Turkey: Restriction By Object vs. Effect Analysis In Vertical RPM Cases: Turkish Competition Board Decided To Impose Monetary Fine Against Sony

Last Updated: 12 April 2019
Article by Bora Ikiler and Hazar Basar

On April 8th, 2019 (Monday), Turkish Competition Board's (the "Board") reasoned decision (22.11.2018; 18-44/703-345) on the investigation launched against Sony Eurasia Pazarlama A.Ş. ("Sony") in order to determine whether Sony infringed Article 4 of Law No. 4054 on Protection of Competition ("Law No. 4054") by way of interfering in resale prices for its products to be sold by its resellers. In this respect, the Board decided by majority of the votes to impose monetary fine against Sony on the ground that it had restricted intra-brand competition under Article 4 of Law No. 4054 by determining resale prices of its resellers for their online sales.

After the Board's Henkel decision (19.09.2018; 18-33/556-274) in which the Board considered resale price maintenance ("RPM") without examining the effects of Henkel's pricing behaviours in the relevant markets, the Board once again concluded that Sony restricted intra-brand competition by object and thus, violated Article 4 of Law No. 4054 without taking into account the fact that the effects of Sony's anti-competitive conduct on the relevant markets are limited.

Based upon the most recent approach of the Board towards RPM infringements under Turkish competition law rules, one cannot absent himself from raising questions on whether the Board started to evaluate all  restrictions of competition "by object" in terms of vertical relationships as per se illegal by reserving the possibility of conducting effect analysis in very exceptional cases. This approach could potentially lead to long-shot interpretations suggesting that "restriction by object" under Turkish competition law is becoming closer to "per se illegality" doctrine under U.S. Antitrust Law which does not give room to effect-based arguments.

Before delving into the details of the Board's findings and legal discussions arising from these findings, it would be useful to provide a brief factual background of the case.

The Factual Background

According to the reasoned decision, the RPM allegations against Sony are mainly based on internal e-mail communications between Sony's employees and their e-mail correspondence with Sony's resellers. Within these communications, the Board found out that a monitoring mechanism was set by Sony with regard to the resale prices of Sony's resellers for their online sales. Further, certain communications suggesting to interfere in resale prices, which falls below the recommended resale prices determined by Sony, were caught by the case handlers of Turkish Competition Authority (the "Authority").

The case handlers delivered their opinion in the investigation report and additional written opinion by indicating that the imposition of fine is not required within the scope of the case. The case handlers suggested that the Authority should issue an official warning to be sent to Sony in order to remind that Sony should avoid any interference that may result with the recommended resale price lists for online sales to turn into fixed prices.

In terms of relevant product market, the Board preferred to leave the definition of the relevant product market open as its decision would not deviate depending on the definition of the relevant product market. That said, for the sake of completeness of its evaluations, the Board considered "the market for consumer electronics" which includes smart TVs, smartphones, gaming consoles etc. by taking into account its previous decisional practice established in its Aral Oyun decision1.

Evaluation of the Board

After examining the e-mail correspondence with Sony's resellers and internal communications between Sony's employees, the Board found out that the prices applied by Sony's resellers (mainly for television products) through their web-sites and third party online platforms are closely monitored by Sony. Furthermore, the Board indicated that as evident from e-mail correspondence, Sony's resellers are expected to comply with the recommended resale prices determined by Sony. The Board underlined that Sony threatened its resellers to leave off providing them with application support/return in case that they offer resale prices below the recommended resale price for online sales.

Conspicuously, the Board indicated that price transparency for the products showcased through online platforms is significantly high as it is easier to monitor resale prices offered for online sales than the prices for sales through brick-and-mortar stores. Accordingly, such price transparency could trigger anti-competitive conducts. In this respect, according to the reasoned decision of the Board, monitoring and reporting the online resale prices could apply pressure on resellers in terms of deviating from recommended prices determined by suppliers.

The Board stated that as Sony restricted intra-brand competition by object, it is unlikely to be granted with individual exemption given that restriction of intra-brand competition would cause higher prices for end consumers and thus, negatively affect consumer welfare. The main reason behind this approach is the understanding suggesting price competition as the main element enhancing economic efficiency.

In a disorienting way, the Board appeared to conduct an "effect analysis" before coming up with a certain decision even if this analysis did not in anyway have impact on the final decision of the Board. In light of the numerical data provided by Sony and Sony's resellers, the Board found that (i) Sony's resellers applied resale prices below the recommended prices, (ii) Sony continued to provide application support/return for its resellers even in case that they did not comply with the recommended prices and (iii) the resellers offered different prices for Sony's products. Further, by also taking into consideration that Sony's market share in the relevant product markets is relatively low, the Board concluded that the anti-competitive effects of Sony's pricing strategy along with its monitoring and reporting mechanisms are limited.

Nevertheless, the Board rejected Sony's defences arguing that "effect"analysis should be taken into consideration for the Board's final decision as Sony's pricing strategy for its resale prices did not affect the resale prices applied by Sony's resellers. Moreover, although the Board examined the effects of Sony's pricing strategy on the relevant markets, it explicitly stated that there is no need to apply effect analysis for the case at hand.

As a result, the Board imposed a monetary fine of TL 2.346.618,62 on Sony for RPM by object.

That being said, the Chairman of the Board annotated its dissenting opinion (the "Dissenting Opinion") against the decision of the Board by arguing that effect-based analysis should have been applied for the case at hand. The dissenting opinion argues that RPM in terms of supplier-reseller/dealer relationship should be evaluated as different from horizontal RPM agreements. The Dissenting Opinion underlined that vertical restraints could lead to certain economic efficiencies such as increase in consumer choices, impeding free-riding, promoting new entries to the market by providing a degree of certainty etc. In this respect, the dissenting opinion suggests that while evaluating RPM in vertical relationships, the following points should be covered: (i) whether the request for RPM is made by supplier or resellers, (ii) to what extent RPM is actually applied and (iii) the market shares of supplier and its resellers.

In this regard, the Dissenting Opinion asserts that multitude of Sony's sales channels, freedom for online sales, the fact that Sony's resellers applied prices below the recommended prices, the lack of finding proving that Sony established a sanctioning mechanism for its resellers who do not comply with its recommended prices and different resale prices applied by Sony's resellers for the same product are disregarded by the Board. To that end, the Dissenting Opinion provided that the Authority should have issued an official warning to be sent to Sony under Article 9(3) of Law No. 4054.

Conclusion

In spite of the fact that the Board had started to adopt an approach2 that gives significant weight to effect analysis for investigations on RPM behaviours in vertical relationships, the Board's recent decisions on Henkel and Sony are signalling the abandonment from such approach.

The presence of the Dissenting Opinion and the opinion of the case handlers in Sony case shows that there is a dissensus between the Board members on whether all restrictions of competition by object should be evaluated as hardcore restrictions without examining if the anti-competitive effects are limited.

That being said, the Board disregarded the position taken within the Dissenting Opinion and explicitly concluded that, apart from very exceptional cases such as launching a new product to the market, restrictions by object is considered as hardcore restrictions under Turkish competition law. Accordingly, in case of RPM by object, we understand that there would be no room for either efficiency arguments and individual exemption evaluations or effect analysis, which in fact contradicts with the previous decisional practice of the Board established in Duru Bulgur, Yataş, Dogati3, Çilek4 and Ufo5 decisions.

Therefore, it is apparent that the forthcoming day will make us to see if the Board's Sony decision is signalling a more conservative approach with respect to restrictions by object. All in all, for now, the footprints of this decision needs to be watched closely to conclude if the Board is giving a path to a nascent conservatism regarding RPM-based vertical restraints by object.

Footnotes

1 The Board's decision dated 07.11.2016 and numbered 16-37/628-279.

2 The Board's Duru Bulgur decision (08.03.2018; 18-07/112-59) and Yataş decision (27.09.2017; 17-30/487-211).

3 The Board's decision dated 22.10.2014 and numbered 14-42/764-340.

4 The Board's decision dated 20.08.2014 and numbered 14-29/597-263.

5 The Board's decision dated 27.10.2011 and numbered 11-54/1380-490.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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