Competition Law in Ukraine
Latest Developments
Despite great expectations, 2009 has not seen any major legislative developments. The most noticeable changes relating to unfair competition regulation when in early 2009 the restatement of the Unfair Competition Act 1996 took effect to exclude a number of rudiments and bring the law into procedural conformity with the Competition Act 2001.
Perhaps the biggest disappointment of 2009 is that the draft amendment to the Competition Act 2001 introducing fundamental changes to the national merger control regime was only afforded its first reading in Parliament. The prospects for it to be passed and enacted in late 2009 or early 2010 remain obscure for now. However, the Antimonopoly Committee of Ukraine (AMCU) has contributed on the sub-legislation front by introducing changes to the block exemptions regulation (regarding a number of hardcore horizontals) and amending procedural regulations for antitrust investigations and compliance monitoring.
There have been a number of policy changes and lots of enforcement practice by the AMCU. It appears that the majority of positive changes are due to the results of the extremely profound and comprehensive peer review of Ukrainian competition law and policy made by the OECD. In its report the OECD identified a number of problems and deficiencies in Ukrainian competition law framework and made various remedial proposals. In particular, the report focused on the imperfections of the merger control regime, legislation on state aid, AMCU investigative tools as well as on the necessity to resolve conflicts in the Ukrainian Commercial Code and harmonize Ukrainian laws with EU legislation.
In October 2009 the AMCU presented the Draft Concept of Improvement of the System of Protection of Economic Competition in Ukraine, which received extensive media coverage and has been actively discussed within the legal community.
The most controversial and vigorously debated legislative novels suggested by the concept were introduction of criminal penalties for cartels and vesting wide investigatory authorities with the AMCU.
Apart from merger review routine, the AMCU has been increasingly active in investigating cartels and abuses of dominance. Its main focus has been on retail and “socially important” markets and capitalizing on consumer protection mottos. As always, the AMCU was busy with a large number of unfair competition cases of varying magnitudes.
Merger Control
Concentrations. Notifiability Thresholds. Merger clearance is required from the AMCU where a transaction qualifies as notifiable concentration. The following actions are regarded as concentrations:
- merger of two undertakings, or the annexation of one undertaking to another;
- acquisition of direct or indirect control over an undertaking (including, through acquisition of significant portion of assets of an undertaking and appointment of its managers);
- establishment of a full-function entity by two or more undertakings;
- direct or indirect purchases, acquisitions or acquisitions of control over equity interests whereby certain thresholds (25% or 50% of the votes in the highest governing body of the respective company) are reached or exceeded.
The concentration would be notifiable, thereby requiring prior clearance from the AMCU where: - in the previous financial year (i) the aggregate worldwide assets value or turnover of the parties exceeded EUR 12 million, and (ii) at least two parties had a worldwide assets value or turnover of over EUR 1 million each, and (iii) the assets value or turnover in Ukraine of at least one party exceeded EUR 1 million; or either individual or aggregate market share of the parties in the market concerned or the neighboring market exceeds 35%.
For the purpose of calculating the thresholds, the assets value/turnover/market share of the entire group of the relevant undertaking is taken into consideration.
Local Nexus. Where notification threshold is calculated with reference to local assets value/turnover (threshold (iii) above) the law does not differentiate between domestic and foreign-to-foreign transactions, if the target or one of the merging parties has no assets or sales in Ukraine. Thus, for the merger clearance requirement to be triggered it is sufficient that the Ukrainian materiality nexus be exceeded by either party to a concentration. Moreover, when calculating targets’ assets value/turnover, these figures should also include those of the entire group the target belongs to prior to the concentration.
Applying for Clearance. AMCU Review. Clearance Test. To get clearance, the parties should submit to the AMCU an application accompanied by a rather extensive set of documents, and pay a processing fee of approximately EUR 500. The application is reviewed within 45 days (15 for ‘preview’ and 30 for substantive review) at Phase I. If grounds which may prevent the concentration from being cleared or requiring an in-depth examination are identified, the AMCU will launch Phase II proceedings taking up to another 3 months. In practice, however, the AMCU may extend Phase II indefinitely by issuing additional data requests to the applicant (s) and third parties.
The clearance test is that a transaction should not lead to monopolization or substantial restriction of competition in the market (s) concerned. There are no further legislative guidance on the considerations on which the AMCU’s substantive review should based. This gives the AMCU considerable leeway in assessment of the anticompetitive impact of a particular transaction.
Abuse of Dominance
An undertaking is considered to enjoy a dominant market position if it holds (i) a market share of 35% or more (unless it can prove that significant competition exists), or (ii) a market share of less than 35%, where no significant competition exists due to the comparatively small market shares held by its competitors. Several undertakings may also be deemed to enjoy a dominant position on the market where (i) the total market share of up to three undertakings exceeds 50%, or (ii) the total market share of up to five undertakings exceeds 70%.
Abuse of dominance is defined as actions/inactions of undertaking holding dominant position which may entail prevention, elimination, restriction of competition or infringement of interests of other undertakings, which would have been impossible if a sufficient level of competition were to exist in the market concerned.
Concerted Practices
Concerted actions which have led or may lead to the prevention, elimination or restriction of competition are considered to be anti-competitive and, therefore, are prohibited. Anti-competitive concerted practices include price fixing, limiting production and dividing up markets or sources of supply.
Where any kind of unilateral conduct may qualify as above the parties should seek the AMCU’s approval for concerted actions.
Certain exemptions with respect to vertical restrictions exist under Competition Law. However, they are premised by an absence of (i) significant restriction of competition, (ii) hindering of market access, and (iii) unjustified raising of prices or deficits.
Another block exemption is provided by the AMCU Model Requirements to Concerted Actions and states that the parties do not need AMCU authorization if their aggregate market share is below 5%.
Unfair Competition
Unfair competition is defined as any competitive act which is contrary to the rules of trade and other good-faith customs of business activity. The Unfair Competition Act contains an exhaustive list of market practices: unauthorized use of a third party’s business reputation, hindering competition or attaining an undue competitive advantage, and the collection, use and disclosure of commercial secrets.
The law imposes rather severe sanctions and liability on violators.
Sanctions
The AMCU can impose fines on an undertaking (i) up to 5% of its sales proceeds in the previous fiscal year for an unauthorized merger, (ii) up to 10% of its sales proceeds for abuse of dominance or anticompetitive concerted practices, and (iii) up to 5% for unfair competition. Fines can also be imposed for misrepresentation to the AMCU, failure to provide information in a timely manner, etc.
The AMCU is also empowered to order dissolution of a monopolistic undertaking, initiate invalidation of illegal transactions through a court, arrange for an import/export ban by the Ministry of Economy, and otherwise eliminate the negative consequences of a violation.
Moreover, individuals and companies that have suffered damages may file a claim seeking compensation for pecuniary and moral damages.
Finally, Ukrainian law also provides for administrative and even criminal liability for violations of competition laws.
Enforcement
The AMCU possesses rather strong instruments to enforce its decisions. The only problematic issue is probably that of collection of fines in foreign-to-foreign transactions, where those committing violations are located outside of Ukraine and cannot be reached by the AMCU.
Under the law, any member of a group of law breakers that benefited or may have benefited from an infringement may be subject to fines at par with the principal violator. This allows the AMCU to impose a fine immediately on the local subsidiaries of parties. In this case the authority has a very good chance of forcible collection of imposed fines.
It appears that collection of fines from foreign entities is only possible if the violator were to agree voluntarily to pay the fine. Forcible collection of fines appears highly unlikely.