Article By Erdem Aktekin and Seda Eliri

Introduction

Pursuant to the Competition Board’s (“Board”) decision dated 15.12.2022 and numbered 22-55/850-M, an investigation was initiated to determine whether Nestle Türkiye Gıda Sanayi AŞ (“Nestle”) infringed Article 4 of the Law No. 4054 on the Protection of Competition (“Competition Law”) by (i) setting the resale price of its distributors and (ii) imposing regional and customer restrictions on them.

During the investigation process, Nestle requested the initiation of commitment discussions for both allegations. This request of Nestle was rejected by the Board’s decision dated 28.04.2023 and numbered 23-19/357-M. Then, within the framework of Article 11 of the Administrative Procedure Law No. 2577 (“IYUK”), Nestle requested that the Board reassess and revoke the decision to reject the request to submit a commitment, thereby enabling the commencement of commitment discussions.

In the Re-assessment Decision, the Board rejected the requests by majority of vote with a dissenting opinion. The dissenting opinion argues that a distinction should be made between the different findings in the case file regarding the initiation of commitment negotiations, allowing for a commitment path for certain alleged conducts.

This article analyses the Board’s decision on whether to initiate commitment procedure in this case.

The Board’s Stance on Evaluating the Commencement of the Commitment Procedure

First of all, in the Re-assessment Decision, it was reiterated that the findings of the investigation gave rise to a suspicion that Nestle infringed the Article 4 of Competition Law by setting the resale price of distributors operating in the downstream market and restricting both active and passive sales by its distributors to a specific region and customer group.

Then, the Board refers to the Communiqué No. 2021/2 on Communiqué on The Commitments to Be Offered in Preliminary Inquiries and Investigations Concerning Agreements, Concerted Practices and Decisions Restricting Competition, and Abuse of Dominant Position (“Communiqué No. 2021/2”), and states that for naked and hard-core infringements, the commitment process cannot be initiated. In accordance, the Board mentions that in vertical relationships; agreements and/or concerted practices regarding the resale price maintenance are considered as naked and hardcore infringements which is one of the allegations against Nestle.

While the practices of resale price maintenance falls within the category of “naked and hard-core infringements”, Nestle’s practices regarding region and customer restrictions, were not characterized as “naked and hard-core infringements” in Communiqué No. 2021/2. Moreover, the Board has previously accepted requests to submit commitments for the types of infringements subject to the Nestle investigation. For example, regarding the prevention of passive sales infringements, which is considered as one of the infringements committed by Nestle in the Nestle Decision taken by the Board as a result of this investigation, the Board had accepted the request to submit a commitment in the SDF decision. Regarding the region and customer restrictions, which is also one of Nestle’s infringements, the Board, in its UNTAD decision, accepted UNTAD’s request to submit a commitment on the practices of restricting the regions where its buyers will sell and imposing non-competition obligations on its buyers.

However, the Board, in Nestle investigation, without differentiating between the two alleged Nestle’s infringements, rejects Nestle’s request to submit a commitment and states that:[1]

“It has been concluded that the implementation of the commitment mechanism regarding only some of the competition concerns in the case file will not provide the expected procedural benefit, and considering the position of NESTLE in the market, this issue will restrict the competitive benefits expected from the commitment procedure. For this reason, it has been assessed that the commitment that may be submitted in order to eliminate the concerns related to the allegations subject to the investigation within the scope of the file will not provide the expected benefit from the commitment procedure.”

In this framework, the Board concluded by majority of votes (4-3) that there is no ground for the Board’s decision regarding the rejection of Nestle’s request to submit a commitment to be revoked, withdrawn, amended or a new action to be taken within the scope of Article 11 of the İYUK.

As can be seen, the Board refers to two factors while rejecting Nestle’s request to submit a commitment: (i) presence of infringements in the file for which the commitment mechanism cannot be operated and (ii) Nestle’s market power.

Regarding the first reasoning, in other words, the presence of infringements in the file that cannot be subject to the commitment mechanism, it should be underlined that there are previous decisions of the Board to the contrary. For instance;

• Within the scope of the investigation initiated to determine whether Farmasi Enternasyonal Ticaret AŞ (“Farmasi”) violated Article 4 of the Competition Law by resale price maintenance and restricting internet sales, despite the fact that the commitment mechanism cannot be utilised in relation to the violation of resale price maintenance, the Board accepted Farmasi’s request to submit a commitment regarding the internet sales ban and the provisions that are likely to restrict the regions and customers to be sold by resellers.
• Within the scope of the investigation initiated to determine whether Biota Bitkisel İlaç ve Kozmetik Laboratuarları AŞ (“Biota”) violated Article 4 of the Competition Law by resale price maintenance and restricting online sales, despite the fact that the commitment mechanism cannot be utilised in relation to the resale price maintenance infringement, the Board accepted Biota’s request to submit a commitment regarding the online sales restrictions to resellers.
• Within the scope of the investigation initiated to determine whether Avon Kozmetik Ürünleri Sanayi ve Ticaret AŞ (“Avon”) violated Article 4 of the Competition Law by resale price maintenance and restricting internet sales, despite the fact that the commitment mechanism cannot be operated in relation to the resale price maintenance infringement, the Board accepted Avon’s request to submit a commitment regarding Avon’s practices that require resellers to obtain approval from Avon in order to sell over the internet.

• In addition to the above examples, there are several of similar decisions[2] of the Board where it accepted commitment request the presence of infringements in the file that cannot be subject to the commitment mechanism. Therefore, it is thought that the reason for divergence from the Board’s case law in the Nestle investigation is Nestle’s market power. As a matter of fact, the Board found that Nestle is the leader in the instant coffee, speciality coffee, cold coffee, breakfast cereal, chocolate powdered beverage and coffee creamer categories, and among the top three players in the tablet chocolate, baby food and pet food categories in terms of turnover in 2022.[3] In addition, the Board stated that according to the data of an independent research company, Nestle is the leader in some of the infringing product categories, with a share of more than 50% and a share more than five times that of its closest competitor.[4] Therefore, in cases where there is a high market power, it is observed that the Board does not consider the commitment mechanism sufficient for the establishment of competition.

  The Dissenting Opinion

  The dissenting votes stipulate that while the acts of the supplier to determine the resale prices of its distributors are considered as naked and hard-core infringements, the acts of the supplier to restrict the active and/or passive sales of its distributors to a certain region and customer group are not within this character. Therefore, they disagreed with the majority decision of the Board on the grounds that the commitment procedure may be invoked independently of other claims in respect of regional and customer restriction allegations that do not constitute a naked and hard-core infringement.

  It appears that the dissenting votes do not share the majority votes’ reservations about Nestle’s market power and consider that the commitment mechanism should apply directly to all undertakings. This is because the dissenting votes, instead of addressing the place of Nestle’s market power in the establishment of competition, directly mention that imposing regional and customer restrictions would not constitute a naked and hard-core infringement and that the request to submit commitments should be accepted.

  Conclusion

  The Re-assessment Decision stands out among the Board’s decisions on the commitment mechanism in terms of emphasising the importance of discretionary power of the Board by showing that the Board may decide not to initiate the commitment mechanism in cases that are not considered naked and hard-core infringements.The Board, while explaining why the commitment mechanism was not utilised for the infringement that is not considered as a naked and hardcore infringement, refers to the fact that the expected benefit would not be obtained by utilising the commitment mechanism for only a portion of the competition concerns within the scope of the file. Considering that the Board has separated the infringements in its previous decisions and utilised the commitment mechanism for some of them, it is noteworthy that a different path was followed in the Nestle’s Re-assessment Decision. Considering that the main reason for this differentiation is Nestle’s market power, the market power of the undertaking submitting the request to offer a commitment is an element that the Board will take into account when exercising its discretionary power to accept commitment requests.