EssilorLuxottica's Never Ending Antitrust Saga: Is it the end or an encore?

On 28 August 2023, the Turkish Competition Board (“Board”) announced that it had concluded its investigation into EssilorLuxottica S.A.’s (“EssiLux”) alleged anti-competitive practices. [1] The investigation stemmed out of the commitments offered and accepted during the 2018 merger of Essilor and Luxottica which that formed EssiLux. [2] The decision is particularly interesting as the Board found EssiLux infringed the law on two accounts; (i) violation of commitments; (ii) abuse of dominant position.

Although, the Board indicated in its short-form decision that EssiLux violated the Law No 4054 On the Protection of Competition (“Turkish Competition Law”) on two account, the Board only opted to impose a daily fine of 0.05% of Essilux’s turnover starting from 2018, on the grounds that EssiLux acted against its commitments made binding on it with its decision dated 1 October 2018. The Board refrained from issuing a fine for abuse of its dominant position with reference to the ne bis in idem principle. The fine amounts to approximately EUR 16.9 million and correspond to a whopping 1,781 days (more than 4 years) of daily monetary fine. [3]

One can ask whether it is all over for EssiLux or whether the Board can re-examine the merger, as there appears to be a discrepancy between Communiqué No. 2010/4 on Mergers and Acquisitions Requiring the Approval of the Competition Board (“Communiqué No. 2010/4”) and the Turkish Competition Authority’s Guidelines on Remedies Acceptable by the Competition Board in Merger and Acquisition Transactions (“Guidelines on Remedies”). On the reexamination of a transaction, the former sets a rule for breaches of conditions and obligations together, while the latter does not make a reference to the decision being null and void or a revocation in case of a breach of an obligation. Therefore, the interpretation of the relevant legislation will be essential.

Below we discuss the possibility of a new examination of the merger of Essilor and Luxottica.

Is the threat of re-opening of 2018 Merger case real, or is EssiLux safe?

According to Article 16 of Communiqué No. 2010/4, the Authority shall re-examine a merger or acquisition if “the conditions or obligations tied to the decision were not fulfilled.”

As can be seen, Article 16 makes no distinction between conditions and obligations. Furthermore, it does not award any discretion to the Board to initiate a new examination on the concentration. According to it, the Board is simply obligated to initiate a fresh examination if any of the conditions or obligations of its approval decision are not fulfilled. That said, the Guidelines on Remedies seems to narrow the scope of Article 16 of Communiqué No. 2010/4. Indeed, Paragraph 92 of the Guidelines on Remedies may warrant a reading that the consequences of non-compliance with an obligation and condition are different. On this front, it states that non-compliance with a condition will automatically render the transaction null and void; “on the other hand”, in case of non-compliance with obligations, the parties may be subject to daily administrative fines.

The Guidelines on Remedies makes its example on divestiture when explaining the difference between conditions and obligations. An obligation towards divestiture will be considered as a condition, and submitting the necessary reports towards this condition will be considered as an obligation.

Based on the above definition, this distinction can be interpreted in two ways. In the first scenario, the Board will solely declare a transaction incompatible and re-examine it, only where conditions are not fulfilled. If this is the case, the distinction seems to be on whether the commitment is directly related to alleviating competition concerns. Reporting obligations as such will then be perceived to be ancillary and not directly related to alleviating competition concerns arising from structural changes in the market post-transaction. Considering that the Guidelines on Remedies also makes a reference to Article 16 of Turkish Competition Law, which enables the Board to impose a fine for significantly lessening effective competition, it may further strengthen this argument. After all, it is reasonable for a transaction that significantly lessens effective competition to be null and void.

However, this can also be interpreted as a breach of obligations not warranting an immediate re-examination and automatic nullity of the transaction but, it may nonetheless trigger a re-examination if the Board finds it necessary. In this regard, the conjunction “on the other hand” simply refers to an alternative more lenient approach than breach of conditions: a daily fine may suffice.

What does EU legislation say on this?

Considering that the EU Guidelines serves as a reference for Turkish legislation, we think that it would be beneficial to compare the approach of the European Commission (“Commission”) with the Board’s. According to Paragraph 19 of Commission Notice on the Remedies Acceptable (“EU Guidelines”), the Commission also makes a distinction between an obligation and a condition. According to the Commission, the requirement of achieving a structural change to the market is a condition. The example given is a divestiture. On the other hand, the implementing steps to achieve the necessary measures, such as the appointment of a trustee, is provided as an example of an obligation.

Regarding the consequences, Paragraph 19 of the EU Guidelines states that a breach of an obligation may result in the Commission revoking the clearance decision. The parties may also be subject to fines of up to 10% of the aggregate turnover of the undertaking concerned and periodic penalty payments. Where, however, a condition is breached, the decision will be null and void and the Commission is entitled to re-examine the transaction. The parties may also be subject to fines for breach of a condition but not a periodic penalty payment. Thus, the Commission holds a margin of discretion when re-examining transactions based on obligations, but for conditions, the transaction will be voided.

In light of the above, the conclusion we arrive is that the Board can adopt the same approach as the Commission. The Guidelines on Remedies, after all, does not expressly declare that re-examination of a transaction will not be possible for breach of obligations.

How can this be applied to EssiLux?

In the 2018 merger decision EssiLux committed to divest a business (Merve Optik), which was expected to alleviate horizontal competition concerns and to remedy conglomerate competition concerns, two sets of behavioural commitments were accepted: (i) no tying and (ii) no exclusivity practices.

In terms of conglomerate effects, the Board expressed its concerns that EssiLux leverages its dominance in the horizontal market to two adjacent markets. It further stated that EssiLux would acquire a significant market power and would be in a position to satisfy a significant portion of the need of opticians, and thus acquire a significant portfolio power to the detriment of its competitors. A remark is also made about a previous anti-competitive practice, where Luxottica was found to have abused its dominant position by way of de facto exclusivity practices on re-sellers. [4]

Yet, the Board classified these behavioural commitments as “obligations” and not as “conditions”. It is clear that these commitments should be considered directly related to preventing the significant lessening of effective competition. After all, exclusion of a rival from the market would amount to a significant lessening of effective competition. As opposed to the example in the Guidelines on Remedies, where an obligation is classified as an ancillary step, such as reporting on implementation, these commitments seem to be directly related to preventing the significant lessening of competition.

Conclusion

As the goal of merger control is to prevent the lessening of effective competition in the market, we think that the classification of anti-exclusivity commitments as “obligations” may not matter. As a matter of fact, the Competition Board’s decision establishes that EssiLux abused its dominant position for almost 1,781 days, by way of not implementing the behavioural commitments.

However, despite the conclusion that EssiLux’s agreements in which the ophthalmic lens and ophthalmic machine are offered together and other actions in the market create de facto exclusivity and exclude competitors, and that these actions constitute an abuse of dominance, the Board decided against imposing a fine for abuse of dominant position within the scope of the ne bis in idem principle, considering that a fine is already being imposed for breach of the commitments, which is caused by the same behaviour. This poses the question on the efficacy of the commitments defined as obligations, especially in scope of the ne bis in idem principle. If a behaviour is subject to a fine, regardless of whether such commitments were proposed, and the undertaking concerned does not face any other sanctions, it can be argued that the relevant commitments serve as mere declarations of intention, as also stated in the EU Guidelines and the European Court of Justice’s relevant decisions.

As of the writing of this article, we do not have information how the Board will handle this issue yet. The Board may consider that, irrespective of the result, a re-examination is not warranted. As this is a first in Turkish merger control, one cannot be certain to what the next move of the Board may be.

1. The Competition Board’s decision dated 17.08.2023 and numbered 23-39/749-259 (reasoned decision is not published yet). The short-form decision can be accessed via the following link, available only in Turkish: https://www.rekabet.gov.tr/Dosya/essilorluxottica-nihai.pdf

2. The Competition Board’s decision dated 01.10.2018 and numbered 18-36/585-286.

3. Based on the exchange rates of 31 August 2023. The TL amount is: TL 492,191,132.

4. The Competition Board’s decision dated 01.10.2018 and numbered 18-36/585-286, paras. 115-117 and 175.