Unfair Competition in Intellectual Property Law: Its Legal Nature and Sanctions

Entrance

Regarding "Unfair Competition in Intellectual Property Law," the cornerstone of a free market economy is the existence of an honest, ethical, and rule-abiding competitive environment among businesses. Businesses operating in the market naturally compete to reach more customers, increase their market share, and expand their trade volume. However, ensuring this competition is conducted fairly is vital for both protecting the efforts and investments of honest businesses and preventing consumer deception.

Intellectual property law and unfair competition law are essentially two sister disciplines serving the same purpose: to prevent the unjust appropriation of intangible assets consisting of labor, creativity, knowledge, and commercial reputation. Intellectual property law protects original assets such as trademarks, patents, designs, and copyrights as absolute rights based on property rights and through registration/protection mechanisms. Unfair competition law, on the other hand, offers a general and comprehensive network of safeguards that filters all kinds of behavior contrary to the rules of honesty in the market, whether or not an absolute right has been registered.

This study will examine the meaning of unfair competition within the framework of intellectual property law, the circumstances under which it arises, its relationship with intellectual property rights, and the legal and criminal sanctions and lawsuits that can be filed against unfair competition acts, from an academic perspective but in a clear and concise language that is easily understandable to everyone.

1. What is Unfair Competition?

1.1. Definition of Unfair Competition in General and Legal Terms

Unfair competition, in general terms, is when one takes advantage of the opportunities of economic competition while acting contrary to the rules of honesty and trust, negatively affecting competitors, consumers, or the overall functioning of the market.

In the Turkish legal system, unfair competition is regulated in two main laws:

1. Turkish Commercial Code No. 6102 (Articles 54 et seq.): The fundamental source regulating general commercial life and relations between undertakings.

2. Turkish Code of Obligations No. 6098 (Article 57): This area covers unfair competition acts that are of a more general nature and not of a commercial nature.

Article 54 of the Turkish Commercial Code defines and aims of unfair competition as follows: The purpose of the provisions regarding unfair competition is to ensure competition in an undistorted economy that is consistent with the aims of all participants. Deceptive or otherwise dishonest conduct and commercial practices that affect the relationships between competitors or between suppliers and customers are unfair and unlawful.

According to this definition, three essential elements must be present for an action to be classified as unfair competition:

• The existence of a behavior or business practice: This behavior can be an active action (such as misleading advertising) or a passive attitude (such as failing to provide information).

• Violation of the principle of honesty: A breach of objective good faith principles, business ethics, and market integrity.

• Ability to influence the competitive environment: The action has the potential to negatively impact the economic relationship between competitors, customers, or suppliers.

1.2. The Fine Line Between Unfair Competition and Competition Law (Violation)

Two concepts that are frequently confused in practice are "unfair competition" and "violation of competition law." Distinguishing between these two areas is essential for legal accuracy

• Unfair Competition (Turkish Commercial Code, Articles 54-63): Deals with fairness at the micro level. It aims to protect individual enterprises, competitors, and consumers from actions that violate the rules of honesty (e.g., imitating a competitor's brand or spreading false rumors about them).

• Competition Law / Protection of Competition (Law No. 4054): Deals with market balance at the macro level. It aims to prevent phenomena that disrupt the public market order, such as abuse of dominant position, cartel formation, anti-competitive agreements, and monopolization.

2. The Relationship Between Intellectual Property Law and Unfair Competition

Intellectual property law and unfair competition law are two important pillars that complement each other. While intellectual property law provides "special protection" through specific laws (Law No. 6769 on Industrial Property and Law No. 5846 on Intellectual and Artistic Works), unfair competition law (Turkish Commercial Code) provides "general protection".

2.1. The Principle of Double Protection (Cumulative Protection)

If an intellectual property asset (such as a trademark or design) is registered, the rights holder both trademark/design infringement lawsuits arising from the Industrial Property Law and unfair competition lawsuits arising from the Turkish Commercial Code in case of unauthorized interference with that asset. This is called "double protection" or "contest of rights" in law.

2.2. Protection of Unregistered Assets: Complementary Function

In intellectual property law, many rights (trademarks, patents, designs) gain absolute protection subject to registration. But what about assets that have been created with significant effort but are not registered and are still on the market?

This is where the most critical function of unfair competition law emerges. An unregistered trademark, an original packaging design for which a registration application has not yet been filed, an unregistered trade name or business name may not directly benefit from the special protection provided by intellectual property laws. In such cases, unfair competition provisions come into play, acting as a "safety net" and protecting the owner of the unregistered work from unfair interference by competitors.

3. Common Cases of Unfair Competition in Intellectual Property Law

Article 55 of the Turkish Commercial Code lists examples of the most common instances of unfair competition in practice. The key instances that stand out in the realm of intellectual property are as follows:

3.1. Advertising and Sales Methods That Violate the Principle of Honesty

• Disparaging Competitors or Their Products / Misleading Statements: When a business makes false, misleading, or unduly offensive statements about a competitor's intellectual property, product quality, patents, or services.

• False Claims: Unjustly labeling a product with phrases like "Patented Product" or "Registered Trademark," as if it possesses a patent, award, or design registration that it does not actually hold.

3.2. Causing Confusion (Implication) with the Trademarks, Products or Services of Others

In intellectual property law, "confusion" (risk of confusion) is the most common form of unfair competition. Confusion occurs when one undertaking uses elements that are excessively similar to a competitor's brand, packaging, business name, domain name, or product appearance, creating the perception in the consumer's mind that "these products belong to the same company.".

3.3. Unfairly Benefiting from the Labor and Efforts of Others (Parasitism)

• Intellectual Property Theft/Copying: Copying and distributing another person's ready-to-market work (such as an original database, catalog design, or digital content) directly using technical means without any personal effort or expense.

• Exploiting Brand Reputation: Unauthorizedly using the high reputation and appeal of a world-renowned registered trademark or intellectual property in one's own unique product line to attract customers without effort.

3.4. Violation of Trade Secrets and Manufacturing Secrets

Unpatented formulas, customer lists, production methods, and software codes obtained by businesses as a result of R&D efforts are considered "trade secrets." The unlawful acquisition, disclosure, or use of these secrets by unauthorized employees or competitors constitutes a serious act of unfair competition.

4. Sanctions for Unfair Competition

An intellectual property rights holder or victim of unfair competition has the right to utilize the two-pronged legal mechanism: Civil Sanctions (Lawsuits) and Criminal Sanctions (Criminal Proceedings).

4.1. Legal Sanctions and Potential Legal Actions

According to Article 56 of the Turkish Commercial Code, individuals whose customers, credit, professional reputation, commercial activities, or other economic interests have been harmed or are at risk of being harmed due to unfair competition may file the following lawsuits:

A. Declaratory Judgment

It allows the court to officially determine whether the action in question constitutes an act of unfair competition. It forms the basis for future compensation lawsuits.

B. Prevention Case

A lawsuit is filed to prevent an act of unfair competition from starting or continuing if the act has not yet occurred but is highly likely to occur or is ongoing. For example, to stop the production of products with counterfeit packaging.

C. Ref' (Restitution/Restoration) Case

Eliminating the financial consequences arising from unfair competition is the eradication of unfair competition.

• Seizure and destruction of counterfeit products, brochures, and catalogs

• Seizure of tools and molds used in unfair competition,

• Blocking access to websites,

• Correcting misleading advertisements falls within this scope.

D. Compensation Claims

It aims to compensate the party that has suffered material and moral losses due to unfair competition:

• Monetary Damages Claim: The claim seeks compensation from the perpetrator of unfair competition for the actual damages suffered by the victim and the profits lost. In intellectual property law, when calculating lost profits, the unfair gains obtained by the competitor may also be taken into account.

• Moral Damages Claim: This refers to the monetary compensation awarded to legal entities or individuals whose commercial reputation has been damaged, whose market standing has been undermined, or whose personal rights have been violated as a result of unfair competition, to compensate for the distress and loss of reputation they have suffered.

E. Proclamation of the Verdict

The winning party may request the right to publicize their case and the court decision through newspapers, digital media, or print media, with the costs to be borne by the party engaging in unfair competition.

4.2. Provisional Legal Protection: Interim Measures

Unfair competition lawsuits can take months or even years to resolve due to procedural requirements. During this time, the continued sale of counterfeit products in the market causes irreparable harm to the rights holder. Therefore, the aggrieved party may request a preliminary injunction before or along with filing a lawsuit

If the court finds strong evidence (approximate proof) of unfair competition, it may issue swift and binding injunctions such as ordering the recall of products, seizure at customs, closure of websites, or cessation of production.

4.3. Criminal Sanctions (Criminal Cases and Penalties)

Unfair competition is not only a violation of private law but also a crime that undermines the economic order of society. According to Article 62 of the Turkish Commercial Code, criminal sanctions are stipulated for individuals who intentionally commit certain acts of unfair competition.

A. Penalties under the Turkish Commercial Code

According to Article 62 of the Turkish Commercial Code, those who intentionally commit the following acts to imprisonment for up to 2 years or a judicial fine :

• Deliberately and knowingly making misleading and deceptive advertisements,

• Engaging in actions that may lead to confusion with the products, brands, or packaging of others,

• Obtaining or unfairly disclosing the manufacturing and trade secrets of competitors by deceiving employees or agents,

• Attracting customers to one's business through misleading statements.

Prosecution of these crimes is, as a rule, dependent on a complaint. Individuals or professional organizations harmed by unfair competition must file a criminal complaint with the public prosecutor's office within the complaint period, as soon as they become aware of the act and the perpetrator.

B. Penal Sanctions in Special Laws (SMK and FSEK)

If the action constituting unfair competition also constitutes an infringement of a registered trademark or copyright, then much harsher penalties under specific laws come into play

• Trademark Infringement Crime (Article 30 of the Trademark Law): A person who produces goods, provides services, offers for sale, or sells goods infringing on another's trademark rights imprisonment from one to three years and a judicial fine of up to twenty thousand days .

• Copyright Infringement (Article 71 of the Copyright Law): Individuals who reproduce, distribute, disseminate, or publicly transmit a work without the permission of the copyright holder shall face imprisonment for 1 to 5 years or a judicial fine

C. Security Measures Regarding Legal Entities

If an act of unfair competition is committed within the scope of a company's (legal entity's) activities and for the benefit of the company, in addition to the criminal liability of the individuals who committed the act, security measures (e.g., license revocation or confiscation of assets) may also be imposed on the legal entity.

5. Standing to Sue and Statute of Limitations in Unfair Competition Cases

5.1. Plaintiff Status (Persons Authorized to File a Lawsuit)

The right to file a lawsuit against unfair competition is not limited solely to rights holders. According to Article 56 of the Turkish Commercial Code, the following individuals may file a lawsuit:

• Economic actors/competitors whose customers, business reputation, or economic interests are harmed or at risk of being harmed due to unfair competition ,

• Consumers who are misled or harmed due to unfair competition ,

• Consumer associations and civil society organizations tasked with protecting the economic interests of consumers ,

• Chambers of commerce and industry, trade associations, or professional unions, established to protect the economic interests of their members .

5.2. Statute of Limitations Periods

In legal claims arising from unfair competition, limitation periods apply. According to Article 60 of the Turkish Commercial Code:

• The right to sue must be exercised within one year from the date the party entitled to sue learns of the perpetrator's identity .

• In any case, the right to sue is time-barred after 5 years from the date the act of unfair competition occurred .

However, if the act of unfair competition also constitutes a crime subject to a longer statute of limitations under the Turkish Penal Code or special laws, the criminal statute of limitations also applies to civil cases. Furthermore, the statute of limitations does not begin to run if the act of unfair competition continues uninterrupted (for example, if the counterfeit product continues to be sold on the website).

Conclusion

In intellectual property law, the institution of unfair competition is one of the most dynamic legal disciplines that ensures the free market system operates on a healthy, ethical, and sustainable basis. While it protects intellectual and industrial assets registered under special laws on the basis of absolute rights, it also protects unregistered works, trade secrets, unique packaging, and business reputation through unfair competition provisions.

Unfair competition practices are not simply a dispute between two competing firms; they are also a public problem that leads to consumer deception and eliminates honest players from the market. Therefore, our legal system has implemented strong legal remedies against unfair competition, including injunctions, preventative measures, recalls, and compensation, as well as criminal sanctions including imprisonment and fines

To prevent both businesses and consumers from suffering losses, it is crucial that they accurately identify instances of unfair competition and utilize legal mechanisms, particularly precautionary measures, in a timely and effective manner. It should be remembered that a market ecosystem that protects intellectual property and labor is the most fundamental guarantee of innovation and economic development.