Antitrust Law in Ukraine
By Igor Svechkar
Shevchenko Didkovskiy & Partners
This year has not seen any major legislative changes. The only competition
law to be amended was the On the Antimonopoly Committee Act of Ukraine (AMC). It underwent rather insignificant revision with
regard to some high-level positions within the area of powers and appointments.
The sub-legislative activity of the AMC has also been quite
limited and very much focused on state procurements and
natural monopolies. Its enforcement practice and policy in
general remains unchanged, except for merger review. In this
area the AMC has introduced a number of new rules. These
deal primarily with disclosure requirements such as inclusion
of non-confidential description of a notified transaction into
the application for the purposes of public announcement, the
need to describe financial support arrangements in more detail
and submit relevant agreements, and a more formalistic approach
to exemptions as regards restricting information which
should be submitted under the law, etc.
Judicial activity and codification of court practice have
proved more intense and resulted in a number of practice
overview papers issued by the Supreme Commercial Court.
In particular, a paper issued in August 2007 brought clarity
to jurisdictional uncertainty and resolved it in favor of
Commercial Courts and the Commercial Procedure Code
(as opposed to Administrative Courts and the Administrative
Procedure Code) which should apply to competition cases.
Similarly, a paper issued by the court in April 2007 outlined
the grounds for invalidation of AMC resolutions, emphasized
the non-renewable nature of the two-month statute
of limitations for their appeal, and addressed a number of
substantive competition issues such as horizontal maximum
price fixing, unfair comparative advertising, abuse of dominance,
and concerted practices.
Concentrations. Notifiability Thresholds. Merger clearance
from the AMC is required where a transaction qualifies as notifiable
concentration. The following actions are regarded as
concentration:
• merger of two undertakings, or the annexation of one
undertaking by another;
• acquisition of direct or indirect control over an undertaking
(including, through acquisition of a significant portion
of assets of an undertaking or appointment of its managers);
• establishment of a fully functional 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 AMC 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 calculation of the thresholds the assets
value/turnover/market share of the entire group of the relevant
undertaking is taken into consideration.
Local Nexus. Where the 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
concentration. Moreover, when calculating targets’ assets value/
turnover, these figures should also include those of the entire
group the target belongs to prior to concentration.
Applying for Clearance. AMC Review. Clearance Test. In
order to get clearance, the parties should submit to the AMC
an application accompanied by a rather extensive set of documents,
and pay a processing fee of approximately EUR 720.
The application is reviewed in a period of up to 45 days (15 for
‘preview’ and 30 for substantive review) at Phase I. If grounds
are identified which may prevent the concentration from being
cleared or require in-depth examination, the AMC will launch
Phase II proceedings. These take up to another 3 months. In
practice, the AMC 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 is no further legislative guidance
on the considerations on which the AMC’s substantive review
should be based. This gives the AMC considerable leeway
in assessment of the anti-competitive impact of a particular
transaction.
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
in question. In particular, the following practices may be
treated as abuses of dominance: setting prices or conditions that
could not be established under substantially competitive market
conditions, applying different prices or conditions to identical
agreements without justifiable grounds, tying, hindering market
access or ousting them from the market, etc.
Concerted actions which have led, or may lead, to the prevention,
elimination or restriction of competition are considered
to be anti-competitive and are, therefore, prohibited. Anti-competitive concerted practices include price fixing, limiting
of production, dividing markets or sources of supply (including
zonified distribution), single-branding, ousting competitors
from the market or hindering their access, tying, etc.
Where any kind of unilateral conduct may qualify as belonging
to the above the parties should seek AMC approval for
concerted actions.
Certain exemptions with respect to vertical restrictions exist
under the Competition Law. However, they are premised by absence
of (i) significant restriction of competition, (ii) hindering
of market access, and (iii) unjustified raising of prices or deficits.
This provides a great deal of discretion to the AMC while
deciding on the applicability of the exemption and makes the
latter hardly reliable for use in distribution structures. Another
block exemption is provided by the AMC Model Requirements
to Concerted Actions and states that parties do not need AMC
approval if their aggregate market share is below 5%.
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 Law contains an exhaustive
list of market practices that may qualify as unfair competition.
Basically, these practices can be divided into the following main
categories: unauthorized use of a third party’s business reputation,
hindering competition or attaining an undue competitive advantage,
and collection, use and disclosure of commercial secrets.
The AMC may impose fines on an undertaking of (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 anti-competitive concerted practices, and (iii)
up to 3% for unfair competition. Fines may also be imposed for
misrepresentation to the AMC, failure to provide information
in a timely manner, etc.
The AMC 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 the violation.
Moreover, individuals and companies that have incurred
damages may file a claim seeking compensation for pecuniary
and moral damages. For some violations, courts may award
damages which come to double the amount of the losses sustained.
Finally, Ukrainian law also provides for administrative and
even criminal liability for violations of competition laws.
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