A Comparative Examination of the Settlement Mechanism in Turkish and EU Competition Law

The settlement mechanism, which has been applied as an alternative by the European Commission since 2008, was incorporated into our legislation in 2020 through Article 43, titled "Initiating an Investigation, Commitments, and Settlements," of the Law No. 4054 on the Protection of Competition. The principles governing the settlement mechanism are regulated by the "Regulation on the Settlement Procedure Applicable in Investigations on Agreements, Concerted Practices and decisions restricting competition and abuses of Dominant Position" issued by the Competition Board on 15.07.2021, commonly referred to as the "Settlement Regulation" in practice.

The Strategic Trio in European Competition Law

The Settlement Regulation aligns with what can be termed the "Strategic Trio" in European competition law. This trio, comprising "de minimis," "commitments," and "settlement," offers a suite of alternative resolution tools designed to swiftly mitigate potential competition violations while conserving valuable time and resources during investigations. Each element of the trio plays a crucial role in fostering a more efficient and cooperative regulatory environment.

Commitments: Introduced into our legal framework by the Law Amending the Law on the Protection of Competition dated June 24, 2020 ("Amendment Law"), the commitments mechanism allows companies, in the event of a competition violation, to apply to the Authority and undertake specific measures to address the violation. If the application is accepted, companies can avoid substantial administrative fines by agreeing to these corrective measures, thereby promoting a more cooperative approach to regulatory compliance.

De Minimis: The Competition Board's strict stance against cartelization is moderated by the de minimis rule, which exempts minor agreements between small-scale undertakings that have an insignificant impact on competition. Introduced by the Amendment Law and established under Communiqué No. 2021/3, dated March 16, 2021, this rule provides flexibility within the stringent regulatory landscape by acknowledging that not all agreements warrant intensive scrutiny.

Settlement: Gaining popularity each year, the settlement mechanism stands out for its dual benefits: offering significant fine reductions to companies that cooperate and contributing to procedural efficiency for the regulatory authorities. The increasing reliance on settlements highlights the importance of understanding this mechanism's procedures and potential outcomes.

Conditions for Applying to the Settlement Mechanism and Reasons for Preference

Most investigations initiated by the Competition Board involve violations related to Article 4 of the Law on the Protection of Competition, which addresses " Agreements, Concerted Practices and Decisions Limiting Competition " and Article 6, which deals with "Abuse of Dominant Position." The settlement mechanism is available to undertakings under investigation that admit to their violations.

Undertakings often prefer settlement because it can result in a reduction of administrative fines if the violation is acknowledged. Additionally, settlement helps mitigate risks such as the potential disclosure of commercial secrets during the investigation and damage to brand value. Shortening the investigation period benefits both the undertaking and the Competition Authority by reducing costs and supporting the efficient use of public resources.[1]

However, there are cases where undertakings might choose not to opt for settlement. If an undertaking believes it has not committed any violation and expects not to face a penalty, it may avoid settlement as it involves admitting to the violation.

Furthermore, the fact that settlement decisions cannot be challenged in administrative courts and the mandatory enforcement of penalties and sanctions outlined in the Authority’s final decisions are significant factors leading some undertakings to forego settlement and continue with the investigation.

Settlement Procedure

The settlement process consists of five main stages: (i) initiation of the process either upon the request of the undertaking receiving the investigation notice or ex officio by the Board, (ii) settlement negotiations, (iii) interim settlement decision, (iv) settlement submission, and (v) final settlement decision.

Settlement can be initiated either upon the request of the undertaking after the investigation has been opened or ex officio by the Board. Requests can be submitted in writing or through the E-Government portal. In this case, the application must be made before the delivery of the investigation report.

Upon receiving a request, the Board may reject it, accept it, or invite other relevant parties to participate in the settlement. If the process is initiated ex officio by the Board, undertakings must provide their responses in writing within a definitive period of fifteen days. Notifications made after this period will not be considered.

It should be noted that it is possible to withdraw from the settlement process until the settlement texts are submitted. Beginning settlement negotiations does not mean that the enterprise has admitted to the violation under investigation.

If the settlement route is chosen, the parties begin settlement negotiations, which must be recorded in minutes. Following these discussions, an "interim decision" is issued. This decision addresses the competition law violation at the heart of the investigation, the planned administrative fine, possible reduction rates for cooperation, and the evidence related to the violation. The points covered in the interim decision cannot be negotiated by the parties.

To proceed with the settlement process, acceptance of the points outlined in the interim decision is required. Accordingly, the parties under investigation must submit a settlement text confirming their acceptance of the violation’s existence, scope, and the rate of the administrative fine to be imposed by the Board. The settlement text must be submitted to the Authority within a definitive period of fifteen days. If there are deficiencies in the settlement text, the Authority grants a one-time seven-day period to the undertaking to rectify these issues. If the deficiencies are not corrected within this period, the settlement process will be considered unsuccessful, and the ordinary investigation procedure will be followed.

A final decision is made within fifteen days following the submission. In addition to the elements covered in the Authority’s final decisions issued at the end of the ordinary investigation, the final decision includes the following:

• The content of the allegations made against the settlement party,

• The nature and scope of the violation, and the evidence supporting the violation,

• The applied reduction rate and the imposed administrative fine,

• The settlement party’s acceptance of the violation and the administrative fine.

According to Article 52 of the Law on the Protection of Competition, the Authority has an obligation to provide reasons for each of the points mentioned in the decision, a requirement that exists in our country but not in European practices.

Conclusion of the Settlement Process

Settlement discussions do not always result in an agreement. This may occur if a party withdraws from the settlement, if the settlement text is not submitted within the required timeframe, or if deficiencies in the submitted settlement text are not corrected. Additionally, Article 4/6 of the Settlement Regulation outlines the circumstances under which the essence of the settlement may end. These include:

• The realization that the procedural benefits expected from the settlement cannot be achieved,

• The parties' failure to reach a common view on the existence and scope of the violation,

• The risk of evidence tampering, and

• Failure to comply with the confidentiality obligation under Article 12 of the Regulation, which requires the settlement party to keep information and documents obtained during the negotiation process confidential until the final decision is made.

In such cases, the Board may terminate the settlement process for one or more of the parties before the final decision is made. If the settlement process does not conclude successfully, the investigation continues according to the ordinary procedure. In this case, the information and documents submitted by the parties during the settlement discussions will be removed from the case file and will not form the basis of the final decision issued at the end of the ordinary investigation.[2]

If a breach of the confidentiality obligation is discovered after the final decision, the decision may be withdrawn, and a new investigation may be initiated against the undertaking. In such cases, the new investigation may include aggravating factors that could increase the administrative fine imposed on the undertaking.

If the settlement process concludes successfully, an administrative fine imposed on the undertaking will be reduced by a minimum of ten percent and up to twenty-five percent. Issues covered by the settlement cannot later be challenged in court.[3]

In addition to the Settlement Regulation, undertakings may also benefit from the leniency provisions outlined in the Regulation on Active Cooperation Against Restrictive Agreements and Practices published in the Official Gazette No. 32401 on December 16, 2023 ("Active Cooperation Regulation"). To do so, parties must apply before the settlement text is submitted. This is because the submission of the settlement text will constitute a definitive acknowledgment of the violation, which will create a conflict with the leniency provisions.

It should be noted that while the Settlement Regulation governs the procedures and principles of the settlement process, the Active Cooperation Regulation aims to encourage undertakings to cooperate with the Authority to prevent cartelization.

Discount rates are applied by combining the results of the settlement process with those of the leniency application.

Conclusion

Years after its introduction in Europe, the settlement mechanism is increasingly favored in our country. While new regulations aim to align with European Commission practices, noticeable differences remain in implementation. For instance, in decisions made by the European Commission, the reduction rate applied to administrative fines is ten percent, whereas, under our regulation, a ten percent reduction is only the minimum amount, with the usual reduction rate being twenty-five percent. Furthermore, in Europe, reductions apply only to cartel violations, whereas, in our country, they can be applied to all violations under Articles 4 and 6 of the Act No. 4054 on the Protection of Competition.

The settlement mechanism is relevant for investigations related to restrictive agreements, concerted practices, and abuse of dominant position. It benefits both undertakings and the Competition Authority by providing a reduction in administrative fines and shortening the investigation process when violations are acknowledged. Settlement offers a much faster and easier resolution compared to legal processes, saving time and money. This also protects companies from the adverse effects of lengthy and complex litigation.

Settlement can be a beneficial solution for companies in many ways. However, it may not be suitable for every situation, despite its appeal due to reduced penalties and expedited processes. Undertakings that claim not to have committed any violations should avoid opting for settlement. It is crucial for companies with limited decision-making time to have a "risk assessment culture" to make informed choices. This enables companies to better evaluate the potential benefits and risks of settlement and make well-informed decisions. Additionally, it is possible to withdraw from the settlement process up to a certain stage, but careful planning is required to address potential penalties in the subsequent ordinary investigation process.

References

ASLAN, Y. Rekabet Hukuku Dersleri (Only in Turkish). Publisher: Ekin Yayınevi.

COŞKUN, S. Y. (2020, 09 11). A Critical Overview of the Settlement Institution in Turkish Competition Law (Only in Turkish). Retrieved from DergiPark: https://dergipark.org.tr/en/download/article-file/1232008

TANLI, D. (2023, 5 2). Settlement Mechanism in Competition Law (Only in Turkish). Retrieved from İstanbul Law Review, 81 (1), 21-79: https://cdn.istanbul.edu.tr/file/JTA6CLJ8T5/AFCC425EA2BE4E1194D4D4FB7C8F537D

[1] (COŞKUN, 2020)

[2] (TANLI, 2023)

[3] (ASLAN)