Hergüner Competition Monthly - June 2023

New Requirement for the Turkish Competition Authority to Obtain a Decision from the Judge to Conduct On-Site Inspections

Upon the individual application made by Ford Otomotiv Sanayi Anonim Şirketi ("Applicant"), the Constitutional Court ruled in its decision, published in the Official Gazette dated 20.06.2023, that the Turkish Competition Authority’s (“TCA”) on-site inspections taking place at an undertaking’s workplace without a judge's decision violates the right to immunity of domicile. Although the main focus of the decision is on the relationship between the immunity of domicile and the exercise of an extensive on-site investigation power granted to the TCA pursuant to Article 15 of Law No. 4054 on the Protection of Competition ("Competition Law"), significant analyses on this topic have been made as one of the many issues addressed in the Applicant's case.

As per Article 15 of the Competition Law, the TCA has not needed a judge's decision to exercise its authority to conduct on-site inspections at an undertaking's workplace. The Constitutional Court's decision raised many questions regarding the functioning of an on-site inspection, which is the most important tool in the determination of competition law violations, both with respect to the future inspections and former on-site inspections conducted prior to the decision. Before moving on to these questions, we briefly summarized the highlights of the decision as follows:

The Applicant’s Allegations

In its application to the Constitutional Court, the Applicant alleged that several rights were violated, namely:

• The right to immunity of domicile, as the inspection carried out by the TCA at his workplace was in violation of the Constitution,
• Property rights, due to imposition of administrative fines for competition infringement,
• Non-discrimination, on the grounds that, unlike other undertakings, export turnover was taken into account in determining the amount of the fine,
• The principle of not being retried and punished, on the grounds that the same act was investigated twice since an investigation was opened as a result of the second preliminary investigation that was initiated once it was decided not to initiate an investigation as a result of the previously executed preliminary investigation,
• The right to be tried within a reasonable time due to the long duration of the proceedings,
• The right of access to the court, due to the law enacted during the trial.

The Constitutional Court accepted the allegations of violation of immunity of domicile and the right to a trial within a reasonable time, and rejected the remaining allegations of violation.

The Constitutional Court’s Assessment

When assessing the allegations regarding the violation of the right to immunity of domicile, the Constitutional Court concluded that:

• The concept of "domicile" within the scope of the right to immunity of domicile protected by the Constitution includes workplaces,
• The headquarters, branches, and other workplaces where companies conduct their activities are considered within the scope of domicile, but the public areas of workplaces that do not have private components are not included in this concept,
• Considering that the on-site inspection was conducted in areas that are not freely accessible to everyone, such as workrooms and the parts of the undertaking where the administrative affairs of the undertaking are conducted, such areas are considered as domiciles,
• Considering that documents were obtained from the computers of company officials within the scope of the on-site inspection, the on-site inspection conducted by the TCA experts at the workplace constitutes an interference with the right to immunity of domicile protected under the Constitution.

In its assessment of whether the interference that arises as a result of the application of the Competition Law constitutes a violation of the immunity of the domicile in breach of the Constitution, the Constitutional Court concluded that:

• In principle, a judge's decision is not required to exercise the power of an on-site inspection under the Competition Law,
• In cases where the on-site inspection is prevented or likely to be prevented exceptionally, a judge’s decision may be obtained,
• Article 21 of the Constitution guarantees the right to the immunity of domicile by stating that no one's domicile may be entered, searched, or seized without a duly issued judge's decision (or in cases of urgency, judge’s decision to be taken within a maximum of 48 hours following entry),
• The power of on-site inspections regulated in Article 15 of the Competition Law does not constitute an exception to the right to immunity of domicile stipulated in Article 21 of the Constitution and is subject to the conditions stipulated in the Constitution regarding the manner in which the right may be restricted,
• This right applies to all cases where public officials attempt to enter the domiciles of individuals without their consent.

Thus, the Constitutional Court concluded that the on-site inspection conducted by the experts of the TCA without a judge's decision violates the right to immunity of domicile.

The Constitutional Court not only pointed out the violation of the Applicant's rights but also established the fact that Article 15 of the Competition Law is contrary to the Constitution.

The Constitutional Court also made important assessments on the allegations of violation of the right to a trial within a reasonable time. In this context, it was first stated that the administrative fine sanction is in the nature of criminal allegations, and hence, the right to a fair trial is applicable. This assessment is considered an important determination for the discussion of the principles of criminal law in terms of the allegations of violation under the Competition Law, the investigation process, and the administrative fines imposed. In this respect, the Constitutional Court considered that there was a period of 9 years, 10 months, and 26 days between the date when the second preliminary investigation was initiated against the Applicant and the date when the administrative decision was finalized and that such period is beyond the reasonable time limits. Thus, the Constitutional Court decided that the Applicant's right to a fair trial was also violated.

The Constitutional Court only accepted the allegations of violation of the immunity of domicile and the right to a fair trial (within the scope of the right to be tried within a reasonable time). Yet, other possible violations of constitutional rights, which were not evaluated by the Constitutional Court as they were not raised by the Applicant, but which may be raised in other applications initiated after this decision may also come to the agenda. For instance, other issues that include whether the examination of the personal telephones of the employees of the undertakings, which are also used for business correspondence, by the TCA’s experts without a judge's decision and the TCA's Guidelines that allow for such inspection violate the right to privacy protected by Article 20 of the Constitution, or even whether such inspection restricts the freedom of communication in violation of the Constitution under Article 22. In such a case, the TCA’s authority to conduct on-site inspections would be categorically unconstitutional within the framework of the rights protected by Articles 20, 21, and 22 of the Constitution. Identifying this structural problem, the Constitutional Court, in its decision, ruled that the Turkey Grand National Assembly ("TGNA") should be notified to take the necessary steps to resolve the problem. It remains to be seen how the implementation will take shape until the TGNA takes the necessary steps to amend the law.

Reflection of the Decision

The Constitutional Court's decision has made tremendous impact in the Turkish legal doctrine and in practice. Many questions and solutions await clarification from academics and practitioners in the fields of competition law, criminal law, and constitutional law, as well as for undertakings. The main issues raised in the discussions, and that likely to continue to be discussed in practice until they are resolved legislatively, can be summarized as follows:

• Will the Constitutional Court's decision be binding only for the Applicant, as it is not an annulment case but an individual application, or will it have an objective effect and prevent the TCA from conducting on-site inspections without a judge's decision (erga omnes)?
• Will the submission of an authorization certificate be deemed sufficient for on-site inspections to be conducted by the TCA after the decision? If a judge's decision is sought, what will be taken into account in the decision, what will be the scope of the decision, and will the judge be able to decide on the limits of the on-site inspection?
• Did the on-site inspections conducted without a judge's order prior to the decision become unlawful? Is there a legal remedy for undertakings whose fundamental rights protected by the Constitution have been violated?
• Will decisions based on the findings of on-site inspections conducted without a judge's order be deemed to be based on unlawful evidence? Especially in ongoing investigations where no administrative decision has yet been taken, what will be the outcome of the stages of the investigation that have been initiated through evidence collected during unconstitutional on-site inspections? Will the Turkish Competition Board (“Board”) be able to make a decision based on such evidence?
• If the undertakings do not allow on-site inspections without a judge's decision, can the Board impose a fine for the prevention of on-site inspections?
• Would it be possible to request the Court to make a preliminary issue for the concrete review of norms for undertakings that face the fine of the prevention of on-site inspection and for which the annulment proceedings are pending?
• How will the practice take shape in the absence of a legislative amendment by the TGNA?

These and dozens of other questions remain to be answered. As the debate on all these questions continues, we have reviewed and summarized the practices in different jurisdictions around the world to provide guidance:

Is the Judge's Decision a New Topic in terms of Competition Authorities' On-Site Inspection Powers?

Other jurisdictions have different approaches to the competence of competition authorities to conduct on-site inspections.

Jurisdictions Differentiating between Domicile and Workplace

• Article 21 of the Modernization Regulation[1] 1/2003 of 16 December 2002 ("Regulation") adopted by the European Commission makes a binary distinction according to the place of the on-site inspection. While a court order is not required in cases where the on-site inspection is conducted at the premises, a judge's decision is required in cases where the on-site inspection is conducted at the domicile or vehicles of persons such as managers, directors, etc.
• For the UK[2] Competition and Markets Authority (“CMA”) and the Netherlands[3] Authority for Consumers and Markets (“ACM”), the authority to conduct on-site inspections is regulated in parallel with the Regulation.

Jurisdictions Seeking A Judge’s Decision

• The German[4] Competition Authority (“Bundeskartellamt”), the Australian[5] Competition and Consumer Commission, the Austrian[6] Federal Competition Authority, and the French[7] Competition Authority require a judge's decision to conduct on-site inspections.

Other

The Fair Trade Commission of Japan[8], on the other hand, requires a judge's decision to conduct on-site inspections within the scope of a compulsory investigation but does not require a judge's decision when conducting on-site inspections within the scope of an administrative investigation.

The Administrative Court's Decision on Reos Bilişim's Request for Annulment

Reos Bilişim Teknolojileri Anonim Şirketi (“Reos Bilişim”) filed a complaint against Sahibinden.com for abuse of its dominant position by not allowing the integration of the software enabling real estate agents to access and display their advertisements on multiple real estate websites at once (collective-multiple listing service). Upon the rejection of the complaint by the Board, Reos Bilişim has requested from the Ankara 13th Administrative Court (“Court”) to annul the related administrative action. The Court has rendered its decision regarding the annulment request.

Background of the Decision

Reos Bilişim developed a software that enables real estate agents to enter and display their listings on more than one real estate website at a time (collective-multiple listing service) and requested permission from Sahibinden.com to integrate this software into its platform, but this request was rejected by Sahibinden.com. Reos Bilişim then filed a complaint to the TCA on the grounds that Sahibinden.com abused its dominant position in the market. The TCA, as a result of its evaluation, decided that there was no need to initiate an investigation regarding these allegations. Subsequently, Reos Bilişim filed an annulment case before the administrative court against this decision.

Court’s Decision

Reos Bilişim claimed that Sahibinden.com abused its dominant position in the market, primarily:

• by engaging in exclusionary-discriminatory behavior due to the fact that Sahibinden.com did not grant Reos Bilişim the integration permission requested by Reos Bilişim for the software offered to the market, although it granted it to other applications, and
• by practicing predatory-binding price due to the fact that Sahibinden.com made a software that functions similar to Reos Bilişim's software available to its customers free of charge when it was previously offering it to its customers in return for a fee.

The Court ruled that Reos Bilişim's claims were not deemed relevant and the case was dismissed on the grounds of following assessments:

• Sahibinden.com's refusal to allow Reos Bilişim to integrate into the platform is justified under Article 4 of the Guidelines on Exclusionary Behavior of Undertakings in a Dominant Position. That is to say, when this permission is granted, Sahibinden.com customers will be required to enter their listings through the Reos Bilişim software to place listings, and during these listings entries, Sahibinden.com will become unable to offer additional revenue-generating services that it can offer to its customers through its own platform. In this case, it will mean the transfer of Sahibinden.com's core activity of creating real estate listings to Reos Bilişim. Therefore, Sahibinden.com's refusal to grant this permission is justified by the risk of the transfer of its core activity.
• The software subject to the claim that providing integration to other software on Sahibinden.com constitutes discrimination are related to services that are not offered on Sahibinden.com. Therefore, while integrations are provided to the other software in question, non-provision of the same to Reos Bilişim will not constitute discrimination .
• With respect to the allegation that the “Emlak Ofisim” application offered by Sahibinden.com to its customers, which is similar to Reos Bilişim’s software, was provided free of charge while it was previously available in return for a fee, constitutes “predatory pricing” and “tying” behavior, and the said  application remained free of charge from the first date it was offered by Sahibinden.com to its customers. Therefore, it is not possible to rely on the allegations that it constitutes “predatory pricing” and “tying”.

The TCA Organized External Stakeholder Workshop for 2024-2028 Strategic Plan Preparations

The TCA began preparing the 2024-2028 Strategic Plan. As part of the preparation process, a workshop for external stakeholders was conducted with the participation of representatives of undertakings, institutions, and organizations in the relevant sectors, lawyers, economists, competition law practitioners and practitioners, and academicians.

Attendees expressed their opinions on issues such as institutional relations and competition violations in the market, international competition authorities and competition practices, as well as general evaluations on the TCA and expectations from the TCA.

TÜSİAD’s[9] Report on the Role of Competition Law in Improving the Investment Environment has been Published

The TÜSİAD Competition Law Working Group, which carries out activities to closely follow the legislation in the field of competition law and to make recommendations for the effective implementation of competition legislation in Turkey, launched the "Possible Role of Competition Law in Improving the Investment Environment Project" in 2022. This project aimed to identify existing practices in competition law that are open to improvement and to reveal the possible positive effects of revising them in a way that increases competitive behavior in the investment climate. As a result of this project, the report, The Role of Competition Law in Improving the Investment Environment, was published on June 21, 2023.

Suggestions for solutions to the findings and problems that have the potential to affect the investment environment and investor decisions are included in the report.

Some of the findings of the report are as follows:

• Prohibitions regulated under the Competition Law and secondary regulations, which are of great importance in the explanation of the Competition Law, are prepared without the participation of stakeholders,
• The Board's decisions are not consistent and do not provide sufficient guidance with respect to the prohibitive provisions of Competition Law (especially in the recent period, the lack of consistent interpretation and application that provides predictability on issues such as resale price maintenance, information exchange, and excessive pricing),
• The Board lowered the standards of proof,
• Significant costs arise for undertakings due to the increase in the number and expansion of the scope of information requests addressed to undertakings within the scope of the Board's authority to request information,
• Undertakings are subject to administrative fines without any fault analysis should they fail to fulfill the request for information,
• Sufficient predictability cannot be ensured in terms of the principles of use of the on-site inspection authority considering the TCA’s frequent use of its on-site inspection authority and  the recent increase in violations in the form of obstruction of on-site inspections,
• Although the TCA’s attitude towards the protection of undertakings' trade secrets is positive, the measure of this protection makes it difficult to obtain information about the enforcement of competition law and reduces transparency,
• The complainant is not accepted as a party to the TCA’s review process although it may contribute to the evaluation process by providing information,
• Prolonged and uncertain processes due to the lack of a deadline for exemption applications,
• Although there is a deadline for making a decision on notified mergers and acquisitions, in practice, these deadlines are extended by requests for information,
• Failure to take into account the competition law compliance programs of the undertakings at the decision-making stage of the sanction to be imposed, rendering the diligence efforts of the undertakings fruitless,
• Taking undertaking's turnover as a basis to the sanction to be imposed under the Regulation on Fines, leading to unfair and disproportionate fines.

The main recommendations for these findings are as follows:

• The involvement of stakeholders and the public in the preparation of legislation and secondary regulations,
• Stipulating a validity period for secondary legislation,
• In respect of undertakings implementing a compliance program, to take their initiative into account in the assessment of the penalty to be imposed,
• Excluding personal devices belonging to employees during on-site examinations by taking into account the problems that may arise in terms of the personal data of employees, and if necessary, examining them after obtaining a judicial decision,
• Taking market turnover as a basis instead of undertaking turnover in order to make sanctions more fair and equitable,
• Adhering to the principle of proportionality in information requests and directing information requests to undertakings only when necessary and well justified,
• Making a distinction according to the position of the undertaking in the sanctions to be imposed on requests for information and making different evaluations depending on whether (i) the undertaking is not the perpetrator of the violation, (ii) the undertaking responds incompletely to the request in a short time, or (iii) the undertaking responds late, Contributing to the development of competition law and the investment environment by establishing an optimal balance between trade secrets and public interest and ensuring transparency to eliminate the difficulty of access to information caused by the reflex to protect trade secrets.

For more detailed information on the issue, you may access the full text of the report here.

[1] Council Regulation (EC) No 1/2003 of 16 December 2002

[2] The Competition Act dated 1998

[3] 22 May 1997 dated the Dutch Competition Act

[4] Competition Act dated 26 June 2013

[5] Competition and Consumer Act 2010 dated 23 August 1974

[6] Austrian Competition Act dated 2002

[7] French Commercial Code

[8] Act on Prohibition of Private Monopolization and Maintenance of Fair Trade dated 14 April 1947

[9] TÜSİAD is a public benefit association founded in 1971 by industrialists and business people representing the private sector in accordance with the relevant provisions of the Constitution and the Law on Associations and is a voluntary non-governmental organization.

Tagged with: Hergüner Bilgen Üçer Attorney Partnership, Kayra Üçer, Hazar Başar, Neşe Nur Yazgan, Nihan Ünal, Competition