Turkey: Enerjisa Decisions Of The Administrative Court: "Anti-Competitive Effects" Redefined

(1) Introduction

In 2018, in its Enerjisa decision,¹ the Turkish Competition Board ("Board") had imposed administrative fines amounting to a total of TRY 143 million on three retail electricity sales companies (namely AYESAS, BASKENT and TOROSLAR) (together, the "RESCs") and one electricity distribution company (namely, AYEDAS), all of which were controlled by Enerjisa Enerji A.S. ("Enerjisa") for abusing their dominant positions in various relevant markets.

The above Enerjisa subsidiaries all applied for a judicial review of the Board`s decision. In its respective judgments, Ankara 13^th Administrative Court ("Court") upheld the fines imposed on the RESCs,² but annulled the fine imposed on AYEDAS.³

(2) Background of Enerjisa Decision

The conducts that were characterized as abuse of dominant position by the Board in this decision, may be categorized under two groups: the exclusionary practices of the RESCs and the exclusionary practices of AYEDAS. According to the Board, both types of practices had the effect of actually or potentially restricting competition in the downstream markets for the retail sales of electricity, for different types of consumers residing in the respective electricity distribution regions.

Practices of the RESCs

In its assessment, the Board examined a number of unilateral practices on an individual basis, and eventually ruled that all these practices should be deemed as parts of a single strategy to exclude the competitors. There were significant technical differences between the unilateral practices scrutinized. In general, the Board pointed out that the RESCs, which used to hold a legal monopoly to sell electricity in their respective distribution regions before the liberalization and still retained the exclusive right to sell electricity to those "ineligible"⁴ customers, used this as an advantage to foreclose the retail electricity sales markets to their competitors, through manipulating their customers and leveraging practices, i.e., using their dominant position in one relevant market to exclude competitors in another neighboring market.

Hence, there were two main theories of harm established by the Board. The first was based on the manipulation of consumers, and the second, on the leveraging practices.

The first theory of harm was built upon the findings of behavioral economics. The Board argued that the RESCs benefited from the general low awareness levels of those consumers who had subsequently passed the thresholds and become "eligible" to purchase electricity from their competitors, and prevented them from changing suppliers via certain practices, which were not de-jure exclusivity requirements per se, but had the same effect in practice due to the manipulation of the cognitive biases of these customers.

As for the second one, the Board claimed that the RESCs had certain advantages due to being the exclusive supplier of all ineligible customers in their respective distribution regions, and that they had used these advantages to the detriment of their competitors, especially by way of making certain offers to customers that may not be matched by the competitors. Most importantly, the Board refused to classify such practices as "price-based" unilateral conduct and expressly refrained from conducting an "equally efficient competitor test," by arguing that this test is irrelevant for "non-price based" unilateral conduct.

Practices of the Electric Distribution Company (AYEDAS)

AYEDAS held a legal monopoly in the market for electricity distribution in the "Anatolia" electricity distribution region of Istanbul. The evidence collected by the Board indicated that AYEDAS was delivering debt notices on behalf of AYESAS (the relevant RESC operating in the same distribution region), thereby providing it with a competitively significant cost advantage vis-à-vis its competitors in the downstream market. Enerjisa argued that AYESAS's debt notices were actually being delivered to the consumers by a third party (namely, EEDAS, which was also a wholly owned subsidiary of Enerjisa) under a contract that required AYESAS to pay for this notification service. Enerjisa further claimed that this company would also have provided the same services to all competitors, under equal terms, had there been such requests. Yet, the Board refused to take this defense into consideration and held that the evidence at hand (an e-mail communication) was sufficient to establish a violation.

Anti-Competitive Effects of the Unilateral Conducts

One of the most significant aspects of the Enerjisa case was that the actual effects of the unilateral conducts that were being examined were quite ambiguous. In fact, some of the practices that were deemed to constitute a part of a single violation had very limited actual effects, and some were not even implemented. For example, the Board found evidence that the RESCs collected certain forms (namely, the IA-02 forms)⁵ from the consumers, with blank dates of signature. The Board argued that the RESCs thus had the "opportunity" to fill-out the dates on the forms subsequently, and create the impression the signing had occurred at a much later date, which would give them a competitive advantage vis-à-vis their competitors. This is because the sector-specific regulations held that, in case there existed more than one IA-02 form, signed by the same consumer but with different suppliers, the form with the latest date would prevail. Although the Board did not find any evidence indicating that such a strategy was actually implemented by the RESCs, this did not prevent the Board from deciding that this constituted an abuse of dominance. Hence, in Enerjisa, the Board adopted a very broad interpretation of the term "potential effects," and implied that this term also covers "potential behavior."

(3) Judicial Review of the Enerjisa Decision

The Court Decisions Regarding the RESCs

In three separate decisions regarding the appeal of the administrative fines imposed on the RESCs controlled by Enerjisa, the Court rejected all of the claims raised by the RESCs and upheld the Board's decision. While the specific judgments contain detailed explanations regarding different types of unilateral conduct, there are three aspects that might have significant implications, for the judicial review processes of the Board's decisions concerning the abuse of a dominant position.

First, the Court decided that the Board did not err in law by focusing on the "collective effects" of various practices. As a matter of fact, the Court decisions contain several statements whereby it is emphasized that only when a specific unilateral conduct is evaluated "together with other unilateral practices that are subject to examination" it is understood that the market could be foreclosed to the competitors. The decisions do not include further clarification as to how collective effects could be inferred from individual effects, or whether a combination of certain practices (none of which individually amounts to a violation) could be deemed as an abuse of dominant position under this approach.

Second, the Court did not oppose the Board's approach to the concept of "potential effects." In its analysis concerning the IA-02 forms referred to above, the Court noted that the fact that these forms do not contain dates of signature, could lead to practices that would amount to an abuse of dominance, when evaluated together with other practices of the RESCs. Thus, the Court implicitly confirmed that the "possibility of abusive practices" may be deemed as "potential effects," even in the absence of any evidence showing that undertakings had actually engaged in any abusive practices so far.

Finally, the Court implicitly concurred with the Board's position that, it did not have to assess the relevant conducts' impacts on equally efficient competitors, to establish anti-competitive effects. Indeed, the Court expressed that the possibility of excluding "some" downstream competitors may be sufficient to characterize the conduct in question as an abuse of dominant position, without making any references with respect to the required efficiency levels of such competitors.

The Court did not expressly mention the "equally efficient competitor test" or the relevance of the Board's characterization of the RESCs' conducts as "non-price based." However, when the assessment of the 13^th Chamber of the Council of State ("CoS") - the highest administrative court in Turkey - in TTNET⁶ is taken into consideration, it is probable that the Court's assessments do not relate to price-based conducts. Indeed, in TTNET, it was indicated that the Board must focus on the effects of the conduct in question on equally efficient competitors, while determining whether below cost prices charged in certain offers may amount to the abuse of dominant position.

It is also possible that the Court may have considered the specific circumstances surrounding Enerjisa (e.g., the presence of a legal monopoly in the upstream market and in the certain parts of the downstream markets) while rendering its decision and thus, deriving far-reaching consequences from these decisions might be a bit of a stretch. In any case, the decisions of the Court may still be subject to further judicial review by the CoS, if the parties decide to appeal.

The Court Decision Regarding AYEDAS

With respect to the administrative fine imposed on AYEDAS, the Court held that the Board had failed to prove "beyond any doubt" that AYEDAS actually leveraged its legal monopoly in the upstream market, by delivering AYESAS's debt notices free of charge. Indeed, the Court stipulated that the Board should not have relied solely on the e-mail communications between AYEDAS and AYESAS, and that it should have further scrutinized whether AYESAS had actually made payments to EEDAS for its payment notice delivery services.

It is important to note that the Court focused on the Board's inability to prove the existence of such conduct, rather than its actual or potential effects. Still, this decision shows that the Court considered that the approach adopted by the Ankara 6^th Administrative Court in Sahibinden, ⁷ whereby it was held that the required standard of proof for exploitative abuse of dominant position is "beyond all doubt", shall also valid for exclusionary abuse of dominant position.

It should be noted that while the administrative courts held, in Sahibinden and AYEDAS, that in cases concerning (exclusionary or exploitative) abuse of dominant position, the existence of a violation must be established "beyond all doubt"; the CoS (in 12 Banks), ⁸ decided that the required standard of proof in the case at hand, which considered an alleged horizontal anti-competitive agreement, was "beyond reasonable doubt".

The abovementioned decisions do not clarify whether "beyond all doubt" and "beyond reasonable doubt" should be deemed as different standards of proof, and if so, what the differences between these standards are. Furthermore, while it is noted in Sahibinden that excessive pricing (the most common category of exploitative conduct) constitutes an exceptional type of violation and that the relevant data must unequivocally set forth that intervention would yield positive outcomes; none of these decisions expressly confine the applicability of the relevant standard of proof to a particular type of violation. Hence, the foregoing precedents do not suggest that the standards of proof to be satisfied by the Board depend on the characterization of the violation. Moreover, given "beyond reasonable doubt" is not an explicitly recognized standard of proof in Turkish public law (where all doubt must be eliminated to prove wrongdoing), it would not be unreasonable to argue that "beyond all doubt" and "beyond reasonable doubt" are essentially the same and that both refer to the highest standard of proof applicable in Turkish public law.

(4) Implications for the Future

The Court decisions regarding the RESCs may have significant consequences with respect to the concept of "anti-competitive effects" especially to the extent exclusionary unilateral practices are considered, in case these decisions are broadly interpreted to encompass all such practices, irrespective of the peculiar economic and legal conditions surrounding each case. However, it should be noted that such an expansive interpretation would not be in line with the precedents of the CoS, since the CoS did lay down that the Board should focus on the effects on equally efficient competitors (rather than the effects on "any" competitor) and then evaluate whether foreclosure is likely as a result of the conduct being examined. These precedents were also in line with the Turkish Competition Authority's Guidelines on the Assessment of Abusive Conduct by Undertakings with Dominant Position.

In its abovementioned TTNET decision, the CoS noted that the equally efficient competitor test consists of two tiers. The first tier examines the relation between prices and costs, in order to determine whether the prices of the dominant firm may be replicated by equally efficient competitors that have similar cost structures. In case it is established that the prices may not be replicated by such competitors, the second tier of the test comes into play, where the assessment is whether the examined practices may lead to market foreclosure. In TTNET, the CoS expressly set forth that although the prices did remain below the costs in some instances (conditions in the first tier were satisfied), the market was not foreclosed (conditions in the second tier were not satisfied) as TTNET's competitors with similar cost structures, i.e., the equally efficient competitors, were able to gain profits and increase their market shares when the examined practices were being implemented. Although it may be meaningful to argue that the first tier would not be applicable to non-price based conduct (as there are no obvious prices and costs to compare), there is no reason to assume that the methodology adopted in the second tier should also be confined to price-based conduct. On the contrary, given that non-price based exclusionary practices would be deemed anti-competitive only if they lead to market foreclosure, it should be recognized that the second tier would be directly applicable to these practices, as well.

In light of the foregoing, the findings of the Court in its decisions regarding the RESCs may be interpreted more narrowly and it may be assumed that the peculiar economic and legal conditions surrounding Enerjisa was taken into consideration by the Court in its reasoning, although this was not expressly spelled out. Still, if the parties appeal, it is critical that these issues are addressed in the judicial review of the relevant Court decisions by the CoS, both to prevent an inconsistency between the precedents, and an imposition of undue burdens on dominant firms by restricting their ability to compete effectively. Indeed, if it is accepted that unilateral practices of dominant firms that have the potential to affect any competitors negatively, regardless of their efficiency, would constitute an abuse of dominant position, this approach could lead to significant welfare losses due to the chilling effect, contrary to the aims of competition law.

Footnotes

1. Turkish Competition Board's decision dated 08.08.2018 and numbered 18-27/461-224.

2. Court decisions dated July 16, 2020 and numbered E.2019/1969-K.2020/1318; dated July 16, 2020 and numbered E.2019/1970-K.2020/1319; dated July 16, 2020 and numbered E.2019/1956-K.2020/1317.

3. Court decision dated July 16, 2020 and numbered 2019/660-2020/1315.

4. Ineligible consumers are those consumers whose electricity consumption levels per annum are below a certain kWh threshold (as determined by the EMRA) and therefore, are unable to freely choose their energy providers.

5. IA-02 forms were required documents for providing electricity to eligible consumers through bilateral electricity sales agreements.

6. Decision of the 13^th Chamber of the CoS dated May 18, 2016 and numbered E.2015/5104-K.2016/1849.

7. Ankara 6^th Administrative Court, Sahibinden decision, dated December 18, 2019 and numbered E.2019/946-K.2019/2625.

8. The 13^th Chamber of the CoS, 12 Banks decision dated May 21, 2019 and numbered E.2016/3513-K.2019/1777.

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