Plaintiffs, who are representatives of the Keskin İş Güvenliği, a company active in the workplace safety in the province of Bursa, have submitted a complaint to the Turkish Competition Authority ("Authority") on the grounds that the alleged conduct of 3M Sanayi ve Ticaret A.Ş. ("3M") is in violation of Articles 4 and 6 of the Law No. 4054 on the Protection of Competition ("Law. No.4054"). These allegations comprised of (i) managing retail prices, (ii) allocating customers to distributors, (iii) discriminating amongst distributors, (iv) applying purchase target based discounts to its distributors and (v) using predatory pricing against its competitors.
In the ensuing preliminary investigation, the Turkish Competition Board ("Board") decided that 3M is not in a dominant position in the relevant market, and thereby, its conduct does not amount to a violation of Article 6 of the Law No. 4054. Furthermore, the Board stated that the following conduct could amount to a violation of Article 4 of Law No. 4054: (i) 3M's retail price maintenance with its distributor, namely Keskin İş Güvenlik Malzemeleri, (ii) allocation of Keskin İş Güvenlik Malzemeleri's customers pursuant to termination of its distributorship to other distributors, namely İstanbul Ticaret İş Güvenliği and Endüstriyel Ürünler Sanayi Limited Şirketi and Egebant, (iii) warning its distributors not to sell to other distributors' clients and warning a distributor named Nam, which is based in the İzmir province, not to sell products to the clients of İstanbul Ticaret and Egebant in the Bursa province, and (iv) applying different discount rates for Keskin İş Güvenlik Malzemeleri and Ekay Elektrik Kablo Aydınlatma Ticaret ve Sanayi Limited Şirketi compared to other distributers to put them in a disadvantageous position in the market.
The Board did not launch a full-fledged investigation. Instead, it decided that a letter should be issued to 3M ordering the undertaking to refrain from the abovementioned practices.
This decision of the Board was appealed to the 13th Chamber of the Council of State. The 13th Chamber of the Council of State quashed the decision of the Board which concluded not to launch a full-fledged investigation (30.11.2011, 2008/3117; 2011/5424). The Board, in compliance with the Council of State's decision, launched a full-fledged investigation to decide on the allegations of retail price maintenance, allocation of clients among distributors, discrimination among distributors and applying target oriented discounts to distributors (29.05.2013, 13-32/433-M). This investigation on whether 3M violated Article 4 of the Law No. 4054 resulted in a decision of no violation, and the Board concluded that there was no need to impose an administrative fine on 3M (25.06.2014, 14-22/46-203).
The plaintiffs brought the case before the administrative court for the annulment of the Board's decision. They claimed that 3M allocates geographical markets and clients to its distributors and discriminates between its distributors.
Ankara 15th Administrative Court (the "Court") concluded that (i) 3M set the retail price on a portion of sales, (ii) 3M allocated clients to distributors and posed restrictions on locations that distributors may make sales to, (iii) 3M applied lower discount rates to some of its distributers than the others and therefore the discounts lacked uniformity to the extent that it applied discounts on 35%, 40%, 43%, 45% rates to a distributor while applying a 5% discount to the plaintiff Keskin İş Güvenliği for the year of 2006, and that this situation amounts to a disadvantage in competition, (iv) an e-mail sent by an employee of 3M stated that the recipient distributor is recommended to use only 4% discount and this amounts to a violation of competition, (v) 3M allocated clients to other distributors once it terminated Keskin İş Güvenliği's distributorship and restricted clients to distributors and (vi) 3M intervened in the pricing of products sold by a distributor, to a customer in order to retain the client by setting the profit as 0.1 Turkish Lira, causing EKAY to suffer loses by setting the increase rate by 0.1 Turkish Lira since 3M's gross margin rate is usually around 56-58% rate. The products sold to this particular customer had a gross margin rate of -47%.
Accordingly, the Court quashed the decision of the Board on the ground that the Board was wrong in finding the evidence to be inadequate. The Court elaborated that there were adequate evidence to impose a fine on 3M since it appeared that 3M clearly violated Article 4 of the Law No. 4054. Thereby, the Court cancelled the Board's administrative act (17.12.2015, Case No.: 2014/1947; Decision No.: 2015/2403).
The importance of this case is that whilst the administrative courts normally review the Board's decision with regards to procedural grounds, the Court (i) cancelled the Board's administrative act through reviewing the case substantially in terms of competition law and (ii) indirectly stated that the Board should impose an administrative monetary fine on 3M.
This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2016. A link to the full Legal Insight Quarterly may be found here.
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