Old Rules and Needs of a New Legislation
Turkish Commercial Code numbered 6762 and dated 29 June 1956 (the "TCC") defined unfair competition as "the abuse of economic competition by way of actions that are misleading or violating good faith," in its Article 56. The TCC, in Article 57, provided examples of unfair competition, such as decrying its competitors, their products and activities with false, misleading, or unnecessary declarations, the disclosure of confidential information of competitors, and violation of business conditions that are also applicable to the competitors.
The TCC's approach to unfair competition has been criticized for many years, by the majority of the scholars, and also by practitioners, as being outdated and inadequate vis à vis market practices, and they are all of the same opinion regarding the need to regulate unfair sale practices, misleading price declarations, inducement to breach contracts, exploitation of others' efforts and business products, breaching work conditions, and unfair general contract terms within unfair competition cases in order to overcome the irrelevance of the TCC rules. Therefore, in the preparation of New Turkish Commercial Code numbered 6102, dated 13 January 2011 (the "New TCC"), the preparatory commission took into account the foregoing considerations. The Commission has also reshaped the unfair competition legislation and harmonized this new legislation with the rules of the Law on Protection of Competition, Law on Protection of Consumers, and Law on Prevention of Unfair Competition in Importation1.
New TCC and New Definition of Unfair Competition
Unfair competition provisions have been set forth under Articles 54-63 of the New TCC. The New TCC states in its Article 54 that the acts or commercial practices between competitors, providers and customers that are misleading or violating the rules of ethics or the bona fide principles are unfair and contrary to the law. The same provision also formulates the purpose of the unfair competition provisions, as the formation of the context of fair and uncorrupted competition for the interest of all participants, including competitors and customers. This requires, without any doubt, that the interest of the general public be taken into consideration and duly protected, as well.
In parallel to the old system, the New TCC provides a list of major unfair competition cases that are frequently seen in the market place. The review and comparison of the lists provided in two legislations, the TCC and the New TCC, reveals that new cases reflecting the critiques of the scholars and the practitioners, have also been added to the list in the New TCC2.
Major Unfair Competition Practices – Examples
The list provided in Article 55 of the New TCC covers six major unfair competition cases3. The unfair competition cases set forth in the New TCC are not numerus clausus. Therefore, other acts or commercial practices that mislead and/or violate the bona fide principle between competitors, providers and customers will also constitute unfair competition, and are prohibited by the law. The New TCC not only expanded the scope of the provision by adding new examples of unfair competition cases, but also added new persons and interests to be protected by the unfair competition rules.
Advertisement and Sale Methods (New TCC Article 55.(1).a)
Among the examples listed in New TCC Article 55.(1).a, the first one is the advertisement and sale methods that violate good faith principles. The provision states these unlawful methods as being: (i) decrying a competitors' business, products, prices and activities with false and misleading declarations; (ii) false and misleading declarations regarding a competitors' business, products, prices, stocks or activities; (iii) cause and benefit from confusion deliberately created with a competitors' business, products or works; (iv) selling some products at their wholesale prices and notably declaring these in its advertisements, and misleading its customers concerning its own, or its competitors' talents, by selling these products at their wholesale prices; (v) misleading customers as to the real value of products using bundling practices; (vi) restricting the choice of customers using aggressive sale tactics; and/or (vii) using provisions containing false or missing information as to the price, payment conditions, contract period, consumers' right in an installment sale, or consumer loan agreements.
Influencing Customers to Breach or Terminate an Agreement (New TCC Article 55.(1).b)
According to Article 55.(1).b of the New TCC, acts that influence customers to breach or terminate their agreements, with the intention to conclude agreements with them, constitutes unfair competition. In this respect, the same provision underlines certain examples such as: (i) concluding contracts with customers by influencing them to breach their agreements with competitors; (ii) influencing the employees, attorneys or other associates of competitors to disclose or provide confidential production/work information; (iii) influencing a consumer or a customer to cancel or terminate his/her sales agreement or consumer loan agreements in order to be able to execute similar agreements with him/her.
Unlawfully Benefiting from Products of a Third Party (New TCC Article 55.(1).c)
This provision aims to protect the intellectual and industrial property rights that have been newly entered into our legal system4. In this respect, the provision prohibits unauthorized benefiting from the products of a third party, such as offers, calculations or plans that are consigned or owned by third parties, or by transferring them through duplication techniques.
Use of General Contract Terms that Violate the Concept of Good Faith (New TCC Article 55.(1).f)
The use of general contract terms that violate the concept of good faith is a new unfair competition case added to the list provided in the New TCC. This unfair competition case contains the use of general contract terms that materially diverge from legal provisions, which are applicable directly or through interpretation, and also those that include
the distribution of rights and obligations, which are materially contrary to the nature of the agreement.
The New TCC also lists the disclosure of production or confidential information (New TCC Article 55.(1).d), and the violation of business conditions (New TCC Article 55.(1).e) among the cases of unfair competition.
The New TCC sets forth legal and criminal consequences that may result from lawsuits which may be filed in relation to the unfair competition cases.
Civil Actions and Consequences
In the event of an unfair competition act, the legal actions that may be taken are: (i) Declaratory action;5 (ii) Action to prevent the unfair competition act;6 (iii) Action for restitution7; and (iv) Action for compensation of the damages that result from the unfair competition act8 (Article 56 of the New TCC).9
In these instances, the court may also rule for the payment of a specific amount for damages, condemnation of the act, and announcement of the decision by way of the media. The scope and the form of announcement are decided to be by the court.
The New TCC clearly states that the plaintiff in a lawsuit brought due to any of the above-stated actions may not only be the competitors whose interests are violated, but as well may be the customers whose economic benefits are harmed or placed in danger by the unfair competition acts. In addition, the first three of the legal actions indicated above may also be filed by the chambers, the professional associations and the non-governmental organizations with the aim to provide protection of consumers' economic benefits. The law, hereby, underlines its new approach and indicates that the unfair competition rules are not only set forth for the protection of the competitors but, as well, for customers, organizations and competitors.
According to Article 62 of the New TCC, those who (i) intentionally commit the acts of unfair competition, (ii) intentionally provide false or misleading information relating to its personal situation, products, business products, commercial activities and activities in order that its offers and proposal be given preference above its competitors, (iii) entice employees, officers or other workers to reveal their employers' or customers' production or commercial secrets, or (iv) have not prevented a punishable act of unfair competition performed by their employees, workers or representatives, and/or have not restored the action of the misrepresentation, will be punished by two years of imprisonment, or will be fined, accordingly.
The provision seems to be the simplified version of Article 64 of the TCC; however, this is compatible with the new system of the Turkish Penal Code numbered 5237 and dated 26 September 200410 (the "Turkish Penal Code"). The New TCC states, in its Article 63, that the penal clauses also apply to the members of the management or the shareholders who have acted in the name of the legal entity. In addition, the same article also underlines that the security measures may be applied to the legal entities that commit acts of unfair competition.11
The New TCC has expanded the list of major unfair competition cases and, thus, the scope of the new rules after its entry in force in the coming months. The application of the penal clauses, the security measures, and the acceptance of penal risks of management bodies and shareholders are seen as important innovations of the New TCC, in that the scholars and the practitioners are also curiously awaiting the implementation of these by the courts.
1 Respectively, the Law dated 7 December 1994 and numbered 4054; the Law dated 23 February 1995 and numbered 4077 and the Law dated 15 June 1989 and numbered 3577.
2 The new cases also reflect the intention to harmonize the unfair competition rules with the competition law and consumer protection law rules.
3 The six unfair competition cases stated in the New TCC are: (i) Unfair advertisement and unfair sale methods; (ii) Influencing customers to breach or terminate agreements; (iii) Unlawfully benefiting from products of third parties; (iv) Disclosure of production secrets or other confidential information; (v) Violation of business conditions and rules; and (vi) The use of general contract terms substantially differing from the legislation, or covering unbalanced contractual obligations, or generally violating the concept of good faith.
4 As also stated in the preamble, this provision refers to the intellectual and industrial property rights that are not protected under other legislation, such as trademark, logo or patent protection.
5 The declaratory action relates to examination and declaration of the acts constituting unfair competition.
6 The action for prevention seeks suspension of act constituting unfair competition.
7 The action for restitution seeks elimination of the unlawful consequences of the act of unfair competition.
8 The action for compensation aims compensation of damages resulting from an act of unfair competition. The New TCC, taken into consideration the difficulty of calculating the damage suffered, in its article 56 (1)(e) accepts that that the amount of damage suffered will be equal to the amount of gains of defendant resulting from the act of unfair competition.
9 The legal actions should be filed within one year from the date that the plaintiff is informed on the act and within three years from the act. Please kindly note that in relation with the acts that are also punishable under the Penal Code, then the rules of the statute of limitation determined in the Penal Code shall apply.
10 Please kindly note that in accordance with the nullum crimen sine lege principle, only the acts expressed in Article 55 of the New TCC will only be subjected to this penal clause. Other acts that may be considered as unfair competition will not be subject to the application of Article 62 of the New TCC.
11 The security measures applicable to the legal entities are regulated in Article 60 of the Turkish Penal Code.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.