Turkey: Unfair Competition Claims for Sale of Certain Products Below Purchase Price

Last Updated: 17 October 2018
Article by Gönenç Gürkaynak Esq, Tolga Uluay and A. Bahadır Erkan

Most Read Contributor in Turkey, October 2018

As a general principle, an enterprise has the right under Turkish law to freely determine the prices of its products and services. In other words, there is no rule under the Turkish competition law regime that would require enterprises to set a minimum price for then- goods and services. In principle, even selling products at a price lower than the purchase price would not be deemed as engaging in unfair competition under Turkish competition law. However, there is one exception to this rule, the details of which are explained below.

Article 55(l)(a)(6) of the Turkish Commercial Code No. 6102 ("TCC") provides that, under certain circumstances, "offering certain goods, business products or activities for sale below their purchase price" might constitute an act of unfair competition. There are four conditions that must be cumulatively met in order for such pricing to be labeled and treated as "unfair competition." These conditions are as follows:

(i) Pricing must apply only to certain goods, business products or activities: This condition requires that only certain goods, business products or activities must be offered for sale below their purchase price. Therefore, if all goods, products or activities are offered for sale below their purchase prices, then this condition will not be satisfied, and thus such a pricing strategy cannot be considered as an act of unfair competition.

(ii) The goods or services must be offered for sale below their purchase price more than once: Pursuant to this condition, the sale in question must occur below the purchase price (i.e., below the cost of the relevant product to the seller). Moreover, the product or service must be offered for sale below the purchase price more than once. In other words, if such a transaction only happens once, this condition will not be met, and the practice in question cannot be deemed to constitute an act of unfair competition.

(iii) Such offers must be specifically emphasized in advertisements: Pursuant to this condition, the offering of certain goods, business products or activities below their purchase prices must be specifically highlighted in advertisements or announcements. If there is no such advertisement emphasizing the fact that the product or service is being offered for sale below its purchase price, then this condition will not be fulfilled, and the pricing practice cannot be considered as an act of unfair competition.

(iv) Customers must be misled about the seller's and its competitors' capabilities: This condition can only be fulfilled if the seller offering products or services for sale at prices lower than the purchase price creates the impression that, in general, it sells goods and services at prices that are lower than its competitors' prices. What this means is that, under the influence of this deceptive impression, consumers must be misled into thinking that they are buying "all" of the seller's products at lower prices, not just "certain" products. It is quite difficult to prove consumers have been misled in practice, which is why Article 55(l)(a)(6) of the TCC introduces a presumption in favor of the existence of misleading circumstances. According to this presumption, "if the sales price is below the purchase price of similar goods, business products or activities in similar quantities, there exists a misleading practice." With that said, it must be noted that it is surely always possible for the seller to prove that it does not mislead consumers. For instance if the seller's advertisements bear remarks that would reasonably make a consumer understand that not all products are sold at low prices but just the indicated ones, then the seller could claim that there is no misleading of consumers. Moreover, if the seller can prove that its "real" purchase price is lower than the "presumed" purchase price (and, accordingly, that its selling price is higher than its purchase price), this provision cannot be applied at all, and such pricing practices cannot be deemed to constitute acts of unfair competition.

Unless all four of these conditions are cumulatively met in any given case, there will be no restrictions on lowering prices from the perspective of the Turkish competition law regime. At this point, it must also be noted that the abovementioned conditions all bear subjective elements that are somewhat open to interpretation (for instance, "misleading customers by creating the impression that all products are sold at lower prices" and "unduly and specifically emphasizing low price offerings in advertisements" are both quite subjective conditions). Therefore, it would be prudent to assess each case in which a product/service is offered for sale at a price lower than its purchase price according to its own specific facts and circumstances, in consideration of these conditions.

The High Court of Appeals has applied Article 55(l)(a)(6) of the TCC in two recent cases in which the plaintiffs claimed that the defendants had been selling baguettes at below-cost prices. In the first case, the local court ruled that the defendant's activities constituted an act of unfair competition and declared that its activities must be prohibited, as the defendant had been selling baguettes at a price that was significantly lower than the per-unit cost. With its decision dated October 4,2017 (numbered 2016/2803 E. and 2017/5044 K.), the 11th Civil Chamber of the High Court of Appeals affirmed the local court's decision, as it also concluded that the defendant had continuously engaged in the practice of selling its products at prices that were lower than their costs. However, a dissenting opinion was also published in this decision, and the dissent argued that the local court's decision should have been overturned, as it had failed to duly examine whether the four sine qua non conditions of Article 55(l)(a)(6) of the TCC had been cumulatively met in this specific case.

Almost five months later, on February 28, 2018, the 11th Civil Chamber of the High Court of Appeals rendered another decision in a case that was factually very similar to the one discussed above. In that case, the defendant had been giving one free baguette to all customers who bought two baguettes. The local court concluded that, although the per-unit price charged by the defendant had been lower than the per-unit cost of a baguette, the defendant's activities constituted a promotion, which is a legally sanctioned and acceptable sales method, and that consequently, there was no unfair competition in this case. With its decision dated February 28, 2018 (numbered 2016/7703 E. and 2018/1505 K.), after explaining the four mandatory and cumulative conditions of Article 55(l)(a)(6) of the TCC, the 11* Civil Chamber of the High Court of Appeals overturned the local court's decision by emphasizing that the local court had merely determined the sales price and cost, but had failed to examine whether the four sine qua non conditions of Article 55(l)(a)(6) of the TCC had been cumulatively satisfied in this specific case.

To sum up, the sale of certain products below their purchase prices may sometimes be considered and punished as an act of unfair competition under Article 55(l)(a)(6) of the TCC, but only if the four conditions specified in the provisions are cumulatively met. Therefore, it is possible to conclude that the application of Article 55(l)(a)(6) of the TCC is not so simple or uncomplicated in practice. Recent case law also suggests that the High Court of Appeals is very strict in its decisional practice of applying the statutory rules and evaluating the fulfillment of the four conditions discussed above.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in September 2018. A link to the full Legal Insight Quarterly may be found here.

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.

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