Introduction
Article 4 of Law No. 4054 on the Protection of Competition (“Law No. 4054”) prohibits fixing the purchase or sale price of goods or services, including elements such as cost and profit as well as any condition of purchase or sale. Article 4.1(a) of the Block Exemption Communiqué on Vertical Agreements No. 2022/2 further prohibits restricting a buyer’s freedom to set their prices, making it illegal to set fixed or minimum sales prices. This “hard-core violation” is known as resale price maintenance (“RPM”).
RPM practices, whether direct or indirect, are frequently addressed in decisions by competition authorities, often through price monitoring mechanisms. It is crucial to assess these mechanisms on a case-by-case basis, as not all lead to violations. Legitimate commercial activities may also involve price monitoring. The Turkish Competition Board's (“Board”) decisions guide when price monitoring constitutes a violation. Key factors include the purpose of monitoring, measures for non-compliance with recommended prices, and dealers' freedom to set prices. This article aims to provide an overview of conditions under which price monitoring can constitute an RPM violation in light of the Board’s precedent.
A Recap on RPM Practices
RPM can have anticompetitive effects, such as facilitating production and distribution cartels, causing price increases at the retail level, and harming consumers. RPM conduct may occur directly (e.g., through contractual obligations) or indirectly, such as by sending non-advisory price lists and implementing price monitoring mechanisms.
Competition authorities have a wealth of case law on indirect RPM cases. However, determining what constitutes an RPM violation requires a specific evaluation. Recent decisions by competition authorities highlight debates over the standard of proof for RPM violations. One crucial criterion in these determinations is the price monitoring mechanism providers impose on buyers.
Competition Law Risks Arising from Price Monitoring Mechanisms
Price monitoring mechanisms imposed by providers on buyers are a key consideration in determining RPM violations. RPM practices are considered to be more effective when buyers' prices applied can be monitored and tracked, facilitating price fixing. For instance, reporting buyers who deviate from standard price lists indicates that suppliers monitor prices for compliance. Technological advancements have made digital price monitoring and rapid reporting of deviations possible. However, the purpose of price monitoring is very crucial, as a competition law violation does not occur in every case where a price monitoring mechanism is applied.
Paragraph 19 of the Guidelines on Vertical Agreements highlights that RPM is more effective when buyers' prices are monitored and controlled by the supplier. The competition law risks are heightened, especially when suppliers warn or sanction buyers based on monitoring, as this interferes with buyers’ freedom to set their prices.
On the other hand, in practice, price monitoring mechanisms can also serve legitimate commercial purposes, such as cost control, inventory and demand management, and customer relations management. These mechanisms do not necessarily lead to RPM violations. For instance, if a supplier monitors dealer prices to ensure that discounts for customer acquisition and loyalty are applied correctly, this may not constitute RPM.
Therefore, price monitoring mechanisms should be carefully evaluated on a case-by-case basis. For instance, if a supplier checks dealer prices through sales invoices or price control systems to verify that discounts have reached the customer without intending to control reseller prices, this practice may be legitimate and not raise vertical competition law concerns.
The main guidance in this regard comes from the approach of competition authorities towards price monitoring within the scope of vertical price fixing.
The Turkish Competition Board’s Approach to Price Monitoring Mechanisms
The Board evaluates the conditions under which price monitoring mechanisms implemented by undertakings may constitute indirect RPM violations. The Board’s decisions guide identifying circumstances that may lead to price-fixing violations.
In the Hayırlı El Kozmetik decision[i], the Board found that resellers’ sales prices were regularly monitored through Excel documents, leading to interference by the supplier, Hayırlı El. Non-compliant dealers were prevented from making online sales, resulting in a violation of Article 4 of Law No. 4054.
In the Schafer decision[ii], the Board revealed that sales prices across different e-commerce platforms were monitored, and dealers were warned to fix these prices. Agreements executed between Schafer and its dealers did not explicitly prohibit online sales, but non-compliance led to blocked sales channels. Schafer's RPM practices and passive sales ban resulted in fines.
It is observed that some of the Board’s decisions on RPM violations include the assessment of whether a price monitoring mechanism is applied or not. In the following decisions, the Board analysed the role of the price monitoring mechanism in the determination of RPM violations. In its Minikoli decision[iii], the Board highlighted that although the provider could easily monitor dealers’ prices online, no monitoring mechanism was implemented. Dealers applied resale prices below the recommended levels without feedback from the supplier, indicating no RPM violation.
In its older decisions, such as İstikbal Dealers decision[iv], and Yatsan Dealers decision[v], the Board analysed the presence or absence of price monitoring systems. In these cases, the lack of a common monitoring tool and the absence of sanctions for non-compliance suggested no RPM violation.
The Henkel decision[vi] can be listed among the landmark decisions concerning price monitoring and RPM practices. The Board found that Henkel’s data collection on resale prices and subsequent interventions constituted a direct obstruction of free price determination, violating Article 4 of Law No. 4054. However, upon Henkel’s application for the annulment of the Board’s decision, the Council of State ruled that Henkel did not conduct direct or indirect RPM, emphasizing the need for pressure and incentives to influence seller behaviour, and relying on an impact analysis[vii].
These decisions serve as an important guide for undertakings to shape their policies regarding price monitoring and to understand potential risks. The Board’s future decisions will continue to influence the analysis and implementation of price monitoring mechanisms.
Conclusion
RPM, prohibited under Article 4 of Law No. 4054, often occurs through indirect practices such as price monitoring mechanisms. While the use of price monitoring mechanisms is a common method of implementing RPM, it cannot be conclusively determined that a competition law violation occurs in every instance where such a mechanism is employed. The jurisprudence of the Board further substantiates this position. The assessment of a violation is contingent upon various factors, including the specific circumstances of the case, the intent of the undertakings in utilizing the monitoring mechanism, and the resultant effects of its implementation. These criteria are pivotal in the legal determination of whether an RPM violation has transpired. For practitioners and undertakings, it is crucial to critically evaluate the use of price monitoring mechanisms within their operations. Understanding the specific factors and criteria that the Board considers in its assessments can help mitigate legal risks. Adhering to the guidelines and precedents set forth by the Board can ensure compliance with competition law and avoid potential penalties.
[i] The Board’s decision No. 22-33/523-210, July 21, 2022.
[ii] The Board’s decision No. 22-54/834-344, December 8, 2022.
[iii] The Board’s decision No. 19-11/129-56, March 7, 2019.
[iv] The Board’s decision No. 10-78/1624-624, December 16, 2010.
[v] The Board’s decision No. 10-60/1251-469, September 23, 2010.
[vi] The Board’s decision No. 18-33/556-274, September 19, 2018.
[vii] 13th Chamber of the Council of State’s decision No. 2021/2654 E. 2021/2654 K., April 26, 2021.