Turkey: The Turkish Competition Board's Decision on Turkish Pharmacists' Association Commercial Enterprise regarding Investigation on Article 6 of the Law No. 4054 on the Protection of Competition

The Turkish Competition Board ("Board") published its reasoned decision^[1] on the investigation initiated against the Turkish Pharmacists' Association ("Türk Eczacıları Birliği" in Turkish) ("TEB") and Turkish Pharmacists' Association Commercial Enterprise ("Türk Eczacıları Birliği İktisadi İşletmesi" in Turkish) ("TEBII") on whether they had violated Article 6 of the Law No. 4054 on the Protection of Competition ("Law No. 4054"), by abusing their dominant position in the market for the "supply of pharmaceuticals from abroad" through their exclusivity practices and other actions.

As a result of the investigation, the Board decided unanimously to impose administrative monetary fines, amounting to 1.5% of TEBII's Turkish turnover generated in the 2015 financial year (which corresponded to TL 18,062,307.32), as it concluded that: (i) TEBII enjoyed a dominant position in the market for the supply of pharmaceuticals from abroad, and (ii) TEBII abused its dominant position in the market by entering into exclusivity agreements with suppliers.

In its decision, the Board determined that TEBII was in a commanding, highly powerful position in the market for pharmaceuticals procured from abroad. In addition, the Board found out that the Turkish Social Security Institution's ("SGK") refusal to enter into protocols with pharmaceutical warehouses constituted an entry barrier to the market. Furthermore, the Board indicated that TEBII had become the sole distributor in the market for pharmaceuticals supplied from abroad subsequent to (and in conjunction with) the Ministry of Health's revocation of the authorization previously granted to pharmaceutical warehouses for the same purpose. In light of these findings, the Board concluded that TEBII was in a dominant position in the relevant market. The Board then evaluated the agreements executed between TEBII and the companies that procured pharmaceuticals from abroad, in terms of their exclusivity. As a result of its evaluation, the Board determined that the agreements had either included exclusivity arrangements, or the procurers had been working exclusively with TEBII, and thus, there was de facto exclusivity in the arrangements.

Moreover, by also taking into account TEBII's dominant position in the market, the Board indicated that the pharmaceutical warehouses' opportunity to enter the market had decreased significantly, due to (i) TEBII's supply agreements with exclusivity provisions, and (ii) SGK's administrative actions. TEBII's exclusivity agreements were found to increase the market foreclosure, both actually and potentially, and they were also found to harm consumer benefits. Therefore, the Board decided that the documents in the case had sufficiently proved that TEBII's actions would lead to market foreclosure. Thus, the Board decided that TEBII had violated Article 6 of the Law No. 4054, by abusing its dominant position through exclusivity agreements with the companies that procured pharmaceuticals from abroad. For the calculation of the administrative monetary fine, the Board took into consideration the duration of the violation (which had lasted more than one year and less than five years), as well as aggravating factors, in accordance with Article 5(3)(a) of the Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Limiting Competition, and Abuse of Dominant Position ("Regulation"). In addition, the Board also took into account the encouragement by SGK as a public authority and deemed it as a mitigating factor as per Article 7(1) of the Regulation. Consequently, the Board determined that the ratio of the administrative monetary fine would be 1.5% of TEBII's Turkish turnover, generated in the 2015 financial year.

The Board also decided to task the Presidency of the Competition Authority with sending an opinion letter to the Turkish Ministry of Health and SGK for the promotion of competition in terms of the market for the supply of pharmaceuticals from abroad. The Board stated that SGK had adopted a discriminatory approach in favor of TEBII, and had refused to execute agreements with pharmaceutical warehouses, even in cases where the legislation allowed otherwise. The Board determined that promoting competition in the market for pharmaceuticals procured from abroad would ensure that patients would have alternative procurement sources and contribute to the provision of improved services in the market. Moreover, due to the ensuing price competition among supplier companies to provide the pharmaceuticals at the cheapest prices to SGK, SGK's financial burden in terms of pharmaceuticals procured from abroad would also decrease. The Board pointed out that, after the authorisation of the pharmaceutical warehouses, commission rates had decreased from 11% to 3.9%, despite the lack of competition among equals. The Board concluded that promoting competition in the market for foreign pharmaceuticals would indeed serve the public benefit.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2017. A link to the full Legal Insight Quarterly may be found here

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