Introduction
Turnover
Determining base fine
Aggravating and mitigating factors
Other considerations
Comment
In one of the most significant developments in the Turkish competition law regime in recent months,(1) the Competition Authority has released its Draft Regulation on Administrative Monetary Fines for Infringement of the Law on the Protection of Competition for public consultation.(2) The draft regulation is set to replace the existing Regulation on Monetary Fines for Restrictive Agreements, Concerted Practices, Decisions and Abuse of Dominance.
Like the existing regulation, the draft regulation provides for a two-stage fine calculation procedure. Once the Competition Board has established an infringement, it must first determine the base level of the fine. The base level can then be increased or decreased by reference to mitigating or aggravating factors.
One of the most significant changes introduced by the draft regulation is the delimitation of the definition of 'turnover'. Unlike the existing regulation, according to which the base fine is determined on the basis of the total turnover, the draft regulation provides that "the turnover generated in the relevant market which is directly or indirectly related to the respective competition law infringement" should be taken into consideration.
Furthermore, when calculating turnover, the draft regulation refers to the calculation method set out in the Communiqué on Mergers and Acquisitions Requiring the Approval of the Competition Board (2010/4). This would result in the explicit recognition of the parental liability principle, since when calculating the turnover, the communiqué takes into account the Turkish turnover of both the investigated legal entity and the entire group of which the investigated legal entity is part.
Under the draft regulation, when calculating the base fine, the impact and duration of the infringement will be taken into account. As a general rule, the base fine is determined as up to 30% of the turnover generated in the relevant market, multiplied by the number of years for which the infringement continued. In deciding whether the base fine should be set at the lower or higher end of this 30% scale, the Competition Board will take into account factors such as:
- the concerned undertaking's market power;
- the nature of the infringement; and
- the actual or potential damages caused by the infringement.
Serious competition law violations will be fined at the higher end of the scale. Unlike the existing regulation, the draft regulation provides examples of such serious violations (eg, price fixing, market and customer allocation, bid rigging in relation to tenders, supply restrictions and fixing the sale or purchase conditions of goods). When analysing the weight to be given to the actual or potential damages caused by the infringement, the board is expected to take account of:
- the geographical scope of the violation;
- the combined market share of the undertakings involved; and
- whether the infringement has been implemented.
The draft regulation also distinguishes between the conduct of associations of undertakings. It states that where the activities of the members of an association of undertakings resulted in a competition law violation, as a general rule, the turnover of the association will correspond to the total turnover of its members.
Aggravating and mitigating factors
The second stage for calculating the fine is the consideration of aggravating and mitigating factors. Unlike the existing regulation, which sets forth only two cases of aggravation under which the Competition Board is obliged to increase the base fines, the draft regulation includes three such aggravating factors:
- being the leader or the initiator of the infringement;
- coercion; or
- non-compliance with commitments previously made to the board or recidivism.
Evidence of these factors will increase the base fine by half or onefold.
The existing regulation provides the board with discretionary powers in the application of mitigating factors. The draft regulation, on the other hand, obliges the board to reduce the fine whenever mitigating factors exist. Such factors include:
- evidence demonstrating the partial or full compensation of damages;
- proof that the infringement resulted from encouragement or coercion by public authorities; or
- proof that the undertaking's participation in the violation was limited.
Cooperation with the board beyond the actions required by the law is also listed as a mitigating factor.
The draft regulation's new approach aims to ensure deterrence. Therefore, in addition to the above factors, the board will be granted the discretion to increase fines where:
- the fined undertakings earn a considerable fraction of their turnover in activities other than those relating to the infringement;
- the turnovers of the fined undertakings in markets relating to the infringement do not reflect their (high) level of participation in the infringement; and
- the relevant undertakings' financial gain from the infringement is higher than the calculated fine.
Although the deterrent aspect of administrative fines is emphasised in the preamble, no explicit provision is included in the existing regulation.
Article 10 of the draft regulation stipulates the potential financial difficulties that an undertaking may face. Where the administrative monetary fine would compromise the ability of the respective undertaking to maintain its economic activities, the Competition Board may reduce the fine on request. Any reduction will be conditioned on objective evidence that the fine compromises the economic activities of the undertaking.
The upper limit of administrative monetary fines is 10% of the overall turnover determined by the Competition Board and generated by the undertaking in the financial year preceding the decision. If the overall fine calculated by the board exceeds this limit, the board will reduce the fine to 10%, a limitation which also exists under the existing regulation.
Unlike the existing regulation, the draft regulation also applies, where appropriate, to concentrations prohibited by the Law on the Protection of Competition. Accordingly, fines for unlawful concentrations will be calculated in view of the above-mentioned principles.
The content of the draft regulation seems to be heavily inspired by the European Commission's guidelines on the methods for setting fines imposed under Article 23(2)(a) of EU Regulation 1/2003.(3) Turkey has been an official candidate for EU accession since the Helsinki summit in December 1999 and negotiations have been ongoing ever since; competition law is one of the most of important elements of the harmonisation process. The introduction of the draft regulation clearly demonstrates the Competition Authority's intent to bring its secondary legislation into line with EU competition law principles.
For further information on this topic please contact Gönenç? Gürkaynak at ELIG by telephone (+90 212 327 17 24), fax (+90 212 327 17 25) or email ([email protected]). The ELIG website can be accessed at www.eliglegal.com.
Endnotes
(1) On January 23 2014 Parliament announced that the draft law amending the Law on the Protection of Competition (4054) has been submitted to the presidency of Parliament and that Parliament is expected to discuss it in February 2014. The draft law is designed to be more compatible with practices of substantial and procedural matters of competition law. It also aims to further comply with the EU competition law on which it is closely modelled.
(2) Available at www.rekabet.gov.tr/File/?path=ROOT%2fDocuments%2fG%C3%BCncel%2fk%C4%B1lavuzlar%2fcezaaa.pdf (in Turkish).
