Category: Turkiye

In Turkey, the authority to initiate dumping or subsidy examinations, upon complaint or, where necessary, ex officio, is given to the Ministry of Economy (“Ministry”). Within the scope of this authority, the Ministry announces its decisions with the communiqués published on the Official Gazette. 

During the second quarter of 2017, the Ministry has initiated a new dumping investigation, an investigation against the termination of current dumping measures and 2 final review investigations while amending a currently effective Communiqué. 

Below is a bullet-point summary of the status of the anti-dumping cases initiated or revised during the second quarter of 2017: 

–  Communiqué No. 2017/10 dated April 11th, 2017, concerning pneumatic and outer tires used in bicycles originating from People’s Republic of China, India, Thailand, Vietnam, Sri Lanka, Chinese Taipei, Indonesia and Malaysia: The Ministry initiated an investigation against the termination of current dumping measures on imports of “pneumatic and outer tires used in bicycles” originating from People’s Republic of China, India, Thailand, Vietnam, Sri Lanka, Chinese Taipei, Indonesia and Malaysia.  

– Communiqué No. 2017/11 dated May 14th, 2017, concerning glass fibre-reinforce materials originating from Arab Republic of Egypt:  The Ministry announced that it has initiated an anti-dumping investigation on the imports of “glass fibre-reinforce materials” categorized under the 7019.11.00.00.00 CN Code described as “chopped yarns out of glass fibre not longer than 50 mm.”, 7019.12.00.00.00 CN Code described as “cords”, 7019.19.10.00.00 CN Code described as “filaments”, 7019.19.90.00.00 CN Code described as “discontinuous fibres”, 7019.31.00.00.00 CN Code described as “reinforcing plates”, 7019.90.00.10.00 CN Code described as “weavable fibres (exempt from chills and coverings  peculiar to pipe and tube isolation)”, 7019.90.00.30.00 CN Code described as “felts out of glass fibres”, originating from Arab Republic of Egypt.

– Communiqué No. 2017/12 dated May 14th, 2017, concerning pentaerythritol originating from People’s Republic of China: The Ministry announced its decision as a result of the completion of its final review investigation on imports of “pentaerythritol” originating from the People’s Republic of China. The Ministry has decided that the measure effective under the Communiqué No. 2011/6 published on the Official Gazette dated May 3rd 2011 and numbered 27923, shall remain in effect as is.  

– Communiqué No. 2017/13 dated May 12th, 2017, concerning pipe fittings (other)  originating from Brazil, Bulgaria, People’s Republic of China, Indonesia, India and Thailand: The Ministry initiated a final review investigation against the current dumping measures on imports of “pipe fittings (other) 7307.19 CN Code” originating from Brazil, Bulgaria, People’s Republic of China, Indonesia, India and Thailand.

– Communiqué No. 2017/14 dated May 12th, 2017, concerning polyester staple fiber originating from Republic of Korea and Indonesia: The Ministry initiated a final review investigation against the current dumping measures on imports of “polyester staple fiber 5503.20.00.00.00 CN Code” originating from Republic of Korea and Indonesia.

– Communiqué dated May 24th, 2017 amending the Communiqué No. 2015/12 dated May 23rd, 2015 concerning food processor knifes originating from People’s Republic of China: With the amendment made in the Communiqué No. 2015/12 dated May 23rd, 2015, the Ministry amended the description of product subject to the investigation from “sharp, cutting, grinding and blending spikes used in food disposers and blenders” to “knifes and blades peculiar to food disposers, blenders and to fruit or vegetable press”. 

(First published in Mondaq on July 6, 2017)

By Gonenc Gurkaynak, Managing Partner, Ceren Yıldız, Associate, and Ecem Elver, Associate, ELIG, Attorneys-at-Law

Nowadays, Electronic Commerce (“E-Commerce”) continues to rapidly become the platform where consumer habits are most consantrated.  In line with rapid developments on technology, devices and online platforms are getting to know their users more closely.

In light of the Law on The Regulation of Electronic Commerce (the “E-Commerce Law”), which was entered into force last year,  e-commerce actors were expected to provide extra tabs and transactions such as providing numerous information to the users, explaining provided services and conditions, determining a procedural guide to follow during online shopping. In addition to these, a framework for the personal data processing of users has been established with a brief article. 

“Are liable for the preservation and protection of personal data obtained through transactions within the scope of the law. Relevant personal data can not be  transmitted or used for any purpose without the consent of the data subject.”

In addition to the obligations that have to be fulfilled in relation to the regulation of e-commerce, this regulation, which has introduced with the additions to the confidentiality policies, has acquired currency with the Law on the Protection of Personal Data no. 6698 (“Data Protection Law”). In the law, personal data is defined as any information relating to an identified or identifiable natural person. As the personal data collection begins, electronic commerce site is regarded as the data controller. 

Which data are processed by electronic commerce sites? 

It is impossible not to leave a trace while surfing at the online world. The number of the pages that users viewed during their visits at the e-commerce sites, the length of the visit, site navigation habits, location, IP, time information and such data that may be related to the users are collected via cookies, even if the users do not shop or carry out any transaction. Even when the page is closed, the browser keeps track of the cookies. However, name, surname, address, phone number, Turkish Republic identity number, payment information, interests and such information is requested directly from the user during online shopping or creating membership.

Data Sharing

Data Protetion Law is elaborately regulating the “sharing personal data with third parties” subject; a crucial subject in terms of both marketing activities and overall workflow. Such subject also has been regulated under the “Regulation on Service Providers and Intermediary Service Providers of Electronic Commerce”. Apart from the exceptions regulated under the Data Protetion Law; data transfer is explicitly hinged on the “express consent” of the related individual. Data sharings will be frequently examined during various inspections and examinations to ease the “Is my personal data being sold?” apprehension in the citizens’ mind. Consequently, it is vital to define the role and responsibilities of the parties at the receiving end of the data transfer on a legal basis.

Liabilities of E-Commerce Sites 

The binding principles of personal data processing are respectively stated under the Data Protetion Law. Each of the aforementioned principles issue various liabilities for real and legal persons. 

In principle, personal data cannot be processed without obtaining the express consent of the data owner. But in the event of some numerus clausus situations; obtainment of the express consent is not obligatory. In any case the liabilities remain same and binding as they are before; even while conducting the data processing acitivities listed as “exceptional” under the Data Protetion Law. For example, e-commerce websites are obliged to collect a number of personal data from their customers on account of establishing and performing particular agreements; but even such necessity does not remove their liability on elucidating.

Although the E-Commerce Law has encouraged electronic commerce sites to revise user and privacy agreements, it is not limited with that. Electronic commerce sites are waiting for a transformation such as many other personal data processing companies.  Within this transformation, it is necessary to establish the mechanisms that data subjects may exercise their rights enumerated in the Data Protection Law, to make transperency foreground, to create clear informative texts and policies and to fulfill the obligations related to data security.

It is very important for companies to establish a mechanism of their own, in order not to be exposed to sanctions;  in terms of personal data processing, storage, destruction, data security, registration, fulfillment of data subject’s requests; to act in accordance with the systematic manner about data clasification prescribed in the Data Protetion Law, during personal data processing, starting from the data collection phase.

How much time is left?

The Data Protetion Law has entered into force by publishing on the Official Gazette dated 07 April 2016. Some transitional provisions are envisaged in the sense of compliance of the ones subject to the Data Protetion Law. According to the Provisional Article 1; the deadline is 7 April 2018 for the reconciliation to the provisions of the Data Protetion Law regarding personal data which processed before the publication date of the Data Protetion Law. Although no time limit was set for the harmonization of personal data collected as of the publication date of the Data Protetion Law, a period of 6 months was respited with regard to the transitional period granted to provisions of obligations and sanctions. However, this period of time is also up by the date of 7 October 2016.

Even though the regulations which are planned to be entered into force within 1 year are late, the drafts shared with the public opinion are show that the government is working on this issue.

The Data Protetion Law, which will be further shaped by the audits and decisions of the Board of Personal Data Protection (“Board”) and its application area, provides investigation forms which step in by the citizen’s complaints as well as the Board’s reviews of its own motion. Especially, considering the interest in public, the compliant process which has started by the users of an e-commerce site may turn into a major audit that lead to inspection of all the processes in the companies.

As a conclusion, beginning from the year of 2018, e-commerce platforms are undergoing a major harmonization, compliance, transformation and control process. Undoubtedly, the market players who adapt to this process in a serial manner will have a competitive advantage against their competitors.

By Vefa Resat Moral, Managing Partner, and Ipek Asikoglu, Associate, Moral Law Firm

The Law No. 5846 on Intellectual and Artistic Works (“IP Law”) is the main legislation in Turkey that is applicable to copyright related matters. In early May, Ministry of Culture and Tourism’s General Directorate of Copyrights shared on their website a Draft Law Amending the Law No. 5846 on Intellectual and Artistic Works (“Draft Law”) and announced that the proposed amendments are open for public opinion.

The Draft Law proposes many amendments to the current text of IP Law which include revisions to certain articles, re-definition of terms and concepts along with fundamental changes to injunctive reliefs, prevention of online infringements and functions of collecting societies. As of June 2, 2017, deadline for submission of opinions has passed and the opinions are currently under the Ministry’s evaluation which will review and revise the Draft Law accordingly, if needed.

IP Law was enacted in 1951 and since then amended for thirteen times¹. Ten of these amendments were made in the last sixteen years, as of 2001 and five were in the last five years, as of 2012. The increased frequency of the amendments alone proves that IP Law started to regularly fail certain demands of contemporary issues caused by ever changing and developing information technologies and technical means such as ease of digital reproduction and transmission, expanding scope of products that are de facto considered and treated as works though they do not always fall within the scope of IP Law’s definitions and problems encountered during prevention of infringements including allocation of liability and effectiveness of prevention measures.

In general, these amendments aimed to provide necessary revisions and, where these revisions failed, additional measures to protect copyrighted materials against illegal use. For example, collecting societies have been included in the law as institutional bodies with the hope that they can enable collective and thus more effective fight against illegal use of works. Another example is the Additional Article 4 which authorized public prosecutors to access ban pirated contents that are broadcasted on the Internet medium. However, eventually these amendments might be deemed to have failed to reach their intended purposes and to provide the required protection.

IP Law regulates establishment of collecting societies. That said, Turkey has lacked collection societies that are comprehensive with respect to its area of interest and thereby able to act on behalf of and effectively protect the works of the copyright holders in that sector. According to General Directorate of Copyright’s statistics, Turkey has ten (10) collecting societies related to movie sector, six (6) in the music sector, eight (8) in science and literature sector². Despite the high number of collecting societies in these fields, copyright holders tend to enforce their copyrights on their own rather than enforcing them through collecting societies, which might be due to lack of authority and powers that collecting societies have in terms of acting on behalf and for the benefit of their members. 

The other example, Additional Article 4 of IP Law, allows rendering access ban decisions upon a right holder’s request on contents illegally broadcasted on the Internet medium. However, the article fails to clearly define and specify responsibilities of Internet actors. Although the article seems to provide certain protection based on an interpretation of its wording at first glance, in practice the application of the article becomes problematic, as there is already a specific law regulating the broadcasts in the Internet medium which has no correlation with the relevant provisions of the IP Law. For instance, the IP Law requires “service” providers to provide a list of ”information content providers“ to the Ministry. The Law No. 5651 on Regulation of Broadcasts via Internet and Prevention of Crimes Committed Through Such Broadcasts (“Law No. 5651”), on the other hand, defines Internet actors as “access providers”, “hosting providers” and “content providers”. In light of that, if “service providers” are interpreted as “access providers” and “information content providers” are interpreted as “content providers”, then the access providers are required to provide a list of all content providers on the Internet, which might be billions of people, to the Ministry. Clearly, the access providers cannot be expected to comply with such a request as it is nearly impossible to maintain a list as such. 

In addition to the foregoing, the IP Law fails to provide adequate protection with respect to audiovisual contents. Article 5 of the current IP Law defines cinematographic works and does not include any reference to audiovisual contents, and remains as it was drafted back in 1951. In order to protect audiovisual contents other than cinematographic works such as television programs which may qualify as a work, the Draft Law could have defined audiovisual works in a way that is parallel to the European Union Directive 2010/13/EU which specifically regulates audiovisual media services to encompass present and future format of audiovisual contents in addition to films. The use of the term audiovisual content would also help create harmony with global developments on the issue since regulations in U.S.A. and European Union along with other countries around the world adopt or are in the process of adopting use of the term audiovisual. 

In light of the foregoing, the Draft Law is expected to provide clearer regulations and more effective measures on these issues along with other amendments that might update the current scope of the IP Law which either excludes from its scope certain contents that are considered works throughout the world in other countries or allows their inclusion only through wide interpretations of its provisions.

Based on the foregoing remarks, the following discusses the most significant issues that the Draft Law offers to the copyright realm.

II. Online Piracy

Draft Law regulates prevention of infringements through the Internet medium with an independent article and proposed addition of Article 77/B to the IP Law. First paragraph of the relevant article states that those, whose rights, which are protected within the scope of IP Law, are violated, may apply to the “content provider or hosting provider” by way of communication means provided on their “Internet pages” and request removal of relevant contents. Although this provision apparently aims to provide a regulation compatible with the Law No. 5651 by referring the terms defined therein, the provision does not take into account differences as to liabilities of Internet actors. The article does not make any distinctions between the content providers and hosting providers whose responsibilities, as determined in the Law No. 5651, are fundamentally different. According to the Law No. 5651, hosting providers are not required check whether the hosted content is lawful or not, whereas content providers are responsible for any kind of content they present to the Internet medium. Current wording of the proposed provision might result in a situation where right holders prefer to address hosting providers, who are more likely to be reached easily, without even trying to reach content providers, who are in fact the party responsible for the relevant infringement. This might not be an effective measure to fight against piracy as the pirating parties in question, the content providers would not come into equation during the process and thus might not face the consequences of their actions. 

Furthermore, Article 77/B proposed by the Draft Law requires the relevant content provider or the hosting provider to comply with the removal request within “twenty four hours”. This period is quite short to take action particularly for hosting providers who engage in huge amounts of content available on their websites. Additionally, determination of a certain time period, especially a short one, regarding these obligations within in the law might create practical difficulties and unintended consequences for the involved parties. For example, hosting providers that host large amounts of contents and that try to comply with these requests taking into consideration fundamental rights and freedoms of Internet users might be forced to take action on certain contents without conducting a proper analysis of the contents subject to the relevant requests. As a result of this practice, contents that are lawfully broadcasted by Internet users could also be subject to removal by the hosting providers in an attempt to avoid potential criminal and monetary sanctions. Indeed, in the United States of America and European Union, the legislation on the issue does not determine a fixed time period for hosting providers to comply with their obligations. Yet, they are obliged to take the required actions “promptly”³. This approach might be more in line with the reality of the large amounts of contents that certain hosting providers are required to handle on a daily basis. Accordingly, they are required to take action promptly without a predetermined time limitation as the necessary time can significantly change based on the scope of the relevant request.

According to eight paragraph of the proposed Article 77/B, if someone continues a violation after two warnings sent by the Ministry or an institution authorized by the Ministry informing him/her that his/her dissemination constitutes a violation and the consequences of such actions; then public prosecutor shall decide to decelerate the connection speed of the Internet service provided to that person. This provision brings a legitimacy, a legal ground for “throttling” which has been discussed in the recent years as a method of restriction of illegal contents in Turkey. The number of warnings to be sent to user before the user’s connection speed is decelerated is proposed as two (2). However, taking into account the digital literacy and experience of an average user, it is easy and probable for users to accidentally view, stream and/or download illegal content on the Internet and thereby unintentionally take part in an infringement. Moreover, users with malicious intentions might employ many tools, technics and other means and use copyrighted materials unlawfully in order to direct such inexperienced users to contents on their websites for purposes of gaining illegitimate benefits. Therefore, two warnings that will be given to the user before decelerating their connection speed might not be enough to protect the users against accidental and unwanted use. The application of the provision as is might lead to restrictions on citizen’s freedom of communication where their actions may, in fact, be due to uninformed and/or bad judgment on their side regarding a content and/or hosting provider. In that line of thought, countries around the world adopt at least a three strike system in general and there are countries that prefer a warning count even higher than that. For instance, the U.S.A. adopted a six warning requirement before implementing measures against a user.

Tenth paragraph of the proposed Article 77/B regulates establishment of centers to prevent violations of rights within the scope of the article. We understand that the purpose of these centers is to enable implementation of swift action on infringing contents where irreparable damages may be incurred by the right holder, if such action is not taken. That said, granting the authority to implement the sanctions determined in this article to an administrative authority might lead to disproportionate interference with fundamental rights and freedoms, unless there is an effective supervision of the courts as to activities of these centers. Additionally, wide interpretation of the provision might lead to instances in its application where an administrative agent is granted through administrative and/or technical structures or systems the authority to decide and act as if she/he is a judge. The article does not precisely define the authority of these centers to prevent applications. In line with that, there might have been an explicit reference to fundamental rights and freedoms of Internet users to emphasize the necessity of establishing a balance between these rights and freedoms; and the rights of the copyright holders and to prevent administrative agents from intervening with the foregoing rights and freedoms.

On a separate note, these centers may also not be as effective as it is contemplated. Considering the amount of content currently available on the Internet and the geometric increase thereof, it would require a great amount of resources to establish new centers from ground and to maintain these centers for the purposes of handling copyright infringements on the Internet medium. Moreover, administrative actions of these centers are highly likely to be disputed before courts which might lead to ineffectiveness of these centers. In light of the foregoing, these “centers” may not yield the results expected from them.

III. Collecting Societies

IP Law currently includes provisions pertaining to collecting societies. However, the amendments proposed in the Draft Law include many revisions and additions to the current legal framework of these societies. Some of these changes that might be of importance to and have an impact on the current practice have been mentioned below briefly.

According to proposed version of Article 42 of the IP Law, collective management of rights, which include determination of tariffs, preparation of agreements, collection and distribution of revenues, supervision of uses and application to administrative, judicial and criminal procedures shall be conducted by collecting societies. The wording of the article as proposed in the Draft Law is significantly different than the wording of the current IP Law as it clearly states that these activities may only be conducted by collecting societies. In addition, the article also determines that two or more collecting societies may establish a collective licensing association together in order to manage their members’ rights more effectively (Proposed Article 42-3). This approach attests the law makers’ will to involve collecting societies more in the management and protection of copyrights in the Turkish jurisdiction.

Moreover, the Draft Law also increases the number of members that is required to establish a new collecting society in a sector where there is already an existing collecting society from one third to half of the member count of the existing collecting society (Proposed Article 42/A-2). This increase in the necessary member count might also prove useful in preventing establishment of several collecting societies in the same sector which inevitably decreases their effectiveness and promote copyright holders to work together within the roof of existing collecting societies.

In addition to the foregoing and more importantly, the proposed Article 42/E states that right to demand a proper price and right to demand a cut from resale cannot be pursued individually. According to the provision, these rights may be pursued by the collecting society, if there is only one in the relevant sector; or by a collective licensing association that shall be authorized by the Ministry if there is more than one collecting society in that sector. Furthermore, certain rights of related right holders may be managed by the collective licensing association even if these related right holders did not provide an authorization to a collecting society. This provision requires copyright holders to become members of collecting societies if they wish to benefit from the foregoing rights provided by the IP Law. This requirement, along with other authorizations provided to collecting societies would inevitably increase the involvement of copyright holders in collecting societies and thus create more active and involved collecting societies that are more effective in their functions.

Active, involved and effective collecting societies in specific sectors would ultimately result in better protection of existing copyrighted works and a better environment for creation of more works, since parties involved in copyrighted materials would be more open to invest in new productions, ventures and co-operations without any fear but with trust knowing that there are adequate measures in place protecting their commercial and individual investments.

IV. Databases

Current version of Additional Article 8 of the IP Law already protects databases. The amendments proposed in the Draft Law provide a more detailed protection for right holders of databases along with certain exceptions to that protection. In the reasoning of this article in the Draft Law, it is indicated that it is proposed based on the EU Directive 96/9/EC on the legal protection of databases. However, this directive has been harshly criticized by the EU Commission in their DG Internal Market and Services Working Paper⁴. The EU Commission indicated that the economic impact of the “sui generis” right on database production was unproven and that the empirical evidence was not enough to suggest that such protection is necessary for a thriving industry (Section 1.4). Furthermore, the European Parliament also stated that the commission’s evaluation of the directive on databases considers the directive as an impediment to the development of a European data-driven economy and called on the commission to abolish the directive (Section 4.1)⁵. More recently, EU Commission launched a public consultation on May 24, 2017 to assess the legislation on databases by evaluating its impact on users and identifying possible needs of adjustment, which attested that its existing legislation, which the proposed article is based on, is insufficient to ensure full legal certainty and is not useful⁶. In light of the foregoing, it might be suggested that the protection provided by the article to databases may have negative effects on the growth of national digital economy instead of helping it develop based on the EU experience on the matter. 

V. Exceptional Uses

Current text of the IP Law provides an exception for private use of copyrighted material subject to the conditions set forth in Article 38. The Draft Law proposes four other exceptions in addition to private use which are namely (i) temporary reproduction, (ii) reproduction through photocopy and other similar means, (iii) freedoms for purposes of use by the disabled and (iv) temporary reproductions of radio-television institutions. Furthermore, in addition to uses for education and teaching purposes, the Draft Law proposes (a) lending to public, (b) reproductions and distributions for archiving purposes and (c) incidental reproductions and uses for parody purposes.

Although determination of exceptional circumstances and uses might prove useful in clarifying legally allowed uses of copyrighted materials, it might also cause the legislation to become out-of-date more easily due to rapid technological and economic developments and changes that might render the scope of these exceptions too wide or too narrow depending on the relevant case.

For instance, the current wording of Article 38/A allows temporary or incidental reproductions that are essential and inseparable part of a technological transaction process aiming rightful use or transfer of works to third parties within a network; and that do not have an independent financial value. The article provides an exception for certain temporary reproductions of no financial value in order to enable use of various technological means that are employed for lawful use of works and contents but which require these temporary reproductions for their functions. That said, considering the recent technological developments in today’s world and taking into account future applications that might be applied to works and contents that are protected under IP Law, such temporary reproductions might also be required for purposes other than transfers in network. For example, the scope of the article might be extended to include and provide exception to allow similar temporary reproductions for scientific purposes and researches as well. 

Moreover, most of these exceptional uses and/or reproductions are allowed on condition that there is no financial value, purpose or benefit attached to such activities. Adopting such a condition might be considered in violation of Turkey’s obligations under the Berne Convention for the Protection of Literary and Artistic Works. Article 9/2 of the Berne Convention requires signatory parties to permit reproductions of works in certain special cases, provided that such reproductions do not conflict with normal exploitations of the works and do not unreasonably prejudice the legitimate interests of the authors⁷.

Furthermore, this requirement might also affect innovative initiatives from benefitting from the exceptions provided in the article and restrict artistic freedoms and legitimate financial benefits that might be acquired by non-governmental organizations through fair use of copyrighted materials otherwise. The conditions determined in the Berne Convention might alone be sufficient for acceptable uses regarding works.

VI. Conclusion

The Draft Law provides hope for better collective management of copyrights through collecting societies that might be of help with respect to licensing of works in great quantities which is needed in today’s digital word where almost infinite reproductions are possible. That said, considering the lack of reference and thus protection to “audiovisual contents”, the article regarding databases, and the lack of an exception for scientific studies and researches within the scope of lawful uses along with the requirement as to not having a financial purpose; one might argue that the Draft Law still fails to take into account recent developments in the world with respect copyright issues. Moreover, the provisions set forth to fight against online piracy seem to disregard the specific law regarding unlawful contents broadcasted on the Internet medium and existing practice thereof as the article does not even differentiate between the responsibilities of Internet actors. Despite the foregoing concerns, the provisions proposed by the Draft Law will still bring a fresh breath to the copyright realm.

¹http://www.mevzuat.gov.tr/MevzuatMetin/1.3.5846.pdf 

²http://www.telifhaklari.gov.tr/Turkiye-de-Meslek-Birlikleri 

³Legislations in the USA and EU respectively at https://www.gpo.gov/fdsys/pkg/USCODE-2010-title17/pdf/USCODE-2010-title17-chap5-sec512.pdf and http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32000L0031&from=EN 

⁴First evaluation of Directive 96/9/EC on the legal protection of databases; available in English at http://ec.europa.eu/internal_market/copyright/docs/databases/evaluation_report_en.pdf 

⁵European Parliament resolution of 19 January 2016 on Towards a Digital Single Market Act (2015/2147(INI)), available in English at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+P8-TA-2016-0009+0+DOC+PDF+V0//EN 

⁶https://ec.europa.eu/digital-single-market/en/news/commission-launches-public-consultation-database-directive

⁷Available in Turkish at http://www.telifhaklari.gov.tr/resources/uploads/2012/03/18/2012_03_18_349175.pdf and in English at http://www.wipo.int/edocs/lexdocs/treaties/en/berne/trt_berne_001en.pdf

(First published in Mondaq on June 22, 2017)

By Gonenc Gurkaynak, Managing Partner, Burak Yesilaltay, Associate, and Turker Doygun, Associate, ELIG, Attorneys-at-Law

Retail industry leads Turkish economy in recent years and shopping malls are the most essential figures of such industry. Shopping malls have recently undergone a challenging period by virtue of social and economic developments throughout the country.

Tending to grow together; they have faced with substantial declines as to decreases in footfalls due to recent adverse events as well as reduction on consumption appetite due to economic constriction. In this direction, shopping malls have been adversely affected regarding on leases; since the retailer profitability has been declined and the foreign exchange rates have been increased significantly.

The fact that shopping mall rents are determined with foreign currencies; creates an independent concern on accounts of retail industry. Thus, retailers have been demanding incentives from shopping mall managements such as; fixed exchange rate, rent reduction or payment possibilities with domestic currency. On the other hand, since retailers’ revenue feasibilities are figured out by expectation of foreign exchange income; shopping mall investors who mostly paid back their loans in foreign currency for at least 5 to 9 years, forced to be cautious regarding aforementioned demands. 

Today, 118 of 371 shopping malls in Turkey are collecting their rents with domestic currency namely Turkish Lira, meanwhile the remaining 253 are collecting with foreign currency. 6 of these foreign currency collector shopping malls have converted their lease agreements and started to collect with Turkish Lira, in consequence of President Mr. Recep Tayyip Erdogan’s call to those who drafted their lease agreements with foreign currencies should amend the payment clauses by means of determining Turkish Lira as the new payment instrument.

In this peace of article we evaluated the cases and possibilities of adaptation of rents in retail industry in the light of essential adverse developments from two dimensions of Shopping Mall and Retailers.

Conditions to Demand Lease Rate Adaptation for Deduction Purposes 

In view of above mentioned precedents existence of all four conditions is required for adaptation of rent amount which are:

1. An unexpected development that can not be foreseen by the Parties should arise during a long contractual term;
2. Such extraordinary development should arise under a reason not originated from Lessee.
3. Conditions that were determined at the commencement date of the relation should be essentially changed against Lessee due to such unexpected development;
4. The Lessee, at time of adaptation request, either should not perform its obligations or should perform such obligation with reservation of adaptation request.

Contractual Status of Retailers

Regarding the lease agreements between the merchant parties, condition of predictability is interpreted by the Supreme Court very strictly where Courts expect a prudent merchant must envisage crisis and locate the risk of fluctuation on foreign exchange rates in advance. For instance; despite the fact that Turkey’s inflation rate does not navigate regularly, an adaptation claim regarding the contract concluded after February 2000 crisis, the period when adaptation demands are accepted more, has been rejected on the ground that “a prudent merchant should have foreseen the economic changes during a crisis period”.

From the Point of Shopping Mall Investors:

In the light of legislation and legal practice the position of Shopping Mall Investor seems crystal clear. On the other hand, even the legal protection shield protect lessors until Supreme Court change its approach; the reality is that a shopping mall may only protect its value with a strong and sustainable shop mix and brands. Therefore, even if the shopping mall investors seem to be protected by the law against retailers’ adaptation requests, it is clear that they should not remain unresponsive retailers’ expectations. The big picture demonstrates the fact that industry players can only win together.

Conclusion;

When we review the current conjuncture of Turkey, apart from the uncertainty of inflation rate, the devaluations happened in the past, or the current exchange rate fluctuations; the fact that Turkey has faced with difficult socio-economic developments, consecutive terror attacks, coup attempt on July 15th 2016 sequent negative evolvements, and after the events affecting the economy in recent years such as the US president elections; it is foreseeable that course of industries will be negatively affected. However in recent history, there is no court ruling that formulates the solution as the inflation increase as double or such will not be deemed as unforeseeable extraordinary occasion; when past court rulings and Supreme Court’s general attitude have taken into consideration, it is a moral certainty that courts would evaluate and rule the Turkish market conditions as foreseeable.

Despite the above stated Turkey reality, shopping mall investors do evaluate, and also should, under a sustainable win-win principle that the Parties need each other for life for creation of an environment that provides long-term profitable market. 

By Vefa Resat Moral, Managing Partner, and Eylul Bengisu Gumuş, Junior Associate, Moral Law Firm