s time and attention to more severe violations in competition control. Per these rules, predictability has been provided by drawing a framework for undertakings to act in accordance with competition law, especially when they enter into agreements with SMEs. In addition, a “safe harbour” has been created by stating that the Commission will not initiate an investigation for undertakings that do not exceed the relevant thresholds.

Contrary to the previous “de minimis” rules, it has been stated in the EU Notice that even if they do not exceed the relevant thresholds, agreements that prevent, restrict or distort competition, do not have a “de minimis” effect and will be taken into consideration by the Commission. Therefore the agreements which have as their object of fixing prices, allocation of market and customers or limitation of output  will be subject to Commission’s audit  even if the relevant thresholds are not exceeded.

Regarding the provisions of the EU Notice,

  • In Section I Article 2 of the EU Notice, agreements which have as their object to prevent, restrict or distort the competition are excluded from the scope of the EU Notice.
  • In Section I Article 3 of the EU Notice, it has been stated that even if the contracting undertakings exceed the thresholds set out in this notification, the Commission may accept that they have “de minimis” effect. Therefore, even in case where these thresholds are exceeded, the authority to open an investigation is left to the Commission’s discretion.
  • In accordance with the EU Notice, if the total market share of the undertakings that are parties to the agreement in question does not exceed 5% and their total turnover does not exceed 40 million Euros cumulatively, the agreements in question will be deemed not capable of restricting competition. In the examination of whether the relevant agreement has “de minimis” effect or not, besides the market share, the turnover criterion as a second criterion is also taken into consideration in the EU Notice.
  • In Section I Article 5, legal certainty is aimed by the provision that the Commission will not initiate the investigation procedure for cases not covered by this notification.
  • Another provision is that the Commission will not impose penalties on the undertakings against whom an investigation had been initiated if they were in good faith that the undertakings do not exceed the relevant thresholds.
  • Per Section II Article 8 Paragraph 1 Subparagraph (a) of  the EU Notice, in agreements that may prevent, restrict or distort  competition between actual or potential competitors, if the aggregate market share in any relevant market does not exceed 10%, the said agreement or decision is deemed to have “de minimis” effect. It should be noted that while evaluating the agreement or decision, the undertakings should not exceed 10% market share not only in the horizontal market but also in each vertical market that may be affected.
  • Moreover, in accordance with the Article 8, Paragraph 1 subparagraph (b), in agreements between non-competitors, in cases where the individual market share of each undertaking does not exceed 15% in any relevant market that may be affected by the agreement, the agreement or decision in question is deemed to have “de minimis” effect and the Commission will not initiate the investigation process. We would like to draw readers’ attention to the point that the threshold of 15% market share to be evaluated belongs to only one of the parties to the deal.
  • In case of doubt as to whether the undertakings party to the agreement or decision that are competitors or not, the threshold will be applied as 10%.
  • Per section II Article 10 of the EU Notice, the thresholds specified in the Article 8 will be applied as 5% in the relevant market for parallel networks formed by similar vertical restrictions, regardless of whether the relevant undertakings are competitors or not. Individual distributors or suppliers with a market share of less than 5% are in general deemed to not contribute to the market foreclosure effect. In addition, agreements that do not cover 30% market share did not have a market foreclosure effect.
  • Another provision is that if the thresholds specified in the EU Notice do not exceed 2% for two consecutive calendar years that they will be accepted to have “de minimis” effect by Commission.
  • In the EU Notice, clarification has been provided on how the said thresholds will be determined by stating that the market shares will be determined according to the sales values, if the sales values are not available, the purchase values where appropriate. If the mentioned sales and purchase values are not available, estimates based on market information including volume values may be used.
  • The Commission stated in the Article 13 that agreements which have as their objective of price fixing, restricting supply and market and customer sharing are outside the scope of the EU Notice even if they do not exceed the thresholds determined in the notification.
  • Finally, the concept of connected undertaking has been included in the EU Notice. Notification defines the connected undertakings as,
    • Having more than half of the voting rights,
    • Having the right to appoint more than half of the members of the Supervisory Board, Board of Directors or the management body of the enterprise,
    • Has the authority to manage the undertaking’s affairs.

3. What Does the Draft Communiqué Introduce to Turkish Competition Law?

In accordance with the Draft De Minimis Communiqué, the Board may not investigate about agreements, concerted actions, decisions and actions of association of undertakings, which are deemed not to significantly restrict competition in the market, except for clear and severe violations. Thus, it is aimed for the Board to spend its time on severe violations. In the Draft Communiqué, clear and severe violations are defined as price fixing between competitors, region and customer allocation and restriction of supply. It is observed that classical cartel actions are listed here. Article 5 of the Draft Communiqué regulates which agreements and decisions are deemed not to significantly restrict competition.

  • In parallel with the Article 8, Paragraph 1 Subparagraph (a) of the EU Notice, with the exception of clear and severe violations according to the Article 5, Paragraph 1 Subparagraph (a) of the Draft Communiqué, in agreements between competitors, aggregate market share must not exceed 10% in the markets affected. It should be noted here that the aggregate market share in agreements between competitors will be evaluated not only in the horizontal market, but also in all vertical markets that will be affected by the agreement.
  • In accordance with the Article 8, Paragraph 1 Subparagraph (b) of EU Notice, Subparagraph (b) of the Draft Communiqué, regulates that in agreements between non-competitors, each party must not exceed 15% in any of the relevant markets affected by the agreement.
  • In the Draft Communiqué, it is also regulated that in cases where it is not possible to determine that the parties to the agreement are competitors or not, subparagraph (a) will be applied. Therefore, whether the agreement or decision has “de minimis” effect will be evaluated based on the aggregate market share exceeds 10% or not in all relevant markets specified in paragraph (a).
  • Except for clear and severe violations, Article 5 Paragraph 3 of the Draft Communiqué, regulates that if the total market share of the members of the association of undertakings does not exceed 10% in any of the relevant markets affected by the decision, it has “de minimis” effect. By this provision, which is not included in the EU Notice, the Board has introduced a special regulation for the members of the association of undertakings.
  • In the Draft Communiqué, it is also regulated that the thresholds specified in the Draft Communiqué will be applied as 5% for agreements and decisions between both competitors and non-competitors in agreements covering more than 50% of the market related to parallel networks formed by similar vertical restrictions. Therefore, the Board hereby lowered the “de minimis” threshold for the undertakings in dominant position in case they make agreements in a market subject to vertical restrictions, by stating that lower thresholds will be applied to both parties to agreement.
  • In addition, in parallel with the Section II Article 11 of the EU Notice, even if the thresholds specified for the implementation of “de minimis” are exceeded by two percentage points in two consecutive calendar years, the Board will consider such agreements, decisions and practices as not restricting competition significantly. . However, if the threshold is exceeded with more than 2%, the relevant agreements and decisions will be accepted to not to have “de minimis” effect.
  • Another provision regulated in the Draft Communiqué is the Article 5 Paragraph 6 that if the market shares of the parties to the agreement or the members of the association of undertakings exceed the said threshold will not necessarily be deemed as significantly restricting competition. The Board stated here that even if there is an agreement or decision that is deemed to restrict competition pursuant to the Draft Communiqué, Board may accept that it has “de minimis” effect and not to investigate them. On the other hand, in accordance with Article 6 Paragraph 2 of the Draft Communiqué, even in cases where the said thresholds are not exceeded, the relevant agreement or decisions may be subject to investigation if deemed necessary by the Board.
  • Finally, the calculation method of market shares has been specified in the Article 7 of the Draft Communiqué. According to the Draft Communiqué, the market share of undertakings will be calculated on the basis of sales value, and in cases where sales value data is not available, the Board will be able to use estimates based on other reliable market data, including volume data in the market, when calculating market share. In addition, while calculating the market shares of the undertakings, their market shares in each calendar year during the agreement or decision period in question will be taken into account.

4. Evaluation

When the Draft Communiqué published on 23.10.2020 is examined, it can be stated that many provisions are directly received from the EU Notice issued by the European Union Commission on 25.06.2020, thus the purpose of harmonization with the EU legislation is ensured. In this context, it is observed that many of the thresholds specified in the Draft Communiqué are the same as the EU Notice. On the other hand, it has been adopted in the Draft Communiqué that “de minimis” effect is deemed for agreements that do not cover 50% of the market for parallel networks in similar vertical restrictions, whereas the relevant threshold is determined as 30% in the EU Notice. We are of the opinion that the relevant threshold should be set as 30% in the communiqué to be issued within the scope of the aim of harmonizing the local legislation with EU legislation and controlling the sectors with high turnover.

The fact that the turnover of the relevant undertaking is included as one of the “de minimis” criteria besides the market share in the EU Notice stands out as another difference between the EU Notice and the Draft Communiqué. In accordance with the Section I Article 4 of EU Notice, if the total market share of the contracting undertakings does not exceed 5% and if the turnover does not exceed 40 million Euros, it will be deemed not to restrict competition in general. Here, we draw your attention that the market share and turnover criterion are sought by the Commission cumulatively in order to accept as “de minimis”.

In accordance with the Article 7 of the Draft Communiqué although it may seem that turnover is evaluated indirectly through market share which will be calculated on the basis of the sales value,  we are of the opinion that determining the turnover threshold as a separate criterion in addition to the market share will be in line with the EU legislation and the relevant turnover threshold should be added to the communiqué . As a matter of fact, it was inappropriate to not including turnover criteria in the Draft Communiqué since it was clearly stated in the article 41 of the Law on the Protection of Competition, which introduced the concept of “de minimis” to Turkish law, that the Board will make an evaluation of de minimis based on criteria such as market share and turnover. For this reason including the turnover criterion in addition to the market share in the communiqué to be issued, will prevent the agreements to fall outside of the control especially agreements between undertakings such as those in the finance and insurance sector, which have a high turnover although their market share is not high.

5. Conclusion

Per Draft Communiqué, which specifies the procedures and principles of the “de minimis” institution, which has been introduced to Turkish competition law practice with the amendment made to the Law on the Protection of Competition on 24.06.2020, it is aimed for the Board to spend labour and time on more severe violations. In our opinion, some regulations in the Draft Communiqué pose serious problems in terms of legal certainty. Because the purpose of the thresholds in the Draft Communiqué is to provide predictability by setting a legal framework. However, the legal certainty is eliminated by stating that if the thresholds are passed, the agreement or decisions in question do not mean that they directly restrict competition and that the Board may open an investigation even in cases where the relevant thresholds are not exceeded. When the Board evaluates “de minimis”, it remains unclear whether another criterion is taken into consideration besides the market shares of the relevant undertakings and if any, which criteria should be based upon pose a problem in terms of legal security.

The Draft Communiqué, which has several common points with its source legislation the EU Notice, brings uncertain regulations in terms of legal security by leaving the authority to investigate to Board’s discretion even if the relevant thresholds are not exceeded. Because it is clearly stated in the EU Notice, that the Commission will not initiate an investigation in cases where the thresholds are not exceeded. However, leaving the authority to open an investigation in the Draft Communiqué at the discretion of the Board in any case poses an investigation danger even for undertakings that do not exceed the relevant thresholds. Therefore, we believe that this regulation, which does not provide predictability, poses a problem in terms of legal certainty. Although such an authority is recognized in the law, legal certainty should be ensured by stating that against no undertaking that do not exceed the relevant thresholds to be specified as the market share and also the turnover  investigation will be initiated in a communiqué to be issued by the Board.

 

Regards,

Oguzkan Guzel PH. D

Attorney at Law

Burak Bayram

Attorney at Law

 

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