5. COMPETITION LAW IN TURKEY - Intro A) Modeled on EU Law B) Officially Began with 1994 “Competition Act” 1) Established the Turkish Competition Authority (TCA) 2) Anti-Trust provisions are contained in Art. 4, 6 and 7 a. Art. 4 - Agreements between 2 or more firms (like EU Treaty Art. 101 & Sec. 1 of U.S. Sherman Act) b. Art. 6 - Abuse of dominant position by 1 or more firms (EU Treaty Art. 102 & Sec. 2 Sherman) c. Art. 7 - Focuses on mergers & acquisitions C) This law is meant to protect general public interest

“UNFAIR COMPETITION” LAW A) Separate, but closely-related branch of Competition Law 1) Longer history than Competition (Antitrust) Law 2) Violation of U.C. Law may also violate Competition Law B) Creates/recognizes TORTS that cause economic injury 1) Result from deceptive/wrongful business practices 2) Examples - false advertising, selling counterfeit items, stealing trade secrets, disparagement of competitors, interfering w/K relationships, predatory pricing C) Governed by TCC Art. 54-63 1) Art. 54 - General prohibition against “unfair” competition 2) Art. 55 - Specific examples of unfair acts (not exhaustive; courts are allowed to determine if act is “unfair”) D) This law is meant to help individual victims

(BACK TO) COMPETITION LAW A) Turkey’s 1994 Competition Act B) Main Antitrust Provisions – Articles 4, 6 and 7 Article 4 – Prohibits agreements between 2 or more firms (“undertakings”) that prevent, distort, or restrict competition in a relevant market Three Elements (and certain exemptions): 1. Undertakings 2. Relevant Market 3. Agreement or Concerted Practice and Exemptions

1. Undertaking a. Generally - any entity engaged in economic activity; the legal status of entity is irrelevant b. State Activities - competition law does not apply c. Parent/Affiliates - constitute a single “undertaking” 2. Relevant Market (must be defined before deciding if a violation in fact occurred) a. Product Market - products are interchangeable and substitutable b. Geographic Market - where undertaking is physi- cally supplies goods/services; the conditions for competition are similar and consistent

3. Agreement / Concerted Practice (Art. 4 covers both) a. Potential Benefits - Higher price than what is possible in competitive market; join forces against other rivals b. “Agreement” - Concurrence of wills (formality irrelevant); joint intent to act in a specific way 1) Horizontal - agreement between competitors at same level of the relevant market 2) Vertical - agreement between parties at different levels of the production chain (e.g. manufacture/retail) c. “Concerted Practice” - Parallel conduct that doesn’t reach the stage of a formal agreement 1) Presumption - If parallel conduct coincides with elimination of competitor, presumed to have acted in concert (any proof of contact between undertakings?)

d. “Association” of Undertakings (trade, professional, etc.) 1) Association’s decisions sometimes affect its members in negative way (e.g. FIFA rules re: licensing of agents) 2) If object/effect of decision restricts competition, violates Art 4 e. Intent or Effect of Agreement Restricts Competition 1) If intent of agreement is to restrict competition, it is enough to violate Art. 4 (effect is irrelevant) 2) If agreement actually has an anti-competitive effect, it also violates Art. 4 (intent is irrelevant) f. “Per Se” Violations – Art. 4 has a non-exhaustive list: - price fixing - sharing markets for goods/services - controlling quantity of supply or demand - restricting activities of competitors - dictating resale conditions

4. Exemptions – provided by Art. 5 (and by the TCA) a. The undertakings’ behavior/actions are evaluated by balancing the pro-competitive & anti-competitive effects b. Various conditions are examined: 1) Efficiency gains? (production, distribution, tech. progress) 2) Will consumers get fair share of these benefits? 3) Restriction should be no more than is necessary 4) No elimination of competition c. TCA has “block” exemption for many vertical agreements 1) Normal for parties in vertical relationship to discuss price 2) Normal for manufacturer to make strategic choices on who the product’s retailer(s) will be 3) To benefit from block exemption, manufacturer/supplier must have no more than 40% market share

Article 6 – Prohibits abuse of dominant position 1. Dominant Position (50% market share presumed dominant) a. What is the relevant market? 1) Look at product & geographic dimensions (see slide 4) 2) Identify all actual competitors b. What is the party’s market power? 1) How much does consumer demand fall (if any) when the party raises its prices? 2) Are there barriers to competitors entering the market? - strategic ones imposed by the entity (e.g. increasing output, price wars) - legal barriers (such as licensing reqt’s) and economic barriers (like technology costs, branding costs) don’t count

b. Special types of abuse (slides 10-11 have details) a. Generally 1) Being “dominant” by itself does not violate Art. 6 2) Abusing power is the problem—generally results in harming consumer welfare 3) Art. 6 mentions acts like prohibiting competitors from entering market, tying agreements, discriminating between buyers of equal status, restricting production, predatory pricing b. Special types of abuse (slides 10-11 have details) 1) Refusal to supply 2) Tying/bundling products together 3) Predatory pricing 3. Effect on Trade/Consumer Welfare

Refusal to Supply (facilities, licensing IP rights, etc.) - Dominant firm excludes competitor from certain technology, manufacturers/distributors, physical facilities, etc. It blocks competitors from getting something in downstream market. - Art. 6 applies when: 1) refusal of access likely to prevent competition in the relevant market, 2) access is necessary for victim’s business, and 3) there’s no objective justification for the refusal of access - Competition concerns must be balanced with IP rights (or else there’s less incentive for creation, innovation & bringing new products/technology to market) - E.g. Blocking harbor access to a competing ferry line; Not allowing copyrighted TV programs to appear in a competing TV guide; Not allowing competing company to make a new cancer-fighting drug

Tying/bundling products together (is not “per se” illegal) - Dominant firm makes purchase of desired good conditional on buying a second, undesired good. Firm uses dominant position in one market to gain leverage in another market. - Constitutes “abuse” under Art. 6 when: 1) There is strong market power in tying market (customers don’t have much choice), 2) Tying/tied products are distinct markets, 3) Tying practice has anti-competitive effect on market(s), and 4) Anti-competitive effects outweigh alleged efficiencies/gains - E.g. Microsoft tied Windows OS (desired product) to Media Player & Internet Exp. (undesired products). Very hard for competitors to get alternative media players & browsers to consumers. Predatory pricing - Dominant firm lowers it price so much that it suffers losses, and also forces competitors out of the market. - Predatory if: 1) price is below cost, 2) short-term profits are sacrificed, and 3) likely to lead to exclusion of competitors

Article 7 – Merger Control 1. Concentration (key factor) – Defined by the #, size, and distribution of competitors in the relevant market. * How will the new entity (resulting from merger) affect market concentration and competition? 2. Mechanics/Process of Merger a. Transfer of Control – One firm typically buys out shares of another (the target). Control of the target is transferred. b. Horizontal – Results in direct loss of competitor rivalry c. Vertical – Between firms at different levels of supply chain d. Conglomerate – Merger of firms in unrelated markets

a. Art. 7 of TCA (Dominant position? Competition impeded?) 3. Relevant Laws: a. Art. 7 of TCA (Dominant position? Competition impeded?) 1) Governs mergers and acquisition generally; Authorizes TCA to issue communiqués and approve certain mergers b. TCA’s Communiqué 2010/4 1) Prior approval/notification – Required for firms with certain level of sales/turnover (e.g. combined Turkish turnover exceeds 100 mil TL, or worldwide exceeds 500 mil TL) 2) Two phases of process: Phase I (preliminary review) takes about 30 days; Phase II (approval or further investigation) takes about 6 months 3) Penalty for failure to notify – Fined 0.1% of prior year’s turnover; Merger will also be legally invalid. If merger also violates Art. 7, firms may also be fined up to 10% of prior year’s turnover. 4) TCA – Must notify the parties about its concerns, and show them why concentration would significantly impede competi- tion. Parties have chance to remedy the TCA’s concerns.