Unfair Competition Lawsuit -- Conditions, Types and Compensation

Freedom of competition, one of the fundamental principles of the free market economy, is one of the most important elements ensuring the dynamism of commercial life and consumer welfare. However, freedom of competition is not unlimited; behaviors contrary to the principle of good faith, deceptive business practices, and unlawful acts against competitors constitute unfair competition. Articles 54-63 of the Turkish Commercial Code No. 6102 (TCC) regulate in detail unfair competition, cases of unfair competition, available lawsuits, and legal sanctions. In this article, we will comprehensively examine the concept of unfair competition, lawsuit conditions, types of lawsuits, and compensation claims.

What Is Unfair Competition?

Pursuant to TCC Art. 54, unfair competition refers to deceptive or otherwise unfair behaviors contrary to the principle of good faith that affect the relationships between competitors or between suppliers and customers. Unfair competition law protects not only competitors but also consumers and the public interest.

Three fundamental elements are sought in determining unfair competition: the existence of a competitive relationship (however, the TCC also covers relationships between persons who are not direct competitors), the behavior being deceptive or contrary to the principle of good faith, and the behavior having a nature that disrupts economic competition. Unfair competition can occur not only between merchants but among all market participants.

The TCC No. 6102 reorganized the unfair competition provisions to bring them into compliance with EU legislation. The new regulation expanded the scope of unfair competition and explicitly listed more cases of unfair competition, providing certainty in practice.

Which Behaviors Constitute Unfair Competition?

Cases of unfair competition are listed in an illustrative manner in TCC Art. 55. The main cases of unfair competition specified in the law are as follows:

1. Unfair Advertisements and Sales Methods (TCC Art. 55/1-a): Making false or misleading statements about others' goods, work products, activities or commercial affairs, placing oneself or a third person in a superior position through deceptive means, using titles or professional names contrary to the truth, providing misleading information through comparative advertising, and concealing campaign conditions constitute unfair competition.

2. Inducing Breach or Termination of Contract (TCC Art. 55/1-b): Directing customers to breach or terminate their contracts, inducing employees or agents to neglect their duties, and unlawfully obtaining and disclosing others' trade secrets are among the cases of unfair competition.

3. Unfair Exploitation of Others' Work Products (TCC Art. 55/1-c): Unauthorized exploitation of others' work products such as proposals, calculations or plans, and imitating third parties' products through technical reproduction methods are considered unfair competition.

4. Secretly Obtaining Production and Trade Secrets (TCC Art. 55/1-d): Obtaining or disclosing production and trade secrets through unfair means, especially former employees transferring trade secrets to a new employer, constitutes unfair competition.

5. Non-Compliance with Business Conditions (TCC Art. 55/1-e): Gaining an unfair competitive advantage by those who do not comply with legal or contractual obligations is also considered unfair competition. For example, those who do not comply with occupational safety rules and those who do not fulfill tax obligations are evaluated within this scope.

6. Abuse of General Terms and Conditions (TCC Art. 55/1-f): Including provisions contrary to the principle of good faith in general terms and conditions, especially imposing terms and conditions that are unfavorable to consumers and provide unilateral advantages, constitutes unfair competition.

What Are the Conditions for an Unfair Competition Lawsuit?

For an unfair competition lawsuit to be filed, the following conditions must be fulfilled together:

Existence of an Unfair Competition Act: One of the cases of unfair competition specified in TCC Art. 54 or Art. 55 must have occurred. For unfair competition to occur, it is not necessary for actual damage to have occurred; the existence of a threat of damage is sufficient.

Unlawfulness: The behavior must be contrary to law, the articles of association, or the principle of good faith. Lawful competitive activities do not constitute unfair competition.

Impact on Economic Competition: The unfair competition act must negatively affect or threaten to affect economic competition. Behaviors that are merely personal insults or defamation are not unfair competition but are subject to other legal remedies.

Causal Link: If a compensation lawsuit is filed, there must be an adequate causal link between the unfair competition act and the damage. It must be proven that the damage originates from the unfair competition act.

Who Is the Plaintiff and Defendant in an Unfair Competition Lawsuit?

Pursuant to TCC Art. 56, the persons who can file an unfair competition lawsuit include: persons whose customers, credit, professional reputation, commercial activities or other economic interests are damaged or threatened with damage due to unfair competition, professional and economic associations (chambers of commerce and industry, tradesmen's chambers, exchanges), and civil society organizations that protect the economic interests of consumers.

The defendant is the person who committed the unfair competition act. Pursuant to TCC Art. 57, if the unfair competition act was committed by an employee within the scope of business activities, declaratory, injunctive and restoration actions may also be filed against the business owner. A compensation lawsuit can only be filed against the business owner if the business owner is at fault.

What Are the Types of Unfair Competition Lawsuits?

Four types of lawsuits that can be filed due to unfair competition are listed in TCC Art. 56:

1. Declaratory Action: The plaintiff requests the court to determine the existence of the unfair competition act. The declaratory action provides for the documentation of the existence of unfair competition by court decision. This action may be a precondition for other actions or may be filed independently. A declaratory judgment constitutes a strong basis for any future compensation lawsuit.

2. Injunctive Action (Cease and Desist Action): The cessation of the ongoing unfair competition act is requested. The injunctive action is filed in situations where unfair competition continues, and the court orders the cessation of the unfair competition act. Provisional injunctions may also be requested in injunctive actions; thus, the unfair competition act can be temporarily stopped before the case is concluded.

3. Restoration Action: The elimination of the material situation resulting from unfair competition, the correction of false or misleading statements if the unfair competition act was committed through such statements, and the destruction of tools and goods that were effective in the commission of the infringement are requested.

4. Compensation Action: Compensation for material and moral damages suffered due to the unfair competition act is claimed. For a compensation action, the elements of fault and damage must both be present. Material compensation covers actual damage and lost profits. Moral compensation is aimed at remedying the damage to personal values caused by the unfair competition act.

These four types of lawsuits can be filed together or separately. In practice, declaratory, injunctive and compensation actions are generally filed together.

Statute of Limitations in Unfair Competition Lawsuits

Pursuant to TCC Art. 60, the statute of limitations periods in unfair competition lawsuits are as follows: the plaintiff must file the lawsuit within one year from the date they learned of the unfair competition act and the perpetrator, and in any case within three years from the date the act was committed. These periods are statute of limitations periods, not prescriptive periods.

However, if the unfair competition also constitutes a crime and a longer statute of limitations period is provided for in the criminal law, this period applies. The criminal aspect of unfair competition is regulated in TCC Art. 62, and imprisonment of not less than one year or a judicial fine is provided for in cases of unfair competition.

The determination of the starting date of the statute of limitations is of great importance. In continuing unfair competition acts, the statute of limitations begins to run from the date the act ends. Therefore, in ongoing cases of unfair competition, the possibility of filing a lawsuit continues in situations where the statute of limitations has not expired.

Burden of Proof and Evidence in Unfair Competition

In unfair competition lawsuits, the burden of proof rests, as a rule, with the plaintiff. The plaintiff must prove that the unfair competition act has occurred, that this act is contrary to the principle of good faith, and (in case of a compensation claim) that damage has been suffered.

Evidence that can be used in unfair competition lawsuits includes: witness statements, expert reports, documents and correspondence (e-mail, messages, contracts), commercial books, website screenshots, advertising materials, customer complaints, market research reports, and comparative product/service analyses.

Digital evidence collection is of great importance, especially in cases of unfair competition conducted over the internet. Having website contents, social media posts, and digital advertisements documented through a notary is recommended for ensuring evidence security.

Provisional Injunctions and Temporary Legal Protection

Requesting provisional injunctions in unfair competition lawsuits is a situation frequently encountered in practice. Pursuant to CPC Art. 389 et seq., the court may issue a provisional injunction order when the plaintiff's right is in danger and delay could cause serious harm.

Provisional injunctions that can be requested in unfair competition lawsuits include: temporary cessation of the unfair competition act, removal of misleading advertisements, temporary prohibition of the production and sale of counterfeit products, blocking access to website content, and measures for the protection of trade secrets.

For a provisional injunction order, it is sufficient for the plaintiff to demonstrate, on a prima facie basis, the existence of unfair competition and that irreparable harm will occur. When issuing a provisional injunction order, the court also takes into account the balance of interests between the parties and may require the plaintiff to deposit a security.

Criminal Aspect of Unfair Competition

Pursuant to TCC Art. 62, some of the cases of unfair competition are also regulated as crimes. Persons who commit the crime of unfair competition are sentenced to imprisonment of not less than one year or a judicial fine. Criminal prosecution is initiated upon complaint, and the complaint period is six months.

The legal value protected in the criminal aspect of unfair competition is the protection of the economic order and ensuring the principle of good faith in commercial life. Criminal sanctions are an important mechanism that increases the deterrent effect of unfair competition acts. However, in practice, civil lawsuits generally take precedence in unfair competition crimes.

Methods of Protection Against Unfair Competition and Preventive Measures

Preventive measures that businesses can take to protect themselves from unfair competition include:

Confidentiality agreements (NDAs) should be signed with employees to protect trade secrets and business secrets. Employee mobility should be controlled through non-compete agreements. Intellectual property rights should be secured through trademark, patent, and industrial design registration. The legality of advertising and marketing activities should be regularly audited. Brand and trade name monitoring services should be utilized in the digital environment. Detailed contracts should be prepared with collaborating parties, and confidentiality provisions should be included.

In the event of encountering unfair competition, it is of great importance to immediately initiate legal proceedings and have evidence determined. Delayed legal applications carry the risk of both statute of limitations expiry and loss of evidence.

Disclaimer: This article has been prepared for general informational purposes and does not constitute legal advice. It is recommended that you consult a lawyer specialized in commercial law for specific situations you may encounter regarding unfair competition claims and lawsuits.