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Reflections of Digital Transformation on Competition Law

In recent years, the rapid spread of digital transformation, defined as the transformation of business processes, customer relationships and operations of undertakings with digital technologies, driven by the technological advancements, has led to changes in the ways of doing business. During this transformation process, the use of digital technologies, especially information and communication technologies, is increased compared to traditional methods. As Undertakings aim to become more efficient, flexible, innovative and competitive such increased their investments on areas such as data analytics, artificial intelligence, cloud computing, automation, and the internet of things and these technologies started to develop rapidly.

These technologies facilitate the optimization of business processes, increased efficiency, cost reduction, improvement of customer experience and the creation of new business models and they bring about significant changes in traditional market dynamics. For instance, in digital markets, different data management strategies are being employed to collect, analyze, and take actions based on the data. This involves the accumulation of large volumes of data, giving rise to new competitive concerns in these markets. These concerns are continuously growing and evolving on a daily basis.

In today's world, there is a necessity for competition authorities to reevaluate existing competition rules, redefine market definitions, and make necessary amendments to the legislation to adapt to these changes.

In line with this need, the Turkish Competition Authority (the "Authority") has conducted a study on the applications of Turkish competition law in digital markets, the challenges encountered in these markets and the necessary policy changes required in these markets. On April 18, 2023 the Authority shared a study document titled "Reflections of Digital Transformation on Competition Law" (the "Study”) with the public.

The Study thoroughly addresses key indicators of the current state and potential of the digitalization in Türkiye, competition issues arising from digitalization, the studies, regulations and practices of competition authorities regarding competition issues in digital markets, competition concerns in digital markets and potential competition violations observed in these markets and the regulatory needs concerning digital markets.

In the Study, it is emphasized that Türkiye has outperformed the world average in the digitalization process, and considering the assessments that indicate the development pace will further increase with the resolution of infrastructure deficiencies, Türkiye is described as a market with a wide scope and for basic platform service providers. Moreover, it has been emphasized that the distinct characteristics of digital markets compared to traditional markets within the scope of the Study are crucial for a proper assessment of competition violations. It is noted that addressing violations and finding solutions in this context challenges the existing competition law practices, highlighting the need for complementary regulations to be introduced in this field.

The main competitive concerns highlighted in the Study and the examples of Competition Board ("Board") decisions evaluating these competitive concerns are provided below.

  1. Collection, Processing and Use of Data

As a natural reflection of the fact that the competitive power of undertakings is measured by the quantity, variety and quality of the data, it is stated that the data power of undertakings gives them a significant competitive advantage in the market, and that the processes in the collection and use of data can both distort competition in the market and raise concerns regarding the confidentiality and protection of data.

The Authority states that classification of data as "personal data" and "non-personal data" is insufficient in terms of competition law, and the classification made according to the channels through which the data is obtained and how the data is used with reference to the European Commission Report and the classification in the Organization for Economic Co-Operation and Development (“OECD”) report are included.

From this point of view, the Authority recognized that different types of data may be evaluated in different ways by competitors, and distinguished that some data groups, such as voluntarily provided data, are necessary to compete, while other data groups are necessary to provide complementary services. The Authority underlined that exclusionary practices on the basis of creating a dominant position and market entry barriers and making it difficult for consumers to switch to competitors may create data-based competition law concerns.

The Study assesses the necessity of regulation in this area due to the competitive concerns caused by the actions of undertakings with significant market power to process/aggregate competition-related data they collect, creating barriers to market entry, exploitative practices and unfair commercial practices.

Facebook-WhatsApp Decision dated 20.10.2022 and numbered 22-48/706-299

Competitive concerns regarding the collection, processing and use of data have been the subject of different decisions of the Board. The Board's decision dated ... and numbered ... is an example of this., In The Court’s decision, Meta Platforms, Inc. (formerly Facebook Inc. ), Meta Ireland Limited (formerly Facebook Ireland Limited) and WhatsApp LLC, decided to impose an administrative fine of TRY 346,717,193.40 on the aforementioned undertakings jointly and severally on the grounds that Facebook, by combining the data collected from Facebook, Instagram and WhatsApp services, which are called basic services, abused its dominant position in the market and caused distortion of competition by making it difficult for its competitors operating in the personal social networking services and online display advertising markets and creating an entry barrier to the market.

Trendyol Decision dated 30.09.2021 and numbered 21-46/669-334

In another file upon the request of the Board to impose interim injunction to Trendyol under the Article 9 of the Law No. 4054 on the Protection of Competition ("Law No. 4054"), the Board made an investigation. The Board decided that Trendyol shall cease the sharing and use of all kinds of data obtained and generated from its marketplace activity for its other products and services under its economic integrity, and shall refrain from such behaviors for the remainder of the investigation process until the decision is made, in order to prevent the use of the data of vendors selling on the marketplace in order to create its marketing/design strategy in a way that will give an advantage to its own retail activity.

  1. Data Portability and Interoperability

The importance of data portability and interoperability in terms of social media services, which attract attention with their concentration rate and significant network effects, is one of the most debated areas today, and it is assessed in the Study that the lockout effect occurs due to the difficulty of users to easily transfer their connections, personal data and content when changing social network providers, which creates a tendency to join the largest network, and that these obstacles to data portability or interoperability lead to the prevention of market entry of competing undertakings and their inability to hold on to the market.

Within the scope of these concerns, it has been assessed that a data portability regulation should be introduced to cover platforms with significant market power regarding the transfer of data of both natural person and commercial users on the platform in question - either directly by themselves or indirectly by enabling the transfer to another platform or to the third party authorized by them - and with regard to interoperability, although it has been brought up intensively for social media, it may be beneficial to make it a general obligation rather than specifically for the sector. In addition, the General Data Protection Regulation of the European Union explicitly addresses data portability as a right granted to individuals, particularly concerning personal data.

Nadirkitap Decision dated 07.04.2022 and numbered 22-16/273-122

The Board's decision dated 07.04.2022 and numbered 22-16/273-122 is one of the decisions in which the Board assessed that the imposition of restrictions on data portability may cause competitive concerns and constitute a competition law problem. Within the scope of the relevant decision, the Board examined the allegation that Nadirkitap Bilişim ve Reklamcılık AŞ ("NADİRKİTAP"), which provides intermediary services in the online sales market of second-hand books through its website named "www.nadirkitap.com", abused its dominant position by making the activities of rival undertakings more difficult by not providing the data of the seller members who want to market their products through competitor intermediary service providers.

In the decision, NADİRKİTAP, which is in the dominant position within the scope of platform services that provide intermediary services for the sale of second-hand books, prevented the access to the book data uploaded by the seller members to www.nadirkitap.com and the portability of this data without a justified justification, by increasing the transition costs of the sellers to competitor platforms by abusing the dominant position within the framework of competition law, this situation makes it difficult for competitors to access the sellers and thus their activities, and also creates an entry barrier for undertakings wishing to enter the market.

In the aforementioned decision, it was concluded that the actions of NADİRKİTAP by making it difficult to access data and data portability fall within the context of "actions aimed at directly or indirectly preventing another undertaking from entering the field of commercial activity or making it difficult for competitors to operate in the market" and it was decided to impose an administrative fine of TRY 346.765,63 due to violation of Article 6 of Law No. 4054.

  1. Self-Preferencing or/and Promoting

The practice of preferencing one's own product/service and/or promoting one's own product/service to the forefront/top of the ranking in a way that is advantageous compared to competitors is one of the situations that provide competitive advantage against competitors by using the data obtained and collected by undertakings with significant market power in their favor. In the Study, the Authority analyzed the practices that can be evaluated within this scope and the decisions of the competition authorities of different countries on important undertakings such as Amazon, Google and Apple. As a result of these assessments, the Authority underlined the need for regulation to ensure a level playing field between undertakings providing basic platform services and commercial users benefiting from the relevant basic platform service.

Google Decision dated 12.11.2020 and numbered 20-49/675-295

The Board examined the allegation that Google, which has been found to be in violation many times as a result of the investigations of the competition authorities of other countries in terms of self-preferencing and/or promoting practices, abused its dominant position with the updates it made for general search services and Adwords advertisements and made the activities of the undertakings difficult. In its decision dated 12.11.2020 and numbered 20-49/675-295, the Board concluded that Google excluded organic results from the market by placing text advertisements in the most competitive and valuable part of the search results page in a dense and ambiguous manner, disrupted the eyeball competition between websites, and made the activities of organic results more difficult in favour of revenue generating results. In this context; as a result of the evaluations made, it has been decided to impose an administrative fine of TRY 196.708.054, 78 jointly and severally to Google Reklamcılık ve Pazarlama Ltd. Şti., Google International LLC, Google LLC, Google Ireland Limited and Alphabet Inc. due to violation of Article 6 of Law No. 4054.

In the Board’s decision in 2022, as a result of the investigation initiated against Google, which has been found to be in violation many times as a result of the investigations of competition authorities of other countries in terms of self-preferencing and/or promoting, with the accusation that Google abuses its dominant position by abusing its dominant position through updates to its general search services and Adwords advertisements, making it difficult for undertakings to operate , it was decided that Google excluded organic results from the market by including text advertisements in the most competitive and valuable part of the search results page in a dense and ambiguous manner, disrupted the eyeball competition between websites, made the operations of organic results more difficult in favor of results that generate income for itself, and due to the violation of Article 6 of Law No. 4054, Google Reklamcılık ve Pazarlama Ltd. Şti (“LLC”), Google International LLC, Google LLC, Google Ireland Limited and Alphabet Inc. were jointly and severally imposed an administrative fine of TRY 196,708,054.78. In its decision, the Board also considered remedies to put an end to the breach and assessed what would be the most effective and equitable behavioral remedies.

The Board's assessment of the proportionate intervention issue within the mentioned decision, which is one of the central discussions regarding the application of competition law in digital markets, is an important aspect demonstrating the Board's stance on this matter. In the aforementioned decision, the Board stated that under- and over-intervention in these markets brings with it the risk of affecting the incentives of undertakings to invest and innovate, and that technological development is one of the basic conditions for survival in digital markets, and therefore, the most effective solution should take into account the incentives of both the undertaking under investigation and competitors to innovate and invest. In this context, the Board determined that the behavioral remedy for the infringement in question is to provide Google's text advertisements in a quality, scale and/or position that does not exclude organic results competing with these advertisements from the market.

Google Decision dated 13.02.2020 and numbered 20-10/119-69

Another decision of the Board in 2020,  regarding Google in terms of self-preferencing and/or promoting, Google disadvantaged competitor shopping comparison services on the general search results page compared to its own related services, providing a shopping comparison service in an area where competitors do not allow equal access and cause uncertainty in terms of the nature of advertisement has brought its vertical service to the forefront by using its power in the general search services market. In this context due to the violation of Article 6 of Law No. 4054, Google Reklamcılık ve Pazarlama Ltd. Şti., Google International LLC, Google LLC, Google Ireland Limited and Alphabet Inc. were jointly and severally imposed an administrative fine of TRY 98,354,027.39. The decision also imposed obligations regarding behavioral remedies to end the infringement and to ensure the establishment of effective competition in the market.

  1. Tying and Bundling Practices

In the Study it is assessed in terms of tying and bundling practices, there is no significant difference between practices in digital markets and traditional markets; however, tying and bundling practices are not only more widespread in digital markets, but also tend to be more harmful to competition than in traditional markets. In this context, the evaluations in the cases within the scope of Microsoft's practices in this respect were shared and it was assessed that it would be appropriate to make a regulation to ensure that undertakings with significant market power through tying refrain from practices that reduce the number of potential customers for their competitors in the tying market, push existing competitors out of the market, create barriers to entry and prevent new entries.

Digiturk Decision dated 07.09.2006 and numbered 06-61/822-237

The Board's decision on Digiturk in 2006, in which the Board made important assessments regarding its approach to tying practices within the scope of abuse of dominant position, can be considered in this context.

In the related decision in which the Board made important evaluations regarding its approach to tying practices within the scope of abuse of dominant position, Digiturk, which won the broadcasting tender held by the Turkish Football Federation and became a monopoly in the broadcasting rights market for the 1st League Football matches, was investigated for selling summary images of nine matches played in a week as a bundle to other broadcasters. In the Decision, it is stated that in order for tying or bundling practices to be evaluated within the scope of Article 6 of Law No. 4054, the existence of (a) separate products, (b) tying of products, and (c) the dominant position of the undertaking engaging in the practice are sought together.

In the aforementioned decision, the Board stated that it is necessary to clarify the effect of the "bundling" on the broadcasting sector and whether it makes the activities of the organizations operating in this sector more difficult and whether there is a rational economic justification for this sales behavior; in addition to these conditions, the Board also required that both the practice has a restricting effect on competition and that there is a rational justification for the practice.

The Board concluded that Digiturk's sale of summary footage of nine matches together constitutes an abuse of the dominant position of Digiturk in the market of taped footage of the matches of the Turkish 1st Professional Football League in the open television broadcasting market.

  1. Exclusivity, Most Favored Customer (MFC) Practices and Unfair Contract Terms

In the Study, competitive concerns caused by exclusivity practices were discussed in detail in the Authority's E-marketplace Platforms Sector Review, and it was evaluated as an area in need of regulation due to the competitive concerns caused by contractual or de facto exclusivity practices of undertakings with significant market power.

It is assessed that it is necessary to implement a regulation to collectively address exclusivity, most favored customer (EKM) terms and unfair commercial terms, which will enable commercial users to operate on different platforms and reach a wider buyer base, increase competition between platforms, and enable consumers to access the goods or services offered through different channels and increase their chances of choosing the platform that offers them the most favorable prices and conditions.

Yemek Sepeti Decision dated 09.06.2016 and numbered 16-20/347-156

One of the most significant decisions of the Board in terms of EKM practices is the decision it rendered in 2016 regarding Yemek Sepeti.

The investigation in question was initiated upon the allegation that the EKM practices used by Yemek Sepeti prevented competitors from offering better / different conditions (such as price, discount, promotion, menu content, payment method, delivery region and limit) on rival platforms, leading to the exclusion of rival platforms from the market. As a result of the investigation, it was criticized that Yemek Sepeti went beyond the regulations in the contract it concluded with its member merchants stating that the member merchants would apply the same campaigns and campaign activities on Yemek Sepeti as they apply on any channel, including their own websites and competing platforms, and that the member merchants would reflect the better/different conditions applied on another channel to the Yemek Sepeti platform, and took actions to remove the promotions that it determined were not applied on its own channel from competing platforms, up to the termination of restaurants' memberships on competing platforms.

The Board decided to impose an administrative fine of TRY 427,977.70 and concluded that the practices of Yemek Sepeti made it difficult to enter and hold on to the market, as a result of which rival platforms could not differentiate their products/services in any way and many of them left the market or remained as small local players, which constituted an abuse of dominant position within the scope of Article 6 of Law No. 4054 by concluding that the practices also had exclusionary effects in the market.

  1. Lack of Transparency

In the Study, lack of transparency is addressed in three different ways in terms of the consumer dimension, self-preferencing practices of undertakings in terms of ranking and the online advertising sector. The authority states that consumers should be informed about the terms and conditions and ranking parameters of the service they receive and the advertisements they encounter while receiving this service, that the lack of transparency in terms of ranking is a competitive concern that can be addressed within the scope of undertakings' self-preferencing undertakings with significant market power, and that in terms of the online advertising market, it is necessary to regulate in this field in order to address the concerns of advertisers, publishers and intermediary undertakings in the supply chain regarding the price or performance measurement criteria arising from the platforms they receive services from.

In the aforementioned interim measure decision of the Board against Trendyol, it was decided to take an interim measure to cease all kinds of action behaviors and practices, including interventions through algorithms and coding, based on the findings of discrimination between sellers selling on the marketplace through the lack of transparency regarding the advertising rules in terms of sponsored products.

  1. Concerns regarding Merger and Acquisition Transactions

Lastly in the Study, it is stated that a detailed analysis process is necessary for mergers and acquisitions in data-driven economies, and it is assessed that data-based concerns should be taken into account in mergers and acquisitions, both in terms of the market power and entry barriers and possible competition violations. According to Authority while making these assessments, the value of the data held by undertakings in the relevant market should be revealed. In this context in the Study, it has been stated that mergers and acquisitions that may have significant effects on the relevant market should be subject to systems that will ensure that alternative thresholds such as transaction value and notification of all transactions of the undertakings in the market, rather than being turnover-oriented, are put under the supervision of competition law.

In 2022, the Authority made some revisions to the Communique on Mergers and Acquisitions Requiring Authorization from the Competition Board (the "Communique") and the Guidelines on the Evaluation of Mergers and Acquisitions, and the definition of Technology Undertakings was added to the Communique and an additional notification obligation was introduced for the transactions in which these undertakings are parties to the transfer. With the said amendment, it is aimed that the transactions for the acquisition of technology undertakings will be subject to the supervision of the Authority in a great extent and lethal acquisitions of such undertakings will be prevented.

Conclusion

Digital transformation has brought the platform economy along with it. New market dynamics and competitive concerns arise in the transforming and developing digital markets, and competition authorities are required to keep pace with these changes and developments. The evaluations made within the scope of the Study and the assessments made by the Board in the investigations where the Board concludes that competitive concerns arise, and the size of the administrative fines imposed, show how important this area is to the Authority.

When the importance of Turkey, which performs above the world average in the digitalization process, is taken into consideration with respect to the basic platform service provider undertakings, it is clear in our view that it is important to examine the digital markets and to make the necessary regulations to ensure a healthy competitive environment.

It is evident that the protection and lawful use of data, including personal data, hold significant importance in the field of competition law. Competition authorities are also vested with the power to identify competition violations through the unlawful use of personal data in their investigations and inquiries. This highlights the common areas of collaboration between both institutions.


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