A. INTRODUCTION
Competition is essentially a race between at least two rivals for one of them to achieve first place. As such, the Free Market Economy should respect certain commercial procedures and principles.
In fact, the Free Market Economy emerged in response to the need for an environment where supply and demand meet price freely and independent from any authority, enabling any element to easily enter/exit the market, and where the decisions are made individually and without any pressure in the related market depending on the field of activity. Accordingly, all actions of the market elements in the path of “good faith” constitute a competitive environment.
Basically, this is a result of too much movement on the side of competing market elements. At this point, Competition Law and regulatory and supervisory institutions are needed to ensure the most effective and lawful satisfaction of supply and demand, and the Free Market Economy is kept under control through legislation. This article will explain the procedure for the proof of “concerted practices”, which are among important elements of the Free Market Economy and whose limits are determined to prove their compliance in terms of competition.
B. WHAT IS A CONCERTED PRACTICE?
The concept of Concerted Practice emerged based on the principles of the ‘Common Law’ applied in the United States; however, the European Community has also a definition of concerted practice that is similar to the one in United States.
A Concerted Practice is not fully described in national or international legislation. On the contrary, the definition has been introduced by way of court rulings, being first used in the European Commission’s “Dyestuffs” decision dated 24.07.1969 and numbered OJ L 195/11. According to this decision, a concerted practice is defined as a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition.
Indeed, article 4 in Act no. 4054 on the Protection of Competition stipulates, “Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited.”
As a result, concerted practices are more difficult to prove than agreements and decisions. To illustrate the matter, as part of the European Union Law, the Treaty of Rome of 1957 regulated concerted practices with article 85 as follows:
“1. The following shall be deemed to be incompatible with the Common Market and shall hereby be prohibited: any agreements between enterprises, any decisions by associations of enterprises and any concerted practices which are likely to affect trade between the Member States and which have as their object or result the prevention, restriction or distortion of competition within the Common Market, in particular those consisting in:
(a) the direct or indirect fixing of purchase or selling prices or of any other trading conditions;
(b) the limitation or control of production, markets, technical development or investment;
(c) market-sharing or the sharing of sources of supply;
(d) the application to parties to transactions of unequal terms in respect of equivalent supplies, thereby placing them at a competitive disadvantage; or
(e) the subjecting of the conclusion of a contract to the acceptance by a party of additional supplies which, either by their nature or according to commercial usage, have no connection with the subject of such contract.
2. Any agreements or decisions prohibited pursuant to this Article shall be null and void.
3. Nevertheless, the provisions of paragraph 1 may be declared inapplicable in the case of:
-any agreements or classes of agreements between enterprises,
-any decisions or classes of decisions by associations of enterprises, and
-any concerted practices or classes of concerted practices which contribute to the improvement of the production or distribution of goods or to the promotion of technical or economic progress while reserving to users an equitable share in the profit resulting therefrom, and which:
(a) neither impose on the enterprises concerned any restrictions not indispensable to the attainment of the above objectives;
(b) nor enable such enterprises to eliminate competition in respect of a substantial proportion of the goods concerned.”
Clearly, the article not only regulates agreements between enterprises and decisions of associations of enterprises, but also prohibits concerted practices to prevent the same result from being achieved by different means.
Concerted practices are also relevant in Turkish Law with a more complex structure than agreements between undertakings. In fact, undertakings may carry out free market activities not only by making an absolute agreement, but also by participating in collusions to achieve their objectives. Concerted practices are placed in the context of measures that aim to:
a) Ensure free competition in general, and
b) Prevent undertaking practices/actions that are not considered as agreements or decisions from preventing competition by circumventing legal regulations in particular.
Indeed, concerted practices emerged in parallel with the need to prohibit anti-competitive behavior. This issue is clearly mentioned in the justification of Article 4 of Act no. 4054 as follows: “Even if the existence of an agreement between undertakings cannot be determined, direct or indirect relationships that provide a coordination or practical cooperation between them that replace their independent actions are also prohibited if they lead to the same result. The purpose is to prevent undertakings from legitimizing their unlawful and anti-competitive practices through fraud.”
In summary, concerted practices are regulated to prove collusion between undertakings that have the intention of preventing competition.
C. HOW TO PROVE THE EXISTENCE OF A CONCERTED PRACTICE?
As stated above, a concerted practice is defined as “a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition” as per the Dyestuffs decision of the European Court of Justice.
In a broader framework, concerted practices are considered to be anticompetitive market activities of two or more undertakings that cannot be explained on economic and rational grounds, are not based on an agreement, but are deliberately aligned. The point is that although there is no official agreement between the parties, competition is restricted through deliberately parallel actions defying any economic and rational explanation.
As per the decision of the European Court of Justice, a concerted practice occurs when three criteria are met, namely:
i. There is a coordination and cooperation in practice between the enterprises in the market, which are not aligned with but replace their dominance and independent activities,
ii. Such cooperation is achieved as a result of a direct or indirect relationship between undertakings,
iii. The purpose is to eliminate uncertainties about the potential future activities of competitors in the market.
These criteria are sought in the relevant inspections. In fact, a decision of the Competition Board, dated 23.03.2000 and numbered 00-11/109-54, states: “Accordingly, to be able to speak of a concerted practice:
a) There must be at least two or more businesses involved,
b) Deliberately parallel activity must be identified,
c) These parallel activities must defy any explanation on economic and rational grounds,
d Competition must be restricted.
Without any of these criteria, there is no concerted practice.” Likewise, the Board’s decision dated 26.08.2010 and numbered 10-56/1080-409 states, “In order to speak of a concerted practice in a market:
a-) There must be two or more businesses involved,
b-) The undertakings must be engaged in deliberately parallel activities,
c-) These parallel activities must defy any explanation on economic and rational grounds,
d-) There must be an intention to prevent competition.”
However, how can this cooperation be proven?
The concepts of agreement and concerted action are often intertwined. Therefore, the criteria for their identification and determination are not clear. While assessing this complex structure regarding the practices defined in Act no. 4054, the burden of proof for concerted practices is sometimes placed on the claimant and sometimes on the party who has allegedly performed the relevant practice. While the concepts of agreement and concerted practice are distinguished from each other in the Board decisions, there are also decisions that link them.
In practice, concerted practices first occur prior to an agreement and cease with the conclusion of an agreement. In concerted practices, agreements and decisions are often intertwined. While these concepts are difficult to distinguish from each other, the broader the “agreement” is understood or interpreted, the narrower the concept of concerted action, and vice versa, the narrower the agreement is understood or interpreted, the broader the concept of concerted action.
In short, the difference between these concepts is related to how they are interpreted and described. Indeed, declarations of mutual intentions, statements, concurrence, gentlemen’s agreements, written or oral statements between undertakings are considered as agreements and cannot be claimed to be direct concerted practices. For a concerted practice to be deemed as an infringement, there must be an agreement or an unprovable deal between the parties that cannot concretely establish an obligation or a division of duties.
The problem of distinguishing between these concepts is important only for the practices of undertakings that exist whereas agreements between undertakings that are currently inactive in the market cannot be considered as concerted practices. A draft contract or a gentleman’s agreement that contains a clear and explicit intention of the parties to cooperate is not required to be considered as a concerted practice in line with the purpose of the concept.
It should be noted that it is not possible to draw a clear line between the concepts of agreement and concerted practice. In concerted practices, undertakings do not make a mutual declaration of intent, implicitly or explicitly. Instead, there is a common ground of expectations, if not mutual agreement, to eliminate uncertainties about the potential future risks of competition. These aligned expectations find a reflection in economic activities. Therefore, it is very difficult to prove these two intertwined concepts with the same criteria.
Pursuant to article 59 of Act no. 4054, the burden of proof lies with the person that attests to the existence of anti-competitive agreements. However, in allegations of concerted practices, the cooperation between the undertakings or the state/plan of acting in concert does not bear the burden of proof. It suffices to express a suspicion of concerted practice by stating that it affects market behavior based on various and justifiable indications. The practice may be irrelevant to competition regulations in terms of the purpose or subject matter for which the parties meet on common ground. However, agreements that are anti-competitive in terms of the possible effects of this common ground should be prohibited, regardless of whether they are executed or not. Moreover, unlike agreements, concerted practices defy the possibility of prohibiting undertakings’ intention to act concertedly, unless their desire for cooperation is put into practice. Otherwise, we cannot speak of a real action taking place in the competitive market.
D. OPINION
There are no clear lines to separate the concepts of agreement and concerted practice from each other. Pursuant to Act no. 4054, “In cases where the existence of an agreement cannot be proved, a similarity of price changes in the market, or the balance of demand and supply, or the operational regions of undertakings to those markets where competition is prevented, distorted or restricted, constitutes a presumption that the undertakings are engaged in concerted practice,” which facilitates the submission of proof.
The criteria to identify a concerted practice may be listed as follows:
- There is a relationship between two or more undertakings,
- The undertakings are engaged in deliberately parallel activity as a result of their relationship,
- The parallel activities cannot be explained on economic and rational grounds,
- These activities restrict or intend to restrict competition.
In fact, the Authority resolves on the existence of concerted practices based on these four criteria.
The last sentence in article 4 of Act no. 4054 states, “Each of the parties may relieve itself of the responsibility by proving, on the basis of economic and rational facts that it has not engaged in concerted practices.” This regulation clearly stipulates that the burden of proof is on the undertakings. Indeed, concerted practices can be proved with all kinds of legal evidence. It is important to distinguish between an agreement and a concerted practice. Agreements are made through mutual and compatible declarations of will. However, the concept of concerted practice arises in situations where an agreement cannot be reached. Still, it is possible to speak of collusion in concerted practices. Since concerted practices are more complex than agreements due to certain problems in their discovery, proof and conceptualization, they should be analyzed based on the individual case.
