The Turkish Constitutional Court ("CC") rejected the objections submitted by the 10th Chamber of the Council of State regarding certain provisions of the Law on the Regulation of Electronic Commerce ("LREC") as being unconstitutional, with the decision dated 01.02.2024 and numbered 2023/177 E. - 2024/30 K. This decision was published in the Official Gazette on 20.05.2024.
As known, with the amendments made in 2022 to the LREC, many provisions regulating the relationships between electronic commerce intermediary service providers and electronic commerce service providers selling products or services on these marketplaces, and their behavioral obligations were introduced into our legislation. The concepts introduced by the legislative amendment, such as unfair commercial practices in electronic commerce and electronic commerce licenses, sparked significant debates concerning their constitutionality.
In the application made to the CC by the 10th Chamber of the Council of State via objection, it was requested to annul various phrases, clauses, and sentences in four different articles of the LREC. We have analyzed the CC decision under the following headings for each objection.
1. Assessment of the Objection Regarding the Phrase "...at least twenty-five percent of the shares..." in the Definition of Economic Unit
Paragraph (j) of Article 2 of the LREC titled "Definitions" regulates that if a person directly or indirectly owns at least twenty-five percent of the shares of a commercial company, it is considered to be in the same economic unit with that company. Accordingly, certain obligations and restrictions imposed on electronic commerce intermediary service providers also take into account the undertakings with which they are in the same economic unit.
In the objection made to the CC by the 10th Chamber of the Council of State, it is argued that being in an economic unit should mean having a determining role in the management of a company or having a majority of the shares or the right to dispose of them, but taking into account the ownership of twenty-five percent of the shares for determining an economic unit is disproportionate as it is not a sufficient criterion for having a say in the management of the company and playing a determining role. Furthermore, it is claimed that this disproportionate intervention is not a necessary intervention to prevent cartelization and monopolization in the electronic commerce market and, therefore, violates the right to property.
The CC first states that the concept of an economic unit and the situations accepted as an economic unit are clearly and explicitly expressed, ensuring legal certainty and foreseeability. The CC emphasizes that the economic strength of electronic commerce intermediary service providers compared to small and medium-sized enterprises has the potential to disrupt the safe, healthy, and orderly functioning of the electronic commerce sector. The regulation aims to prevent electronic commerce intermediary service providers from using their economic power through other undertakings they are in an economic unit with to engage in unfair commercial practices that disrupt competition.
While accepting that competition law has a corrective nature, the CC considers that the legislature has the discretion to take preventive measures to protect consumers and small businesses before the competitive environment is disrupted. In this context, it concludes that the preventive effect of the contested provision is suitable and necessary to achieve the goal of protecting competition in the electronic commerce field.
As a result, it is concluded that the regulation does not unreasonably weaken the competitive power of electronic commerce intermediary service providers, does not prevent them from engaging in economic and commercial activities, and does not cause disproportionate economic loss. Therefore, it is decided that the related provision does not unconstitutionally restrict the freedom of enterprise.
2. Assessment of the Objection Regarding the Phrase “…determining the rights and obligations of the expert and the procedures and principles of their appointment by regulation…” in the Implementation of LREC
Article 11 of the LREC titled "Ministry Authority" stipulates that the Ministry of Trade may determine the rights and obligations of the experts it appoints during the inspections carried out to ensure the implementation of the LREC, as well as the procedures and principles of their appointment, by regulation.
In the objection made to the CC by the 10th Chamber of the Council of State, it is argued that granting the Ministry of Trade the authority to determine the rights and obligations of the experts and the procedures and principles of their appointment by regulation violates the principles of legal certainty and foreseeability, as well as the non-delegability of legislative power. It is also claimed that the regulation does not provide a guarantee for the protection of software and algorithms, which can be considered as trade secrets and hold economic value for a commercial enterprise or company, thus violating the property rights of electronic commerce intermediary service providers and electronic commerce service providers.
The CC, reviewing the objection, states that after the legislative body determines the fundamental principles and framework by law, leaving issues related to expertise and administrative technique to the executive cannot be interpreted as the delegation of legislative power. The decision highlights that the regulation allows for the appointment of experts only in cases requiring specialized or technical knowledge, specifically when there is a need to inspect software and algorithms, and it is not possible to appoint experts for other purposes during these inspections. In this context, the CC concludes that the Ministry of Trade's authority to make regulations regarding the appointment of experts during the inspections carried out to ensure the implementation of the LREC is not unconstitutional and rejects the objection.
3. Assessment of the Objection Regarding the Prohibition of Unfair Commercial Practices in Electronic Commerce
As remembered, with the amendments made in 2022, Article 1 was implemented in the LREC to regulate unfair commercial practices in electronic commerce. This article considers practices that significantly disrupt the economic activities of electronic commerce service providers, reduce their reasonable decision-making ability, or force them to engage in a commercial relationship they would not normally be a part of as unfair and imposes administrative fines for such practices. The article lists certain commercial practices that will always be considered unfair.
In the objection made to the CC, it is claimed that the regulation does not specify the scope and limits clearly enough to prevent arbitrary application, thus violating the principles of legal certainty and foreseeability and the freedom of enterprise.
The CC, however, emphasizes that the general framework and fundamental principles of practices considered as unfair commercial practices are outlined in the regulation, ensuring there is no room for arbitrariness and meeting the requirement of legality. The decision points out that the limitation imposed on the freedom of enterprise is suitable and necessary for supporting electronic commerce service providers with lower economic power and protecting competition in the electronic commerce field.
Moreover, the decision underlines that there is a legal recourse against the administrative fines imposed for unfair commercial practices, which allows for the review of whether the practices of electronic commerce intermediary service providers constitute unfair commercial practices. Consequently, the CC concludes that the limitation on the freedom of enterprise is not disproportionate and the objection regarding unconstitutionality is unfounded.
4. Assessment of the Objection Regarding the License Fee Regulation for Electronic Commerce Licenses
Article 4 of the LREC stipulates that electronic commerce intermediary service providers with a net transaction volume exceeding ten billion Turkish Liras and more than one hundred thousand transactions excluding cancellations and returns must obtain an electronic commerce license from the Ministry of Trade. The license fees are determined based on the net transaction volume of electronic commerce intermediary service providers. In the application made to the CC, it is claimed that requiring electronic commerce intermediary service providers to renew their licenses annually and pay the license fees determined based on progressive scales for each renewal, with the license fees increasing incrementally at the previously set thresholds, constitutes a disproportionate intervention in their activities and is unnecessary for the purpose of preventing unfair competition, thus violating the Constitution.
The CC first notes that the relevant provision is clear, understandable, and specific. It then reiterates that electronic commerce intermediary service providers are in a strong economic position and that the state has the discretion to take preventive measures before the competitive environment is disrupted. The decision also points out that the progressive system adopted in determining the license fees has a positive effect on improving competitive conditions. The decision evaluates that the increase in license fees as the net transaction volume increases serves the interests of economically weaker electronic commerce intermediary service providers. It acknowledges that taking the net transaction volume instead of the profit of electronic commerce intermediary service providers as the basis for the license fee calculation means that they may have to pay a large portion of their commissions as license fees. Nevertheless, the CC concludes that the net transaction volume thresholds set are reasonable considering the size of the transaction volume in the electronic commerce sector in our country and that they do not render the provision of services in this sector meaningless in terms of profitability. Therefore, it decides that the objection regarding unconstitutionality is unfounded.
However, it is noted that the decision regarding the license fee regulation was made by a majority vote with two dissenting votes. One of the dissenting opinions argues that the increasing ratios between the thresholds based on net transaction volume are disproportionate, pointing out that an increase of 833 times between the initial threshold and the final threshold, based on net transaction volume, risks eliminating profitability and constitutes a disproportionate intervention in the freedom of enterprise.
5. Conclusion
In conclusion, the CC decided that the provisions implemented in the LREC in 2022, which regulate the relationships between electronic commerce intermediary service providers and electronic commerce service providers selling products or services on these marketplaces, and their behavioral obligations, are not unconstitutional. Considering that the amendments led to significant debates on issues such as unfair commercial practices in electronic commerce and electronic commerce licenses, the evaluations in the decision's reasoning hold importance in many respects. Thus, the debates on whether the contested provisions could be annulled by the CC for being unconstitutional and the uncertainty regarding the implementation of these provisions have come to an end.