Unfair competition in Turkey is subject to regulation through various legal instruments, including the Commercial Code, the Paris Convention for the Protection of Industrial Property (which mandates signatory states to safeguard their citizens from unfair competition), and the Competition Law.
The Competition Law in Turkey, inspired by the European Union’s competition legislation, entrusts the Competition Authority with overseeing and regulating various aspects, including collaborative decisions that may obstruct fair competition, the abuse of dominant market positions, and oversight of merger and acquisition transactions.
The primary objective of the Commercial Code is to shield businesses from deceptive and misleading practices that contravene established norms of ethical commercial conduct. This code enumerates instances of misleading behavior, such as disseminating misleading announcements or advertisements that create associations with another company’s products or services, spreading false information about another business’s reputation or quality, and generating product “ambiguity.” Ambiguity arises when consumers struggle to differentiate between products due to the use of logos and slogans resembling trademarks, brands, or other advertising materials lawfully owned by another business. Even when a trademark isn’t officially registered, creating ambiguity is deemed unfair competition in Turkey.
Certain constraints are imposed on commercial advertisements to prevent unfair commercial practices and protect consumers.
Competition law in Turkey : Prohibited Actions and Exemptions
Individuals engaged in business in Turkey are prohibited from engaging in agreements, making decisions, or collaborating with others if such actions hinder, distort, or restrict fair competition in the market. The intent behind these actions is irrelevant for enforcing this rule. Actions considered detrimental to fair competition encompass:
- Fixing prices or other terms of sale.
- Dividing markets or controlling market resources or assets.
- Managing supply or demand.
- Hindering competitors or challenging their market operations through boycotts or other measures, or blocking new market entries.
- Discriminating among equals.
- Forcing a business to purchase goods or services alongside unrelated goods or services in a process known as “product tying.”
The Competition Board may grant exemptions from these requirements if the relevant market is likely to benefit more from an action that would typically have a negative impact. An action is deemed beneficial if it:
- Facilitates economic development or improvements.
- Benefits consumers.
- Does not significantly undermine fair competition in a substantial portion of the market.
- Does not excessively restrict fair competition while achieving the goals set out in the first two points.
Exemptions are granted for a specified term, which may be renewed. The Competition Board may attach conditions to exemptions or issue communiqués related to block exemptions for specific subject matters. Failure to continue meeting the conditions or the use of misleading information during an exemption application may result in the revocation of the exemption and possible financial penalties.
Competition Law in Turkey : Abuse of Dominant Position
A dominant position exists when one or more market participants have the power to influence economic parameters such as price, production, supply volumes, and distribution channels. Abuse occurs when a dominant market player exploits this power for its own benefit. The Competition Law in Turkey identifies several actions as examples of abusing a dominant position:
- Impeding new market entries or obstructing competitors’ activities.
- Discriminating among equals.
- Forcing a business to purchase unrelated goods or services alongside the transaction (product tying).
- Exploiting financial, technological, or commercial advantages to distort competition in another market.
- Restricting production, marketing, or technical development to the detriment of consumers.
The Competition Board has the authority to annul transactions or impose financial penalties for violations of the rules governing dominant positions.
Merger and Acquisition Transactions; Prior Approvals
Merger and Acquisition Transactions
Transactions subject to competition review include mergers involving two or more entities, direct or indirect acquisitions of shares or assets, transactions resulting in a change of “control” of an entity, and the establishment of joint ventures. In the context of the Competition Law in Turkey, “control” refers to the ability to exert decisive influence over a business. Change of control can occur through various means, such as acquiring shares, ownership rights, operating rights, or through commercial contracts.
A merger or acquisition transaction requires prior approval from the Competition Board if it results in a change of control and meets one of the following turnover thresholds:
- The combined Turkish turnover of the parties exceeds Turkish Lira 750 million, and the Turkish turnover of at least two of the transacting parties individually exceeds Turkish Lira 250 million.
- In an acquisition, the Turkish turnover of the transferred assets or businesses exceeds Turkish Lira 250 million, and at least one of the other parties has a global turnover exceeding Turkish Lira 3 billion.
- In a merger, the Turkish turnover of any of the parties exceeds Turkish Lira 250 million, and at least one of the other parties has a worldwide turnover exceeding Turkish Lira 3 billion.
Turnover is calculated as the total revenue of all businesses under the control of the same ultimate beneficial owners of each party involved in the transaction. For competition law purposes in Turkey, ultimate beneficial ownership entails:
- Owning or holding more than 50 percent of the capital or commercial assets.
- Exercising over half of the voting rights.
- Appointing over half of the members of governing bodies with authority over operations.
Noteworthy are amendments made on March 4, 2022, by the Competition Board to secondary legislation pertaining to the prior approval of mergers and acquisitions. These amendments, effective from May 4, 2022, not only adjusted the applicable thresholds to the levels mentioned above but also introduced the concept of a “technology firm” and provided exemptions related to mergers and acquisitions involving technology firms.
A technology firm is defined as an entity engaged in activities related to digital platforms, software and gaming software, financial technologies, biotechnology, pharmacology, agrochemicals, health technologies, or assets connected to these types of undertakings. Mergers or acquisitions involving technology firms that (i) operate or conduct R&D activities in the Turkish market or (ii) offer services to Turkish users must be approved by the Competition Board, regardless of the aforementioned turnover thresholds.
The Competition Board may grant either unconditional approval or conditional approval for a transaction. Conditional approval may involve requirements such as the divestiture of a specific business segment or product line to mitigate potential competition concerns arising from the transaction. Parties may also propose structural or behavioral remedies to address anticipated competition issues. The Competition Board can invalidate transactions or impose financial penalties for violations of the rules governing mergers and acquisitions.
While there is no specific deadline for notifying the Competition Board, a merger or acquisition meeting the relevant criteria must be notified to the Competition Board, and clearance permission must be obtained before the transaction is completed. Until the Competition Board reaches a decision, the transaction is not legally valid. If the Competition Board fails to respond within 30 days of the application, the transaction is considered approved. If the Competition Board rejects the transaction, the parties may appeal the decision within 60 days before Turkish administrative courts in Ankara.
Under Section D: Clearances, parties have the option to approach the Competition Authority to seek either an exemption or a negative clearance opinion for the purpose of determining the compliance of a proposed transaction, action, or activity. In response, the Competition Board has the authority to grant conditional clearances, which bear similarities to prior approvals required for transactions or exemptions from transactions. However, it is imperative to maintain compliance with the specified conditions throughout the process. The use of deceptive information or failure to uphold these conditions during the application for an exemption or negative clearance may lead to the revocation of the granted clearance and the imposition of monetary fines.
Investigations and Complaints
In Section E: Investigations and Complaints, the Competition Board possesses the discretion to initiate investigations independently or in response to a lodged complaint. Once the decision to commence an investigation is made, the Competition Board takes the necessary step of promptly notifying the relevant parties within a 15-day timeframe.
These investigations encompass every aspect related to or owned by the parties involved in the transaction or action. Parties undergoing investigation are obligated to fully cooperate with Competition Board officials at all times and to the best of their abilities. Generally, investigations are expected to conclude within a six-month period. However, when circumstances dictate, the Competition Board may, on a single occasion, extend this time frame by an additional six months.
Parties subjected to investigation retain the right to respond to allegations contained in the report detailing the findings of the investigation. Additionally, they have the option to request a hearing if they so desire. Subsequently, the Competition Board issues a well-founded decision at the conclusion of these proceedings. Parties who disagree with the decisions made by the Competition Board have the opportunity to appeal these decisions before the Turkish administrative courts in Ankara within a 60-day window. It is crucial to emphasize, though, that filing an administrative appeal does not automatically halt the execution of the Competition Board’s decision.
Furthermore, a reconciliation mechanism is available for the investigation processes. The Competition Board holds the authority to initiate a reconciliation process and make the decision to conclude the investigation. This decision can be made either at the request of the concerned parties or through the initiative of the Competition Board itself. When making this determination, the Board considers the procedural advantages of expeditiously finalizing the investigation process, as well as the nature and scope of the breach under investigation.
Within the scope of the reconciliation process, the Board may opt to conclude the investigation pertaining to the concerned parties. Additionally, a reduction in the administrative fine, ranging from 10 percent to 25 percent, can be applied. This reduction is contingent upon the submission of a reconciliation document by the concerned parties. This document acknowledges the existence and scope of the breach, along with related matters. Importantly, parties involved in the reconciliation process are not permitted to initiate legal action against the administrative fine or the issues covered in the reconciliation document once the investigation concludes through reconciliation.
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