Unfair Competition Based on Price

Unfair Competition Based on Price

SELF

Until the 1980s, Turkey adopted a mixed economic system. Subsequently, the 1982 Constitution introduced a liberal economic system. The free market environment brought about by liberal economics competition. This competition, arising from the free establishment of commercial relations, contributed to economic development and the flow of money. In cases of unfair competition, the state intervenes by establishing rules and regulations. The aim of these rules is to ensure fair and free competition. Regulations concerning unfair competition aim to protect the free market environment. Following recent events in Turkey and worldwide, the concept of unfair competition has gained importance, leading to the implementation of new regulations.

Keywords: Competition Law, Unfair Competition, Turkish Commercial Code

ENTRANCE

In recent centuries, competition has progressed alongside advancing economic systems. Looking at the economic policies of developed countries, competition is paramount. Taking America as an example, the competition between different brands within the country provides financial growth for both the country and the brands. Governments need to regulate such an important issue. Governments regulate internally as well as being subject to international agreements. In this way, competition is protected. Without regulation, it is impossible to speak of a free market environment. The concentration of money in a single hand is detrimental to both the state and the communities in the market. To create an honest and free market environment, regulations are put in place to eliminate unfair competition.

This article will first provide relevant definitions and the benefits of competition. Following this, the elements constituting unfair competition and its legal aspects will be discussed, and Turkish legal legislation will be examined. Finally, the issue of unfair competition based on price will be explained within the context of everything discussed above.

CHAPTER ONE

1. The Concept of Competition
   • Definition

Generally, when we look at the concept of competition, it means the struggle, contest, or competition between people who have the same goal.[1] Competition is the struggle between people who have the same goal to achieve that goal, and those involved in this struggle are called rivals.[2] In another definition, competition refers to the race that enables the free making of economic decisions between undertakings in the goods and services markets.[3] Competition law contains rules that ensure the protection and regulation of competition.

• Definition of a Free Market

A free market is a market where the price of a product is determined by mutual agreement between the buyer and seller, and its supply and demand are not interfered with by the government.[4] The government cannot interfere with the market, but it can defend it. In cases of unfair competition, as in our case, the free market must be defended to ensure its proper functioning. The government is responsible for defending the free market through its regulations. Voluntariness is essential in a free market. Unlike in other economic systems, forced buying and selling transactions cannot be carried out. There is voluntary exchange within the framework of competition.

• Unfair competition

Competition is a constitutional right. In countries that have adopted a liberal economic system, the right to competition is regulated as a constitutional right. Rights must be exercised in accordance with the principle of honesty, without harming the rights of others.[5] Those who compete should not infringe on the rights of others. In a constitutional sense, Turkey has adopted a liberal economic system. This is regulated in the first paragraph of Article 48 of the 1982 Constitution, entitled "Freedom of work and contract".

“Everyone has the freedom to work and enter into contracts in any field they choose. The establishment of private enterprises is free. The state shall take measures to ensure that private enterprises operate in accordance with the requirements of the national economy and social objectives, and that they function securely and stably.”

As clearly stated in the article, the principle of free trade is emphasized by regulating the economic rights of individuals.[6] Even though the concept of competition is not explicitly mentioned in the article, the principle of freedom of competition, which is a benefit of the free market, is regulated indirectly. According to the rights provided by this provision, everyone can freely engage in commercial activity.

2. The Benefits of Competition

 Competition allows countries to progress economically, and the consumers within those countries benefit from this progress. It provides benefits not only economically but also socially, because:

The quality of goods and services improves, incentives for technological advancements increase, prices are controlled, the highest quality goods can be purchased at the lowest prices, barriers to market entry are removed as prosperity increases, goods and services produced are distributed to wider audiences, and businesses grow and expand economically... Even with these few benefits, we see that competition should be defended by the state within the framework of ethical and moral values.

PART TWO

3. Elements of Unfair Competition

The elements of unfair competition can be listed as the existence of economic competition and a violation of the rules of honesty.[7]

            3.1. Competition Relationship (Existence of Economic Competition)

For a competitive relationship to exist, there must be a free market. Competition cannot exist in an economic system without a free market. Unfair competition exists only if the competing action generates a profit.

3.2. Violation of the Rules of Honesty

According to Article 54, paragraph 1 of the Turkish Commercial Code:

“Deceptive or otherwise dishonest conduct and commercial practices that affect relationships between competitors or between suppliers and customers are unfair and unlawful.”

As this provision indicates, the principle of fairness is necessary for competition. Unfair competition requires acting in violation of the principle of fairness. Article 55 of the Turkish Commercial Code defines the situations that violate the principle of fairness in terms of unfair competition. In short, these are:

• Comparative advertising that is untrue, misleading, unnecessarily demeaning to a competitor, or that exploits a competitor's reputation.
• Misleading customers about the capabilities of competitors or one's own products, or about the true value of the goods, by offering selected products for sale at multiple below-market prices.
• Using aggressive sales tactics to restrict customers' freedom of decision-making.
• In installment sales and similar contracts for consumer loans, consumers are often not adequately informed about costs, sales prices, and interest rates
• To persuade customers to terminate existing contracts in order to enter into a new one with him.
• Using someone else's products without authorization.
• Using general terms and conditions that violate the principle of honesty. [8]

These are, in short, the elements necessary for unfair competition to occur.

4. Unfair Competition Lawsuit

According to Article 56 of the Turkish Commercial Code, for a tort to occur, there must be damage and a risk of damage, as well as a causal link. Unfair competition is considered to exist when the economic interests listed in the article are damaged or there is a possibility of damage. There is a Supreme Court decision regarding the causal link.[9]  According to the theory of appropriate causal link accepted by Turkish law, there must be an appropriate causal link between the economic interest that has suffered damage or is at risk of suffering damage and the unfair competition. If these conditions specified in the law exist, a lawsuit can be filed.

5. Regulations in Turkish Legal Legislation

Although not explicitly stated in our Constitution, we derive the concept of unfair competition from Article 167. According to this provision of the Constitution, the state defends the free market in terms of competition.

1. Market supervision and regulation of foreign trade

ARTICLE 167 - The State shall take measures to ensure and develop the healthy and orderly functioning of money, credit, capital, goods and services markets; it shall prevent monopolization and cartelization that may arise in the markets, whether through actual practices or agreements.

In addition to the Constitution, there are regulations in the Turkish Code of Obligations (TBK) and the Turkish Commercial Code (TTK). We mentioned Articles 54 and 55 of the TTK above. Article 57 of the TBK deals with unfair competition.

ARTICLE 57 - A person who suffers a decrease in customers or faces the risk of losing them due to the dissemination of false news, the publication of such advertisements, or other conduct contrary to the rules of honesty, may request that such conduct cease and, if fault is found, that their damages be compensated.

The provisions of the Turkish Commercial Code regarding unfair competition in commercial transactions are reserved.’’

CHAPTER THREE

Unfair Competition in Terms of Pricing

6. Legal Responsibility and Consequences

Individuals who have suffered damage or are at risk of suffering damage as a result of an act of unfair competition have the right to file lawsuits as stipulated in Article 56 of the Turkish Commercial Code. According to this article, the types of lawsuits can be listed as follows:

• A declaratory judgment lawsuit is a legal action taken by a court to determine whether an act constitutes unfair competition. The lawsuit does not require a legal interest and can also be filed as a performance lawsuit. Because the outcome only determines whether unfair competition exists, enforcement proceedings are not possible. It constitutes a final judgment and conclusive evidence.
• A lawsuit seeking the prevention of unfair competition is a type of lawsuit filed to both prevent and stop unfair competition when it occurs. Fault is not required for filing this lawsuit, as it aims to stop unfair competition while it is ongoing, prevent its recurrence after it has ended, or prevent it from ever happening again.
• A lawsuit seeking the elimination of the material consequences of unfair competition; the aim of this type of lawsuit is to eliminate the consequences of unfair competition and to restore the situation before the act of unfair competition was committed.[10] No fault requirement is sought.
• In cases where fault is found, lawsuits seeking material and moral damages are a type of lawsuit filed to obtain compensation for damages and losses if fault exists.

The injured party, or the person at risk of injury, has the right to file one or more of the aforementioned lawsuits.

6.1. Parties to the Case

Here, the defendants may be competitors who have committed acts constituting unfair competition, or individuals who have directly or, in some cases, indirectly participated in the acts of unfair competition.[11]

            6.2. Criminal Liability

Criminal liability is regulated in Articles 62 and 63 of the Turkish Commercial Code (TTK). These articles explain the criminal liability of natural persons first, followed by that of legal entities. The relevant articles are as follows:

ARTICLE 62- (1) a) Those who intentionally commit one of the unfair competition acts listed in Article 55,

1. b) Those who knowingly provide false or misleading information about their personal circumstances, products, business products, commercial activities, and businesses in order to have their own offers and proposals preferred over those of their competitors
2. c) Those who deceive their employees, agents, or other assistants in order to enable them to obtain the manufacturing or trade secrets of their employer or clients,
3. d) Employers or clients who, upon learning that their workers, employees, or agents have committed an act of unfair competition punishable under Article 56 while performing their duties, fail to prevent such acts or correct false statements, shall be punished, unless the act constitutes another crime punishable by a more severe penalty, with imprisonment of up to two years or a judicial fine for each of the acts falling within the scope of this paragraph, upon the complaint of one of those entitled to file a civil lawsuit under Article 56.

ARTICLE 63 - (1) If an act of unfair competition is committed during the conduct of business by legal entities, the provisions of Article 62 shall apply to the members or partners of the organ acting or required to act on behalf of the legal entity. If the act of unfair competition is committed within the scope of the activity of a legal entity, specific security measures may also be decided upon against the legal entity.

6.3. Cases of Unfair Competition Based on Price

Article 55 of the Turkish Commercial Code lists instances of unfair competition in accordance with the principle of good faith. These instances are not a numerus clasus (limited number); they may increase depending on the situation in practice and the principle of good faith. This article examines only those instances listed in the law.

6.3.1. Defamation (Turkish Commercial Code, Article 55/1, a-1)

According to the article, for defamation to occur, the statement must be in the form of a declaration; it must be false, misleading, or unnecessarily offensive; and it must relate to price. Assessments are made within the framework of Supreme Court decisions.[12]

6.3.2. Gaining a Competitive Advantage for Oneself or a Third Party Through False and/or Misleading Statements (Turkish Commercial Code, Article 55/1, a-2)

The most common type of misleading advertising is the advertisement itself. The features of the goods are exaggerated in the advertisements, presenting them differently than they actually are. Another common practice is the creation of advertisements suggesting a discount, even though no actual discount exists, in order to attract more consumers. The recent trend of excessive price increases without justifiable reasons can also be considered under this category, as it creates a false sense of reality for consumers.

6.3.3. Making Comparisons (Turkish Commercial Code, Article 55/1, a-5)

This term, newly introduced into Turkish law, is actually the most frequently used method. While comparing goods within an objective framework provides benefits in terms of competition, it is observed that advertising campaigns often operate without such objective comparisons. This situation, most commonly encountered in advertisements, can lead to misleading information by making comparisons based on price or quality.

6.3.4. Selling Below the Supply Price (Turkish Commercial Code, Article 55/1, a-6)

Individuals, by virtue of constitutional guarantees, have the freedom to determine the prices of the goods they sell. However, this freedom is restricted in certain situations depending on the circumstances.

• Certain selected goods or services are the first requirement. Here, the intention is to deliberately prey on consumers. This is achieved through advertising, specifically designed to attract consumers to the product.
• Offering the product for sale below the supply price is another requirement. This is especially common in supply chains. The ability of some chains to quickly procure various products at low costs creates unfair competition between them and other chains.
• By emphasizing in advertisements that sales are made below the supply price, an unfair competitive environment is created.

6.3.5. Misleading About the True Value of the Presentation Through Additional Actions (Turkish Commercial Code, Article 55/1, a-7)

The aim is to create misleading information about a property through additional actions.

6.3.6. Making Incomplete Statements in Advertisements (Turkish Commercial Code, Article 55/1, a-10, 11, 12)

Providing incomplete information about installment payment contracts in advertisements and thus attracting people to the advertisement constitutes unfair competition.

6.3.7. Using Contractual Forms (Turkish Commercial Code, Article 55/1, a-12)

Sales made by providing incomplete or misleading information to the customer regarding cancellation, termination, and payment terms, while seemingly using a contract formula in accordance with the Law of Obligations, constitute unfair competition.

6.3.8. Failure to Comply with Working Conditions (Turkish Commercial Code, Article 55/1, e)

The conditions of some professions are regulated by law or contracts. Individuals who act contrary to these regulations to gain an advantage over their competitors are engaging in unfair competition. Here, the focus is on non-compliance with business conditions; the act of achieving unfair competition is not required. The person acting contrary to the business conditions is directly considered to have gained an advantage.

In conclusion, we have provided all the necessary information regarding the concept of unfair competition. The legislator has not regulated this concept in a casuistic manner in the law. This is because new areas and new competition zones will emerge within the framework of a developing liberal economy. The law has taken this approach to ensure its application to potential situations and to prevent loss of rights.

Remember that every event and situation is evaluated and concluded within its own context. For more detailed information and to manage the process effectively, you can contact our office.

[1] Turkish Language Association dictionaries, General Turkish Dictionary

[2] Güzel Eryürek, Unfair Competition Through Price, Seçkin Yayıncılık, 2021, p. 20.

[3] Yılmaz ASLAN, Competition Law Lectures, Ekin Publishing, 2017, p.7.

[4] Karalar, Rıdvan (2001). General Business Administration. Eskişehir: Anadolu University. p.4

[5] Oğuzman/Barlas, age, pp. 262-267

[6] Güzel Eryürek, Unfair Competition Through Pricing, Seçkin Yayıncılık, 2021, p. 24.

[7] Attorney Mehmet BALLI, Unfair Competition According to the Turkish Commercial Code, Customs & Trade Journal, Issue: 5, Year: 2015

[8] Attorney Mehmet BALLI, Unfair Competition According to the Turkish Commercial Code, Customs & Trade Journal, Issue: 5, Year: 2015

[9] YHGK, E.2007/11-965, K. 2007/961, T. 12/12/2007

[10] Nomer, ibid., p.412; Sanoz, ibid., 61.

[11] Sarıöz, age, p. 62.; Nihai Çınar, Unfair Competition and Sanctions According to the Turkish Commercial Code, (Master's Thesis, Kocaeli University, Faculty of Social Sciences, Kocaeli, 2014), p. 98.

[12] Court of Cassation, 11th Civil Chamber, October 10, 2019, Case No: 2018/52022, Decision No: 2019/6452

Zeynep Sıla ÇARDAKBAŞI