Amendment on the Regulation of Electronic Commerce: “The Fire of Mount Doom”
To become spring, means accepting the risk of winter.
To become presence, means accepting the risk of absence.
The Little Prince, Antoine de Saint-Exupéry
Introduction
“Harese” is an interesting Arabic word. There is a thorn that camels love very much in the desert. The camel eats the thorn with great greed. So much so that, its mouth bleeds as it eats, but it doesn't stop eating. The taste of the thorn is mixed with the salty taste of its own blood. This mixed taste drives the camel to distraction. The more it bleeds, the more it eats. In the end, the camel dies from the loss of blood. It is said that the word for this thorn, “harese,” is where the Arabic word for "Greed" stems from.
Greed also appears in the story of the creation of the rings of power in J.R.R. Tolkien's legendary work, The Lord of the Rings. Just like the taste of his own blood that consumes the camel, greed is the main element of Sauron's plan to enslave the people of Middle-earth. Sauron, who easily obtains the people of Middle-earth with the rings of power, actually destroys them by using their greed. There is only one ring that controls them all and it has one lord, Sauron. Like the fire of Mount Doom from which it was made, that single ring burns its lord with the greed.
The last three years of our lives were passed under the influence of a pandemic. In this process, we have lost a lot of things that we were used to and that we loved. But we have also gained new habits. Every change has brought us something new. The e-commerce area, which has been expected to develop for years, has grown greedily. Turkey has also had its share of this growth. A significant portion of the six unicorn companies that have emerged in Turkey in recent years are e-commerce companies.
This rapid development called for radical amendments to Law No. 6563 on the Regulation of Electronic Commerce ("E-commerce Law") adopted in 2014. These long-awaited amendments finally came with the Law Numbered 7416 Regarding the Amendment to the Law on Regulation of Electronic Commerce[1] ("Amendment"). This Amendment, which is revolutionary in every respect, is actually a salute to competition law practices that have been ongoing for a while in the field of e-commerce.
The E-Marketplace Platforms Sector Inquiry
The Turkish Competition Authority (“The Competition Authority”) turned its attention to e-commerce developments during the COVID-19 period. The most important of these was the E-Marketplace Platforms Sector Inquiry. A comprehensive report ("Report") was published in this inquiry.[2]
The Report was a frame breaking inquiry of the subject. In particular, data collection activities of platforms such as e-marketplaces, the important role they play for access to market and hence their market power were a harbinger of a change for the future. Above all, the radical recommendations and conclusions of the Report, which call for serious regulatory amendments, were noteworthy. Importantly, the Report stated that the problems could not be solved only by competition rules and suggested that new regulations should also be made.
The report expressed some competitive concerns. For instance, the risk of discrimination among sellers and arbitrary practices regarding product and seller ranking on platforms were among the most significant of these. In particular, the data collected by platforms and the concerns that this causes was perhaps among the most important findings of the Report. The finding that some practices of e-marketplaces based on market power were deemed to be unfair commercial practices and that this has a negative impact on intra-platform competition was also remarkable. The most notable of these was undoubtedly the data-driven competition law concerns, which began with the German Federal Cartel Office's Facebook case and continued with the European Union Commission's investigations into Apple and Amazon. In the Report, the Competition Authority also made very clear findings on this new type of data-driven competition violations.
The last finding in the Report is the discrimination risk related to hybrid marketplaces, i.e. marketplaces that both operate as platforms and that sell products. Accordingly, these hybrid marketplaces could favor themselves and exclude competing sellers. Examples of these practices include giving priority to one's own products in listings and rankings, using seller data to gain an unfair advantage in the products that one sells, and providing unfair advantages to sellers who benefit from the marketplace’s associated services compared to other sellers. In order to eliminate this information asymmetry, the report recommends that "listing, ranking and related service utilization" conditions be determined "objectively" and that they be shared with sellers in "clear", "understandable" language, and in a "transparent" and "easily accessible" way. It also warned that marketplaces, as gatekeepers, should not create barriers to consumers' and sellers' access to their data and its transfer to other platforms. The expansion of e-marketplaces' activities into related markets is similarly seen as problematic. In case marketplaces access related markets such as cargo/logistics and payment systems, this may raise competition concerns for both sellers and undertakings in these markets.
An Amendment Blown in by Competition Law Winds
The Amendment deeply affects the E-Commerce Law that entered in force in 2014. In fact, the Amendment bears significant traces of competition law in terms of both the draft law and the preambles of its articles. Surprisingly, the traces of the Report are seen both in the general preamble and in the article preambles of the draft. It should be emphasized that most of the undertakings using e-marketplaces are micro and small enterprises, and that they lack bargaining power against e-marketplaces. For this reason, the Amendment states that e-marketplace companies often engage in unfair and unequal practices such as imposing unilateral contractual provisions, highlighting their own goods or services, complicating or disallowing data portability, forcing the supply of goods or services, making late payments, forcing provide promotional goods or services, receiving a fee despite not providing any service, downgrading electronic commerce service providers in the ranking or recommendation system, restricting, suspending or terminating the services offered.
Saturations in the relevant market are also highlighted. E-marketplaces that grow with aggressive growth strategies further strengthen their market position due to economies of scale and network effects. The Amendment also states that this is an entry barrier for the market. More importantly, data-related concerns are also included in the general preamble. It states that the data collected through e-marketplaces are used by these undertakings and gives them a voice in areas such as logistics and payment systems. This situation enhances both consumer dependency and concentration in the market. In the medium and long term, this leads to monopolization, higher prices, a decrease in quality and product diversity, and the elimination of innovation.
In conclusion, the Amendment also makes a reference to the state's objective of the prevention of cartelization, as regulated in Article 167 of the Constitution. It emphasizes the importance of the effective functioning of markets in terms of ensuring social welfare. Highlighting the risk of monopolization of e-commerce, which is an important commercial channel, it states the need to regulate this issue for the public interest. It also points out that e-marketplaces have become determinant in areas such as finance, logistics and information-communication within the e-commerce ecosystem due to this monopolization and the potential risks of this situation in terms of the economic, social and democratic social order.
Some of the rules created by the Amendment are in line with competition law concerns in this sense. For instance, the Amendment prohibits e-commerce intermediary service providers from offering for sale or intermediating the sale of goods bearing their own trademarks or trademark usage rights in e-commerce marketplaces where they provide intermediary services. This new rule aims to prevent e-commerce intermediary service providers from abusing their market power. Similarly, it also aims to prevent e-commerce intermediary service providers from using the data obtained from the undertakings to which they provide intermediary services so as to gain an advantage when competing with these undertakings.
Another amended obligation imposed on e-commerce intermediary service providers with an annual net transaction volume of more than ten billion Turkish Liras (“TRY”) is to allow sellers using these platforms to transfer their data to other platforms. Another obligation imposed on e-commerce intermediary service providers with an annual net transaction volume of thirty billion TRY is to prevent them from forcing anyone to purchase goods or services from any person, including services such as cargo provided by them. Another obligation imposed on e-commerce intermediary service providers with an annual net transaction volume of sixty billion TRY is to prevent them from transferring their market power to financial services, cargo and logistics services.
Conclusion
The E-commerce area is undoubtedly one of the most dynamic sectors in terms of competition law. The Competition Authority, which revealed its competitive concerns in the Report, seems to have paved the way for many changes. The first of these came with an amendment that has made waves in this sector. Time will tell what its effects will be, but the Amendment aims to prevent many of the issues that have been raised in the rapidly and even greedily growing e-commerce area. As stated in the draft, these issues are related to the risks that the market power of e-marketplaces contains risks in terms of economic, social and democratic social order. Thus, the Competition Authority drew attention to a significant part of these risks with the Report published after a long study. The e-commerce sector, which was once identified with innovation, technological development and even the variety of products offered to the consumer, is now on the agenda due to its negative aspects. In particular, e-marketplaces, like many platform economies are being seriously examined due to their market power. Just like the rings of power, e-marketplaces are being tested by the fire of Mount Doom. In fact,
“to become spring, means accepting the risk of winter.”
- For the preambles of the proposal and articles, see https://www2.tbmm.gov.tr/d27/2/2-4528.pdf, for the relevant Law, see https://www.resmigazete.gov.tr/eskiler/2022/07/20220707-2.htm (Date accessed: 27.09.2022)
- https://www.rekabet.gov.tr/Dosya/sektor-raporlari/e-pazaryeri-si-raporu-pdf-20220425105139595-pdf (Date accessed: 9.10.2022)
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