A.

Introduction

The Competition

Board ("Board") has recently

published its reasoned decision[1]

in its reassessment of the Turkish Pharmacists Association (Türk Eczacıları Birliği) ("TPA") case, following the annulment decision[2]

rendered by the 13th Chamber of the High State Court ("High State Court"). The High State Court's

ruling was made as a result of the TPA's appeal against the Board's earlier decision[3]

concerning the TPA's practices, which examined allegations that the TPA had fixed

pharmacies' purchasing terms and conditions in non-market circumstances.

Pursuant to the investigation, the Board found that the TPA had violated

Article 4 of the Law No. 4054 on the Protection of Competition ("Law No. 4054"), and imposed an

administrative monetary fine corresponding to 3% of the TPA's revenues for the 2009

fiscal year.

[1] The

Board's decision dated April 5, 2018, and numbered 18-10/185-88.

[2] The 13th

Chamber of the High State Court's decision dated December 16, 2014, and

numbered 2010/4769 E. and 2014/4294 K.

[3] The

Board's decision dated July 8, 2010, and numbered 10-49/912-321.

B.

Summary of the High State Court's Review of the Board's Previous Decision

1.      1. Basis of the Request for Annulment

In its decision,

the High State Court summarized the TPA's legal basis

for its appeal as follows: (i) the Board had failed to define any relevant product market in its

decision, (ii) the Board was not authorized to review the TPA's practices arising from its powers

that were vested and conferred by its establishing documents (iii) the Board failed

to justify the use of its discretionary powers for the determination of the

administrative monetary fine, and (iv) the practices subject to the investigation

did not constitute a competition law violation.

2.   The High State Court's Judgment

It should be noted at the outset that the High State Court did not assess all the

grounds for appeal that were asserted by the TPA. Rather, its evaluation of the

case revolved around the following questions: (i) whether the Board was authorized

to review the TPA's practices,

(ii) whether the TPA's practices

violated Article 4 of the Law No. 4054 and whether they failed to comply with

the conditions for receiving an individual exemption under Article 5 of the Law

No. 4054 (and thus, whether the Board's decision to task the Presidency of the

Competition Authority to send a written opinion under Article 9(3) of the Law

No. 4054 was lawful), and (iii) whether the Board's determination of the

administrative monetary fine was lawful.

The High State Court affirmed that, as a public professional

association, the TPA qualified

as an association of undertakings under the definition provided by Article 3 of

the Law No. 4054. However, the High

State Court also examined whether or not the Board had the authority to

review the TPA's practices in

light of the relevant precedents. According to the landmark decisions of the

High State Court's Grand Chamber of Administrative Trials,[1] which

were referenced in the High State Court's decision, the Competition Authority

does not possess the power to conduct judicial review pursuant to the Law No.

4054 with regard to practices that arise from the implementation of the applicable

legal provisions regarding the duties of public associations or professional chambers

that have been established in accordance with the laws. According to the High

State Court, judicial review of such practices must be sought and conducted through

annulment requests before administrative courts.

On the other

hand, relying on the approach of the High State Court's Grand Chamber of Administrative

Trials,

the High State Court excluded practices whose

execution had no legal basis in a statutory power from this analysis, and asserted that such practices should

fall under the scope of the Law No. 4054. The High State Court concluded that the Board possessed the power to

initiate a full-fledged investigation against the practices of an association

of undertakings that did not arise from the duties specified or assigned by the

association's founding legal documents (e.g.,

articles of association) and that were determined to be anti-competitive. More specifically,

the High State Court analyzed

whether the TPA's practices under scrutiny fell under the scope of the Turkish

Pharmacists Law No. 6643 ("Law No. 6643"). Accordingly, the

High State Court found that these practices did not fall under the scope of

Article 39 of the Law No. 6643, which enumerates the duties of the TPA. Therefore,

the High State Court ultimately concluded

that the Board had not exceeded its authority and that the Board's exercise of

its power with respect to the TPA's practices under scrutiny had been lawful.

With respect to the substantial review of

the Board's decision, the High State

Court concluded that (i) the Board's assessments regarding the TPA's

practices had been lawful and that the TPA's practices violated Article 4 of the

Law No. 4054, and (ii) these practices did not fulfill the conditions that must

be satisfied to receive an individual exemption under Article 5 of the Law No.

4054. Accordingly, the High State Court

declared that the section of the Board's decision tasking the Presidency of the

Competition Authority with sending a written opinion under Article 9(3) of the Law

No. 4054 had also been lawful.

Finally, regarding the determination of

the administrative monetary fine, the High

State Court found that the Board's decision subject to appeal had failed

to include any assessments regarding the specific aspects of the case that had been

taken into account when determining the amount of the administrative monetary

fine. In particular, the High State

Court stated that the Board's decision had failed to set forth: (i) any

justification for the Board's use of its discretionary powers when setting the exact

ratio to be used in determining the administrative monetary fine amount (i.e., as a percentage of the TPA's revenues),

in accordance with the range interval stipulated by legislation, (ii) a clear and

thorough evaluation regarding the potential existence of aggravating and/or

mitigating factors, and (iii) a clear explanation with respect to the potential

impact of the gravity of the TPA's prohibited conduct on the determination of

the administrative monetary fine amount. Against this background, the High State Court concluded that the substance

of the Board's assessments regarding the determination of the administrative

monetary fine amount lacked the clarity required for a judicial review of the

administrative monetary fine decision, and therefore annulled the relevant

section of the Board's decision.

C.     The Board's Assessments Regarding the

Administrative Monetary Fine and the Principle of Reformatio in Peius

Following the High State

Court's decision, the Board reassessed the

determination of the administrative monetary fine amount in light of the Law

No. 4054 and the Regulation on Monetary Fines for Restrictive Agreements,

Concerted Practices, Decisions and Abuses of Dominance ("Regulation on Fines").

The Board acknowledged that the administrative monetary fine must be calculated

on the basis of a three-step process: (i) the determination of a base fine amount

according to Article 5 of the Regulation on Fines (which includes the incorporation

of the duration multiplier, if applicable), (ii) the consideration and factoring in of aggravating circumstances

under Article 6 of the Regulation on Fines, and (iii) the consideration

and factoring in of mitigating factors under

Article 7 of the Regulation on Fines. The Board subsequently determined that

the violation in this case fell under the category of "Other Violations" as per Article 5 of the Regulation

on Fines, and asserted that an administrative monetary fine corresponding to

between 0.5 to 3 percent of the turnover generated in the fiscal year preceding

the date of the administrative fine decision should be imposed. The Board then noted

that a number of relevant factors, such as the market power of the

undertakings/associations concerned and the seriousness of the damage which

occurred or is likely to occur as a result of the violation, should also be

taken into consideration in determining the level of the abovementioned base

percentage. Finally, the Board ruled that there were no applicable

aggravating and/or mitigating factors in the present case, and concluded that the

duration of the infringement did not necessitate increasing the base fine amount

either.

After establishing the base fine percentage, the Board

turned its attention to determining the fiscal year that would be

taken into account for

calculating the base fine.

In this regard, the Board turned its attention to the

criminal procedure principle of avoiding reformatio

in peius (Latin: "change for the

worse," which occurs when, as the result of an appeal, the

appellant is put in a worse position than if they had not appealed). In this

context, the Board declared that the principle of reformatio in peius,

which is defined under Article 307(4) of the Law No. 5271 on Criminal

Procedure in Turkey, would also be applicable to administrative monetary fines

levied by the Board. To that end, in an effort to reach the most advantageous base fine amount

for the TPA, the Board calculated three different turnover figures for 2011,

2014 and 2017, which respectively represented the years preceding (i) the High

State Court's stay-of-execution decision, (ii) the High State Court's annulment

decision, and (iii) the Board's previous monetary fine decision. Subsequently,

the Board compared these turnover figures with the corresponding figures for 2009

and decided to use the TPA's turnover figures for 2014 when determining the

amount of the base fine, as it was the lowest turnover figure among the three

years under consideration. The Board thereby respected and incorporated the

principle of reformatio in peius into its decision.

D.   The Principle of Reformatio

in Peius in Turkish Competition Law

The

prohibition on reformatio in peius is

a statutory restriction on judicial authorities that obliges them not to resolve

an appeal (or objection) with a decision that puts the appellant in a worse

position than if it had never appealed. Reformatio

in peius is an important procedural rule that is observed by Turkish courts

as an established legal principle. It can be reasonably argued that the Turkish

Competition Board should respect and abide by the principle of reformatio in peius and thereby avoid

rendering decisions that put an appellant undertaking in a worse position than it

would have been under the initial Board decision.

In fact,

the High State Court has previously affirmed this approach in the Aktif-İriyıl Otomotiv İnşaat Turizm Ticaret

ve Sanayi Limited Şirketi ("Aktif İriyıl") case.[2]

In that lawsuit, the High State Court reviewed a Board decision[3]

that was a reassessment made upon an annulment order[4]

rendered by the Ankara 9th Administrative Court. Previously, the Ankara

9th Administrative Court had delivered its annulment decision upon

Aktif İriyıl's appeal against the Board decision imposing an administrative

monetary fine on the undertaking in the amount of TL 109,418.33 (approximately

EUR 46,363 at the prevailing exchange rate).[5]

In light of its reassessment, the Board decided to impose a larger administrative

monetary fine on Aktif İriyıl (TL 156,473.67, approx. EUR 66,302 at the time). Aktif İriyıl subsequently challenged the

Board's reassessment decision. With respect to Aktif İriyıl's appeal, the Ankara

9th Administrative Court (which was the court of

first instance that had rendered the previous annulment decision) concluded

that the reassessment decision should also be annulled, to the extent that the newly

imposed administrative monetary fine exceeded the previous fine's amount (TL

109,418.33). The Ankara 9th Administrative Court reasoned as

follows: "In a state governed by the rule

of law, exercising one's legal rights should not result in detriments being incurred."

Subsequently, the High State Court

upheld the Ankara 9th Administrative Court's decision and,

accordingly, decided that the administrative monetary fine imposed by the Board

should be reduced to TL 109,418.33.[6]

This decision was final and

unappealable, since the High State Court rejected the Competition Authority's

final appeal (i.e., the request for a revision of the decision).[7]

Although

there aren't a high number of precedents demonstrating the implementation of

the principle of reformatio in peius in

the context of competition law, the High State Court's Aktif İriyıl decision provides a powerful and clear-cut example for

the Board and administrative courts to follow.

D.

Conclusion

We believe

that the decision discussed above is highly significant, as it (i) provides comprehensive and

instructive explanations on the method to be used for

lawfully determining the administrative monetary fine amount, and (ii) sheds

light on the correct and proper implementation of the principle of reformatio in peius by the Board when reassessing

the administrative monetary fine amount subsequent to an annulment order by an administrative

court. To that end, this decision may serve as a powerful reference for future

cases in which the Board will be required to reassess its decisions,

particularly in cases where it will have already imposed an administrative

monetary fine.

Authors: Gönenç Gürkaynak, Esq., Betül Baş Çömlekçi,

Ezgi Hepşen and Cansu Tekşen, ELIG Gürkaynak Attorneys-at-Law

(First

published by Mondaq on October 1, 2018)

[1] The High

State Court's Grand Chamber of Administrative Trials decisions (i) dated March

11, 2004, and numbered (stay of execution objection number) 2004/93, (ii) dated

February 11, 2010, and numbered 2008/1881, and (iii) dated March 27, 2008, and numbered

(stay of execution objection number) 2007/774.

[2] The 13th

Chamber of the High State Court's decision dated November 11, 2015, and

numbered 2015/5483 E. and 2015/3835 K.

[3]

The Board's decision dated April 16, 2014, and numbered 14-15/277-119.

[4] The Ankara

9th Administrative Court decision dated December 24, 2013, and

numbered 2013/752 E. and 2013/2064 K.

[5] The

Board's decision dated April 12, 2012, and numbered 12-20/557-141.

[6] See Footnote 5.

[7]

The 13th Chamber of the High State

Court's decision dated May 25, 2016, and numbered 2016/750 E. and 2016/1955 K.