Turkish Competition Board’s Sunny Decision on Resale Price Maintenance and Indirect Information

Legal Background

The legal basis for the prohibition of resale price maintenance is provided under Article 4 of Law No. 4054 on the Protection of Competition ("Law No. 4054"), which prohibits agreements and concerted practices between undertakings, which have as their object or effect or likely effect of prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services. Pursuant to Article 4/1(a) of Law No. 4054, fixing the purchase or sale price of goods or services, or any elements which form the price such as cost and profit, or any condition of purchase or sale, is considered among the prohibited conducts between undertakings. In this respect, resale price maintenance practices are considered agreements restricting competition within the scope of Article 4 of Law No. 4054.

According to Article 4/1(a) of the Block Exemption Communiqué on Vertical Agreements numbered 2002/2 and Article 17 of the Guidelines on Vertical Agreements, the buyer has the freedom to determine its selling price, which cannot be prevented, either directly or indirectly. However, the supplier may determine maximum sales prices for the buyer or offer recommended sales prices to the buyer, provided these do not transform into fixed or minimum sales prices. Practices concerning resale price maintenance are considered among infringements within the scope of Article 4 of Law No. 4054, even if they do not have a restrictive effect on competition given the fact that these agreements restrict competition in terms of object.

Resale Price Maintenance

The documents obtained during the on-site inspections conducted by the Board on the premises of Sunny revealed several communications among dealers, electro-marketers, and Sunny employees indicating that Sunny intervened in the resale prices of its retailers. In this context, the correspondence between Sunny employees revealed that prices on e-commerce platforms and price comparison websites were monitored, the screenshots of re-sellers “distorting” prices were shared, and employees were instructed to identify such sellers and ensure that they adjusted their prices to the desired level. The seized documents also included correspondences indicating that certain sanctions would be imposed on resellers having low internet prices, which were considered to be detrimental to Sunny’s price stabilization policy, such as preventing them from conducting online sales and refusing to sell goods to resellers distorting prices.

Based on the findings obtained in the course of the investigation, the Board determined that Sunny had intervened in the selling prices of its dealers, electro-markets, and other resellers and assessed that this action constitutes a restriction of competition by object under Article 4 of Law No. 4054. Furthermore, the Board concluded that Sunny’s conduct fails to provide any improvements or efficiency gains, as maintaining elevated prices by suppliers directly impedes intra-brand price competition among resellers and diminishes the incentives for these resellers to invest and lower their costs, hence does not meet any exemption criteria under Article 5 of Law No. 4054.

In addition to the infringement related to fixing resale prices, the findings related to Sunny were also scrutinized for potential violations of the prohibition on passive sales, which prohibits buyers from conducting online sales as specified in paragraph 25 of the Guidelines on Vertical Agreements. However, the Board considered the restrictions imposed on the internet sales of the resellers to be a part of the resale price maintenance as a single infringement, as they were intended to maintain the product’s price at a certain level.

Indirect Information Exchange

Within the documents acquired from Sunny, numerous communications were revealed, that arouse suspicions regarding Sunny’s involvement in facilitating the exchange of competitively sensitive information among electro markets acting as resellers. The Board's examination concentrated on communications involving indirect information exchange, specifically about whether Sunny monitored the electro-markets’ conduct for implementation of its prices and whether Sunny addressed complaints raised by electro-markets (acting as buyers) concerning the prices of their competitors.

The assessment of whether the communication between Sunny and the electro-markets meets the criteria of a hub-and-spoke cartel was evaluated based on the standard of proof laid out in the Tesco decision.^[2] In this context it is primarily examined whether the competitively sensitive information shared by the buyer to the supplier was passed on to another buyer and whether such information is exercised in the pricing strategy of the recipient buyer. An essential consideration was that the recipient must be capable of discerning both the source and the purpose of the information conveyed by the supplier.

When analyzing the results in this context, it was noted that during the discussions between Sunny and the representatives of Vatan, Teknosa, and Bimeks, certain complaints were expressed to Sunny with respect to low pricing of rival electro markets, leading Sunny to request intervention in the matter. As a response to this communication, Sunny expressed that it has implemented requisite measures and intervened in the pricing practices of the electro markets.

On the other hand, the investigation revealed that the correspondences were solely comprised of complaints of rival competitors’ prices, with no evidence indicating the transfer of such information to rival electro markets through Sunny or no evidence that electro markets have updated their prices based on the information provided. In this context, it is observed that the correspondences reveal Sunny's efforts to enforce compliance, of which are inadequate to imply the existence of a hub-and-spoke cartel.

After the Board’s assessments based on the mentioned factors, the investigation was terminated through a settlement procedure under Article 43/7 of Law No. 4054 and Article 4/4 of the Regulation on the Settlement Procedure in Investigations on Agreements, Concerted Practices, and Decisions Restricting Competition and Abuse of Dominant Position which resulted with a 25% reduction on the administrative fine imposed on Sunny.

Dissenting Opinion

In the decision, two Board members objected to the exclusion of export figures from the calculation of the administrative fine imposed on Sunny. According to the dissenting opinion, Law No. 4054 and secondary legislation do not provide for any provision for the exclusion of export figures when calculating the administrative fine. On the contrary, when determining the administrative fine, the total economic power of the undertaking is taken into consideration and the fine is determined based on the annual turnover of the undertakings.

Another objection raised in the dissenting opinion regarding the exclusion of export figures from the calculation is that the figure constituting the basis for the penalty is obtained by subtracting the foreign sales under the gross sales item from the net sales, which in this case would result with the subtraction of a gross figure from a net figure. It is stated that this situation contradicts the approach adopted in competition law, which is based on the market power of the undertaking.

Conclusion

The Board frequently focuses on investigating violations related to resale price maintenance, rendering it the most commonly addressed type of competition infringement. With respect to the Board’s investigations concerning resale price maintenance, this conduct is often closely examined alongside indirect information exchange and restrictions on retailers’ online sales. The mentioned decision holds significance for treating internet restrictions and indirect information exchange as integral components of resale price maintenance conduct, subjecting them to thorough scrutiny. The dissenting opinion suggesting the inclusion of Sunny’s export figures in calculating the total turnover which serves as the basis for the administrative fine in the decision, is also notable considering the ongoing debates surrounding this matter.