Turkey: The Turkish Competition Board Fines Sony Turkey For Resale Price Maintenance On Online Sales Channels

The Turkish Competition Board ("Board") has published its reasoned decision[1] on the investigation initiated against Sony Eurasia Pazarlama A.Ş. ("Sony Turkey") concerning allegations that Sony Turkey determined online resale prices of its distributors. While the name of the complainant is not disclosed, the allegations indicate that the complainant is a former distributor of Sony Turkey. The Board concluded that Sony Turkey's alleged behaviour indeed violated Article 4 of the Law No. 4054 on the Protection of Competition ("Law No. 4054") whereas the rapporteurs and the President of the Board (through its dissenting opinion) opined to the contrary.

Sony Turkey is a Turkish subsidiary of Sony Corporation and is active in consumer electronics. As identified by the Board, consumer electronics is an umbrella term to define many electronic products that are commonly used by individuals including TVs, audio devices, video cameras, DVDs, game consoles and accessories as well as washing machines, refrigerators, microwaves, etc. As part of its general explanations on the consumer electronics sector, the Board identified five main distribution channels, namely: (i) fast consumed goods retailers (the mass channel), (ii) technology super stores, (iii) traditional resellers, (iv) specialised computer stores and (v) telecommunication stores of Turkcell, Vodafone and Turk Telekom. The Board emphasized the fast changing consumer behaviour in the industry and pointed out a trend towards technology super stores from traditional resellers as well as an increase in online sales. While the reasoned decision acknowledged that the Board's previous practice is to define narrower markets for the overall consumer electronic sector based on consumer use such as the "refrigerator market", it refrained from a conclusive market definition since the assessment of the facts of the case will not change under any market definition.

The Board's substantive assessment depends heavily on the documents obtained during onsite inspections at Sony Turkey and the premises of some of its major distributors. The case material consisted of various internal and external e-mail correspondences, the majority of which are related to the distributors' online price levels on platforms, such as n11.com and hepsiburada.com, who offer products which are below Sony Turkey's recommended prices. Some of the correspondences indicated that retailers who did not follow the recommended prices concerning their online sales would be identified and their incentives would not be paid. According to the reasoned decision, many of the e-mail correspondences obtained by the case handlers indicated that online price levels were monitored by sales teams and managers. In addition, some of the internal e-mail correspondences suggested Sony Turkey were warning distributors about low price levels, especially on online sales platforms. Last but not least, the decision indicated that few of the external e-mail correspondences between Sony Turkey sales team and distributors contained warnings made to distributors to correct their prices.

On the other hand, the decision provides that the distributors' complaints on market prices were not always responded by Sony Turkey and, in fact, there were a few instances where Sony Turkey's sales team explicitly referred to the Law No. 4054 and underlined that it would be illegal for Sony Turkey to interfere with resale prices of any of its resellers. Moreover, one of the e-mail messages sent by a company executive to the sales team indicated that the sales team had trainings on the implementation/enforcement of Law No. 4054. This point is also noted in the reasoned decision, yet the Board did not take this into account while determining the administrative monetary fine.

As a result of its assessment, the Board decided that Sony Turkey has (i) monitored the price levels in online platforms, (ii) expected compliance with its recommended resale prices, and (iii) has the ability to threat the distributors with withholding incentive payments in case of non-compliance (still, there was no quantified finding that Sony Turkey did actually act on such threats and refrained from making incentive payments even in cases where price differences were detected). Against this background, the Board concluded that the said conduct of Sony Turkey has restricted distributors' ability to autonomously determine their online prices.

Consequently, the Board noted that online prices can easily be tracked and this increases price transparency that can facilitate restriction of competition. The Board stated that this deprives the distributors of the ability to behave independently in determining their own resale prices. While the Board acknowledged that the turnover generated by online sales was relatively small in proportion with Sony Turkey and its distributors' overall turnover and that this could have indicated that the effect of restriction would be limited; it attributed importance to online prices beyond their capacity of effect on trade. The Board asserted that online prices strengthen price competition in offline trade as even consumers shopping from brick and mortar shops have the ability and incentive to check online prices and impose competitive constraints on offline resellers' prices with online price lists.

Lastly, the Board briefly evaluated the possibility of granting Sony Turkey an individual exemption[2] under Article 5 of the Law No. 4054 and concluded that an individual exemption cannot be granted on the basis that Sony Turkey's conduct would not result in improvement of Sony Turkey's distribution channels nor would it cause better and improved products or services for the benefit of consumers. To the contrary, the Board resolved that determining the resale prices would cause restriction of inter-brand competition and thereby increase prices for end-users.

In light of the above, the Board, with majority, decided that Sony Turkey has violated Article 4 of the Law No. 4054 by determining the online resale prices of its distributors and imposed an administrative fine of TRY 2,346,618.62. The Dissenting Opinion by Prof. Dr. Ömer Torlak (President of the Board) provides that (i) distributors autonomously determined their prices, (ii) there was no conclusive evidence that Sony Turkey implemented a resale price maintenance scheme including any penalties imposed on any of its distributors, (iii) Sony Turkey has various distribution channels, (iv) the prices of distributors were indeed different than the recommended prices and (v) intra-brand competition is strong in the market. Therefore, Mr. Torlak concludes that he dissented from the Board's decision on violation.

The reasoned decision is an example of recent Board decisions where RPM was considered as a restriction by-object. This somewhat contradicts the ever-increasing trend of treating RPM cases under an effect test.

[1] The Board's decision dated November 22,2018, and numbered 18-44/703-345.

[2] Upon Sony Turkey's objections regarding the need to apply rule of reason and make an effects based analysis, the Board has asserted that only in extreme circumstances resale price maintenance can be justified as it is an object restriction within the meaning of Article 4 of the Law No. 4054 and the case in hand did not pose such exceptional cases to urge the Board to conduct effects based approach.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in June 2019. A link to the full Legal Insight Quarterly may be found here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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