On 28 August 2023, the Turkish Competition Authority (the "TCA") decided that EssilorLuxottica S.A. ("EssilorLuxottica") violated competition laws by bundling ophthalmic lens and ophthalmic machinery together which created de facto exclusivity and excluded competitors in the market. On top of these violations EssilorLuxottica was found to be in breach of its previous commitments.
This remarkable decision is one of its kind for concluding a violation for breach of previous commitments. In this article, we will walk you through the potential outcomes for breaching the commitments.
Background of the Case
EssilorLuxottica was found in dominant position in the (i) production and distribution market of the EssilorLuxottica's ophthalmic machinery and ophthalmic equipment, and consumables used in its optician establishment and (ii) the production and wholesale market of ophthalmic lenses.
In 2018, the Board gave the green light to the Essilor-Luxottica merger, but with some strings attached. As part of the structural commitment, Essilor divested Merve Optik, a wholly owned subsidiary, before the transaction was completed. Additionally, two other behavioural commitments were accepted for avoiding tying and exclusivity practices.
Subsequently, EssilorLuxottica sought approval from the Board for its global acquisition of GrandVision, which also had full control of Atasun Optik in Turkey. The Board again conditionally cleared this transaction by accepting additional behavioural commitments submitted by EssilorLuxottica. These new commitments both broadened the scope and extended the duration of the commitments accepted in 2018. Under the new commitments, ophthalmic devices were included in EssilorLuxottica's obligation not to make tied sales. Additionally, it was stipulated that there would be no discrimination in favor of Atasun, operating in the sub-market, and that Atasun's purchases from EssilorLuxottica's competitors would not fall below a certain percentage. Furthermore, a Chinese Wall was established between EssilorLuxottica and Atasun, preventing the flow of sensitive information.
The outcomes in the current investigation are closely related to the commitments mentioned earlier. The primary allegation in the investigation was that EssilorLuxottica created de facto or contractual exclusivity by violating its obligation not to engage in tied sales. Although we have not seen the reasoned decision yet, the oral hearing of the investigation gave us the opportunity to assess the arguments of the parties. During the oral hearing, it was emphasized that there were no practices that could lead to de facto exclusivity. Regarding contractual exclusivity, it was pointed out that contractual exclusivity could not be claimed based on a few agreements with Altra (an ophthalmic lens manufacturer) that held a relatively small market share among thousands of agreements. In this context, it was argued that EssilorLuxottica did not abuse its dominant position as there was neither contractual nor de facto exclusivity.
If the defendant's arguments are correct and there are no tied sales practices (or other practices that may lead to de facto exclusivity) in the market aside from the tied sales provisions in a few agreements with Altra, this implies that the Board has taken a very strict stance on the issue of violation of commitments. Regardless of the effect and extent, it seems that even the slightest contradiction to commitments is considered sufficient for a commitment violation. This approach also aligns with the wording of the Article 17 of the Competition Act which stipulates that "the Board shall, for each day, impose on undertaking an administrative fine by five in ten thousand of annual gross revenue of the relevant undertaking generated by the end of the financial year preceding the decision" in case of breaching the commitments.
Fines for Breaching Commitments: A Costly Mistake
In terms of the fines, case handlers requested a fine for violating Article 6 of the Competition Act, as well as for breach of commitments. Despite EssilorLuxottica's claims that it did not violate Article 6 of the Competition Act, the Board found that the practices of the undertaking violated both Article 6 of the Competition Act and its commitments that became binding in 2018.
Consequently, Board decided an imposition of an administrative fine for approximately 1200 days "for each day over its gross income at the end of the financial year 2022" which amount to a TRY 492,191,132. This value makes up a large part of EssilorLuxottica's 2022 turnover. Despite the lack of clarity in the short decision, the Board's approach suggests that it will not apply the 10% limit stipulated for administrative fines in Article 16 of the Competition Act to the daily fines to be imposed under Article 17. Additionally, the Board applied the ne bis in idem principle and did not impose a separate administrative fine for actions that constitute a violation of Article 6 of the Competition Act.
Undertakings should be aware that breaching commitments is a serious offense, resulting in the imposition of a relative administrative fine without any additional evaluation of the impact or scope of the breach. This decision indicates that the commitment packages submitted by undertakings to the Board, both in merger cases and in investigations, should permanently and sustainably address competitive concerns in terms of future actions and direct undertakings to a dynamic sphere.
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.
