Turkey: Turkish Competition Board's Miele Decision: Resale Price Maintenance And Settlement Mechanism

Turkish Competition Board (the "TCB") decided to conclude with settlement the investigation related to resale price maintenance ("RPM") practices of Miele Elektrikli Aletler Dis Ticaret ve Pazarlama Ltd. Sti. ("Miele") through its decision no. 22-51/753-312 dated 10.11.2022. The investigation was initiated by the TCB ex officio upon the suspicions that certain undertakings including Miele, a supplier of home appliances, were violating Article 4 (anticompetitive agreements, the provision similar to Article 101/1 of the Treaty on the Functioning of the European Union) of the Law no. 4054 on the Protection of Competition (the "Law No. 4054") by interfering with the resale prices of the dealers of the products supplied by Miele and/or by restricting their online sales. The TCB found that Miele's RPM practices constitute an infringement in terms of Article 4 of the Law No. 4054, and as Miele accepted the existence of the infringement, the TCB decided to conclude the investigation with settlement and reduced the administrative monetary fine to be imposed on Miele by 25%.

RPM refers to a vertical restraint by which the supplier of a product constrains or sets the resale price of a reseller, such as a distributor, dealer, or retailer. While different approaches may be adopted in the United States, fixed and minimum resale prices are considered as hardcore vertical restrictions that exclude vertical agreements from group exemptions in the European Union and Turkey¹. The TCB noted in its Miele decision that RPM is generally considered to be an act restricting competition by its object and whose effects does not need to be investigated for the determination of a violation in the TCB jurisprudence as well as EU practice. However, altough RPM may produce some pro-competitive results in the markets and this aspect is usually taken into account by the US and EU authorities, the TCB has a more strict approach to RPM practices as it almost entirely rejects a rule of reason analysis in such cases.

The Findings of the TCB

The investigation revealed that the sales department of Miele monitors the prices actively, identifies the dealers adopting lower resale prices than the requested, and imposes the recommended price list as minimum and fixed prices either directly or by contacting the distributor supplying them products, i.e. vacuum cleaners in the present case. It is seen that resellers selling the products under recommended prices are instructed to either increase the prices or remove the items from sale, and that the distributors may be subject to sanctions such as the termination of supply in case the resale prices set by Miele are not applied. RPM may be exercised by supplier undertakings through explicit clauses in vertical agreements or indirectly by determining the reseller's profit margin or the maximum level of discount rate that the reseller can apply from an announced price level.² Similarly, the distribution agreement in the Miele case defines the profit margin based on the percentage of discount that the distributor may apply on the recommended retail price list. Thus, the minimum price at which the products can be sold is fixed by the supplier.

It is also referred to in the TCB's reasoned decision that direct or indirect methods of RPM may be more effective where the prices applied by resellers can be monitored by the supplier. While monitoring of prices does indeed strengthen and facilitate the application of RPM in practice, the mere fact that the monitoring of the prices on the market does not constitute an infringement, in its evaluations the TCB rather concentrates on whether the supplier interferes with the resale prices which should have been autonomously set by the reseller.³ The facts of the Miele file involved regular monitoring of prices and an evidence found indicated that Miele's employees had even discussed with the employees of one of the sellers, Mediamarkt, about the other resellers' low prices. It is seen that Miele employees indicated that these would be adjusted, and if necessary, the relevant sellers would not be supplied with products. In summary, it has been found that, in addition to continuously monitoring resellers' prices, Miele employees have taken various actions by contacting the distributor and dealers to increase the prices to the desired levels.

Determination of the Amount of Fine and Settlement

The factors taken into consideration in determining the amount of fine are regulated under Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Limiting Competition and Abuse of Dominant Position. As the RPM conduct of Miele occurred within the scope of vertical relations, it was concluded that the conducts in question should be evaluated under the category of "other violations" and not cartel violations. The base fine was increased by half as the violation had lasted between one and five years. Considering the low share of the product in Miele's gross revenues and the submission of all the relevant information and documents in a timely and complete manner and the facilitation of the on-site inspection by Miele, the base fine was reduced by 50%.

The settlement procedure was introduced to Turkish competition law with the amendment made on Article 43 of the Law No. 4054 and the Regulation on Settlement Procedures for Investigations of Anti-competitive Agreements, Concerted Practices and Decisions and Abuse of Dominance (the "Settlement Regulation") published on July 15, 2021. According to the Settlement Regulation, the TCB may start the settlement procedure on the request of the parties concerned or on its own initiative considering the procedural benefits that may arise from a rapid resolution of the investigation process and the differences in opinion concerning the existence and scope of the infringement and decide to conclude the investigation⁴. The TCB may conclude the investigation by reaching a settlement with the parties to the investigation who acknowledge the existence and scope of the infringement, may reduce the fine up to 25% and the administrative monetary fine and the other issues stated in the settlement letter cannot be subject to litigation. In the Miele file, the TCB decided to apply the maximum reduction rate under the settlement procedure, by reducing the amount of the monetary fine to be imposed by 25%.

Conclusion

The settlement procedure provides procedural efficiency through the rapid resolution of the investigations, while also being beneficial for the concerned undertakings with respect to the decrease in the administrative fine at the end of the procedure.

It is observed that, usually in cases where the evidence found reveals the existence of an infringement and especially in cases of anticompetitive vertical restraints, undertakings may tend to prefer the initiation of a settlement procedure, taking into account the decrease in the administrative fine and, probably, the reputational effect that would arise from the prompt termination of the investigation without any deepening thereof.

Considering the benefits that this mechanism provides to the parties to the investigation, it is expected to witness an increase in the number of decisions in which the settlement procedure will be applied in the near future.

Footnotes

1 Resale price maintenance is treated as hardcore restriction under both Vertical Block Exemption Regulation (Commission Regulation (EU) 2022/720), Guidelines on Vertical Restraints (Commission Notice 2022/C 248/01) and De Minimis Notice (Commission Notice 2014/C 291/01). In its Leegin decision, a case involving a manufacturer that refused to sale to retailers discounting its products below the recommended retail price, U.S. Supreme Court of accepted the defence that the discounting on certain leather accessories would harm the brand's luxury image and undermine the ability of retailers to provide top-quality customer service. This rule of reason approach in the Leegin judgment overruled the rigid approach that vertical price restraints are illegal per se which was adopted in Dr. Miles case. Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).

2 Turkish Competition Authority, Guidelines on Vertical Agreements, §18

3 Direct or indirect means of applying RPM can be made more effective when combined with measures aimed at identifying price-cutting distributors, such as implementing a price monitoring system, or obliging retailers to report other members of the distribution network that deviate from the standard price level. However, on their own, price monitoring and price reporting are not RPM. Turkish Competition Authority, Guidelines on Vertical Agreements §19; European Commission, Guidelines on Vertical Restraints (2022/C 248/01) §190, 191.

4 The most recent examples of settlement prior to the Miele decision are the decisions rendered in the investigation regarding RPM by an undertaking in the baby food market and in the other investigation regarding RPM and online sales restriction in the branded sports shoes and sportswear market (TCB's decisions numbered 22-29/483-192 and dated 30.06.2022, 22-29/488-197 and dated 30.06.2022.

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