Is it possible to conduct abusive practice through vexatious litigations?

I. Background

The TCA decided to initiate a preliminary investigation against the company Ankateks,1 which is active in the laundry sector, based on a complaint that essentially alleges abuse by Ankateks of its dominant position, specifically by obstructing the activities of hospitals. All in all, the TCA decided that Ankateks did not violate Law No. 4054 on Protection of Competition ("Competition Law") after reviewing the activities of Ankateks in detail through its decision dated 9 February 2023 and numbered 23-07/113-35.

II. The TCA's evaluation of the relevant markets

Relevant product market

The TCA conducted a detailed analysis regarding the definition of the relevant product market. The TCA provided information on the industrial laundry sector in general, particularly the machines being used in the sector and the industrial laundry process. After the review, the TCA decided to define the relevant product market as "industrial laundry services market".

Relevant geographic market

While the TCA acknowledged that customers may purchase from undertakings located in different parts of Türkiye under the same conditions, or may satisfy their needs through tenders in which undertakings operating anywhere in Turkey can participate, considering that in the tender specifications of some institutions in Ankara province, a business license was required and that the demand from institutions/organizations procuring industrial laundry services in Ankara is driven by the need for service providers with a presence in the regional market, the TCA concluded that consumer demand has a strong potential to limit the geographical scope of competition in the market.

In addition, the undertakings operating in the industrial laundry services market indicated that the distance to the customer is a factor that increases transportation costs. This is especially the case for large-volume, low-value products, which may prevent customers from shifting their purchases to other regions. Therefore, reasons such as the requirement of residency at the point of demand in the tender channel and the increase in transportation costs (especially the fuel) as the distance increases at the point of supply indicate that there are geographical limitations in the industrial laundry market. In parallel, the TCA noted that the fact that all of the undertakings listed by Ankateks as its competitors are located in Ankara reveals that the competitive pressure from outside the province is felt to a more limited degree compared to the competitors within the province. The TCA stated that this also strengthens its assessment that the undertakings operating in the same city are in fact closer competitors.

Based on the above, the TCA defined the relevant geographic market as Ankara for the purposes of this casefile.

II. The TCA's evaluation of abuse of dominance

In the dominant position assessment, the TCA first looked at the Ankara based industrial laundry market players' market shares on a daily active capacity and daily total capacity basis, the turnover that Ankateks generates from its top five customers and its percentage in its total turnover (to assess the countervailing buyer power). According to the decision, total turnover that Ankateks generated from these customers amounted to significant part of its turnover (i.e., %90,55 in 2022), however, the TCA found that the customer would probably not be able to switch from Ankateks to alternative suppliers because Ankateks was the only player which owned a specification (i.e., tunnel washing machine) mostly required in the hospital tenders. The TCA also considered the entry barriers and concluded that Ankateks' 40% spare capacity is some kind of an entry barrier caused by the undertaking, Ankateks, itself. In conclusion, the TCA continued to its assessments by delving into details of the conducts of Ankateks to determine whether those were abusive, without making a final conclusion on whether Ankateks was in dominant position or not. There were five main allegations against Ankateks in the decision: First, Ankateks forced one machine manufacturer, the winner of the tender organized by one of the customers (it is also the complainant of this casefile), to withdraw from the tender by threatening not to purchase products from it if it sold machines to this specific customer. Second, Ankateks filed multiple complaints regarding tender processes of this customer (for purchasing industrial laundry equipment) in order to prevent the customer from building up its own laundry. The third allegation is that this customer was receiving laundry services from Ankateks for a long time, but that Ankateks intervened in the preparation of the specifications for tenders in the past, and that Ankateks threatened not to enter the tender if the conditions Ankateks wanted were not met – allegedly Ankateks' not entering the tender put this customer in a difficult position in supply of relevant machinery. The fourth allegation is that Ankateks, by abusing its strong market position, acted in violation of the contract and disrupted the service it is required to fulfill for this customer. Finally, allegedly Ankateks put pressure on one of its competitors and prevented the customer from sourcing laundry services from this competitor.

The decision's key assessment was concerning the second allegation against which the TCA reviewed whether Ankateks filed multiple complaints about tender processes in order to obstruct this customers' laundry building process (in other words entry into the industrial laundry market and eventually stopping purchasing from Ankateks) from a perspective of abuse of dominance through preventing/obstructing entry into the market. Accordingly, the TCA delved into the details of "sham litigation" and "vexatious litigation" and mainly referred to the TCA's Çiçek Sepeti decision2 and ITT Promedia decision of European Union's General Court3. According to the decision, the following two conditions must be met for a civil action to be deemed to be an abuse under competition law:

  • The relevant legal proceedings should not be reasonably deemed to be intended to protect the rights of the suing undertaking and of a nature that will only harm the other party.
  • The relevant legal proceedings should be part of a plan to eliminate the competitor.

The decision highlights the General Court's emphasis to the importance of right of access and application to the courts, and that it may, in very exceptional circumstances, lead to an abuse of a dominant position. The TCA also acknowledged the necessity of demonstrating the dominant undertaking's exclusionary intent/purpose and provided that there was no such evidence obtained within the scope of this casefile. While the TCA considered Ankateks' applications caused delay in the tenders (e.g., 1,5-3 months), concluded that this delay did not have a significant impact on the competition because the tender process for laundry equipment had been completed, the customer was able to procure the relevant equipment, and the process for laundry renovation was about to be completed at the time of complaint.

In terms of the remaining allegations, the decision briefly provided that (i) Ankateks' buyer power would not suffice putting such pressure on a competitor, (ii) there were suppliers alternative to Ankateks meaning the relevant customer was not obliged to procure from Ankateks, (iii) the TCA did not find any documents evidencing that Ankateks involved in bid-rigging activities or prevented competing undertakings from procuring relevant services to that customer and that (iv) Ankateks' breach of obligation to providing laundry services in a timely and adequate manner may be considered as a part of the breach of the contract between the parties but definitely is not an abusive behavior from competition law perspective.

All in all, the TCA decided that Ankateks did not violate the competition law through abuse of dominant position within the scope of evaluation of the actions conducted by Ankateks and therefore, there is no need to launch a full-fledged investigation against Ankateks.

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Footnote

1. Ankateks Turz İnş. Teks. Tem. San. ve Tic. AŞ

2. TCA's Çiçek Sepeti decision dated 08.03.2018 and numbered 18-07/111-58.

3. The European Union General Court, ITT Promedia v. Commission, Case T-111/96 [1998] ECR II-2937

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