Crux (#09 September 2013)

Expanding Control

Over the last couple of years the Antimonopoly Committee of Ukraine has enhanced its regulatory initiatives. The number of requests from the Committee has risen dramatically, while the sums of fines imposed have exceeded previous records. Futhermore, the regulator’s activity is likely to expand across all its controlling functions.


What are the latest trends of antitrust investigations? What determines the strategy of interaction with the AMCU in the course of investigations?

Mariya Nizhnik,
partner, Vasil Kisil & Partners

The following trends in antitrust investigations over the last year could be determined:

— The AMCU still focuses its attention on companies, whose activities are related to so-called “social markets”. These markets include production and sale of food, medicines, mobile telecommunication services, agriculture, as well as utility services markets;

— In 2013 the AMCU has conducted comprehensive investigations of food retailers and companies involved in crops storage and land lease;

— Penalties for the violation of antitrust legislation have become substantial and tangible for companies;

— Companies, in their turn, are starting to pay more attention to competition compliance.

The strategy of cooperation with the AMCU depends in the main on the proper strategic planning of the company’s business activities. Problems that may arise at the stage of investigation are easier to prevent in advance than “extinguish fires” when such problems are discovered by AMCU representatives. Keeping this in mind, the strategy of interaction and cooperation with the AMCU should be developed for each particular case taking into consideration the following facts:

(i) the attention of the company to the competition compliance and (ii) historical practice of communicating with the AMCU. The current position of the company on the market, presence or absence of historical violations as well as the willingness of the client to make certain adjustments to the established rules for dealing with customers, suppliers and competitors are also very important factors for the strategy development.

We recommend our clients a range of different measures which include training sessions for personnel aimed at preventing violations of antitrust legislation in future, and so-called “antitrust audits.” The last service enables identification and paying attention to possible violations that may have occurred in the past, and respectively to develop measures for eliminating or mitigating risks related to violation of antitrust legislation.


What are the features of AMCU audits? What are the most common mistakes of entities under audit? How do you recommend to develop interaction with the regulator during the audit?

Eduard Tregubov,
lawyer, Salkom

Unlike audits routinely carried out by the tax authorities, audits performed by the Antimonopoly Committee of Ukraine bring a new — and often unpleasant experience. Therefore, it would not be inappropriate to analyse the procedure of such audits set out by the Rules for carrying out the audit of regulatory compliance with economic competition statutes and regulations approved by Resolution No.182-p of 5 December 2001 of the  AMCU.

During an audit performed by the AMCU it should be established, first and foremost, that inspectors have complied with all the formal statutory requirements before they are granted access to the premises.  It should be cleared up, whether the audit is scheduled or unscheduled (in the former case, the company should have been notified in writing 10 days prior to the date of the scheduled audit), what the grounds of the audit are, whether or not the inspectors have relevant IDs, an order or a resolution ordering the audit and setting up a commission, a plan of the audit, instructions issued by the President of the Antimonopoly Committee, government representative, or department director.

These instructions should vest the chairman and members of the commission with specific powers effective for the duration of the audit, specifically, to have unobstructed access to the premises of a company, to request explanations, documents, information, to seize documents and items as evidence, etc.

If there are no grounds for refusing access to the premises, it should be remembered that the powers of the Antimonopoly Committee to request documents and information during the audits are quite considerable. A refusal to provide the documents or information so requested constitutes a violation of competition regulations and is punishable by a fine.

It seems advisable for businesses to ensure strict compliance with the legitimate requests of the AMCU during an audit, which can be beneficial if an appeal is later brought against the audit report.  



What are peculiarities of investigations of concerted actions by business entities in Ukraine? What manufacturers are most often targeted by the AMCU?

Antonina Yaholnyk,
partner, AstapovLawyers ILG

Who is under the radar? Concerted actions are one of the core issues of competition law in general and in Ukraine in particular.

The AMCU has recently raised its interest in this area very significantly. Plenty of investigations have been launched. Some of them are even conducted in parallel with authorities in other CIS countries such as Russia and Kazakhstan, some even in cooperation with EU member states. Among the industries that are under radar of the authorities as usually are pharma companies, chemicals producers, food and drinks producers, retailers, financial services, and market players producing/selling socially sensitive products such as bread, milk, sun flower oil, etc.

What is the process?

The whole process may start from the overall market investigation initiated by the AMCU. Once the investigation is launched the AMCU usually sends out questionnaires to respective market players, which are rather general. It is vital to not only provide requested data, but also to provide explanations ensuring a better vision of the AMCU on certain aspects of the investigated matters in order to preempt further investigation of such issues as further research by the authority will most likely be carried out in the procedure of a case on infringement. Such aspects are usually pricing issues, territorial restriction of sales, etc. (depending on whether the authority investigates vertical concerted actions (usually in distribution agreements) or horizontal, i.e., actions between competitors).

What shall be done to minimize the risk of sanctions? Many cases have been resolved without sanctions or even the opening of a case on infringement by way of settlement agreements with the authority whereby the authority issues the binding recommendation to the respective market player to bring its conduct (pricing policy, distribution agreement, etc.) in compliance with requirements of valid Ukrainian competition law. Once this is done, the authority usually does not open any case on infringement and neither does it impose any sanction on this market player. One further important legal instrument is to remember about leniency, which is a newly introduced concept whereby if the participant of the concerted actions cooperates with the AMCU, it will further be entirely relieved from any sanctions or liability. The instrument has not been used widely on the market in Ukraine to date, but with investigations conducted by the AMCU jointly with other antitrust authorities it is a matter of time when the same multinationals pleading for leniency in EU will do the same in Ukraine in order to avoid exposure to sanctions running into many millions and sometimes even billions.



How do you assess introduction of the leniency program in Ukraine? How does this procedure work in other countries?

Maksym Nazarenko,
senior associate, Sayenko Kharenko

The leniency program implemented by the AMCU more than a year ago has not yet demonstrated the efficiencies the AMCU aimed to achieve in full. In particular, there are no signs of the investigations recently completed by the AMCU which were based upon leniency applications in the media. The same can be seen from the brief summaries on the outcome of investigations published on the AMCU’s website. Moreover, according to the information communicated by one of the AMCU’s State Commissioners, the phone line for leniency applicants is used very seldom.

We believe that the silence in this field is mainly connected with the effective provisions of the

On Protection of Economic Competition Act of Ukraine. Article 6 of the Act provides for the possibility of leniency, however, certain categories of undertakings which cannot qualify to be released from responsibility for anticompetitive concerted practices. Moreover, the said Act does not provide an opportunity for mitigation of the sanction amount for those undertakings, which apply for leniency and fully cooperate with the AMCU but are not lucky enough to be the first applicants. Unlike Ukraine, in such jurisdictions as Russia and Japan, the law allows a reduction in the amount of fines imposed on the second and third participants of the leniency program. In other words, the fine imposed on the second applicant is reduced, for example, by 50%, etc.

It should be also mentioned that the AMCU has initiated the respective legislative changes in the Act to fix the situation. Adoption of these amendments should hopefully help the leniency program to get into full swing.



Lately the AMCU has been keeping an eye on the activity of dealers. What are the key competition risks related to the use of trademarks and other IP objects in dealership networks?

Oleg Akhtyrskyi,
head of competition and antitrust practice, Gide Loyrette Nouel

Dealers often use trademarks to promote and sell brands and products that they offer; however, it often happens that dealers are not expressly vested with rights to use such trademarks.

The AMCU has recently started sending enquiries related to the use of trademarks by dealers in light of the Unfair Competition Act and its Articles 4 (Unlawful Use of Signs) and 15-1 (Dissemination of Misleading Information).  

In its enquiries the AMCU questions the legal grounds on which dealers use trademarks. The law requires dealers to duly respond to AMCU’s enquiries, or they may face severe financial sanctions from the AMCU.

The AMCU is indeed competent to examine the compliance with Articles 4 and 15-1 of the Unfair Competition Act; however, so far, we are not aware of any investigation launched by the AMCU against dealers on this ground.

With respect to Article 4 of the Unfair Competition Act, the AMCU should normally not succeed if it launches an investigation against a dealer without the trademark’s owner actually filing a claim.  Moreover, if it is reasonably required, the trademark’s owner may at any time expressly authorize the dealer to use its trademark.

At the same time, one should exercise additional care with regard to provisions of Article 15-1 of the Unfair Competition Act. Its scope is rather broad while there are no official guidelines for the application of this article. Potential risks may exist, for example, in case the dealer directly or impliedly communicates to others that it has rights to the trademark, whereas, in fact, it does not. Even theoretically misleading behavior falls under the scope of Article 15-1.

In some civil law jurisdictions, a dealership is perceived as a form of commercial concession and thus dealers do not require a separate license (authorization) to use trademarks for them to operate. Ukrainian civil law and court practice may follow the same approach in future. For now, however, our recommendation is to give strict instructions to dealers, preferably in contracts, on do’s and don’ts in marketing and the public communications where brands are mentioned.



What are specific features of investigations of anti-competitive actions by government authorities? In your opinion, what should be the liability of government officials? Is there any similar practice abroad?

Anastasia Usova,
associate, Asters

Investigations into the anti-competitive practices of public authorities are carried out under the AMCU’s Temporary Rules for Review of Cases on Violations which do not establish any particular procedures regarding public authorities. However, there are important peculiarities in qualification of anti-competitive practices on the part of state bodies. In particular, the criteria for assessment of the anti-competitive nature of conduct in the public sector are significantly lower than in the private one. Unlike anti-competitive practices by private undertakings where the AMCU needs to prove that their behavior aimed or resulted in the prevention, elimination or restriction of competition, state bodies are found to be in violation of competition laws already if their conduct distorts or threatens to distort competition by favoring certain undertakings.

In practice distortion of competition is easier to prove than, for example, prevention or restriction of competition.

Anti-competitive practices of public authorities are the second most numerous violations of competition laws in Ukraine (22% of cases in 2012). One of the reasons for such a high rate is the insufficient deterrence effect of liability imposed on public authorities, which is in fact limited to recovery of damages incurred by the aggrieved parties. State officials do not bear any liability in this respect, unlike in many CIS countries where officials are subject to administrative liability. Introduction of personal liability of civil servants could become an efficient deterrent to this type of violation. However, real changes could take place only if there are appropriate implementing measures in place, including an adequate period of limitation and significant sanctions, such as debarment from holding public office.



It is well known that many business entities that are fined by the AMCU attempt to challenge such fines in court. What is the usual practice of such disputes? Under what circumstances would you recommend clients to go to court?

Oleksandr Fefelov,
lawyer, Ilyashev & Partners 

It is worth noting the rising number of cases where business entities challenge decisions adopted by the AMCU. Challenges are directly proportional to the enhanced current activity of the AMCU, and its more rigorous approach to deciding cases and imposing more severe sanctions caused more active resistance of the business. In 2012, the AMCU commenced competition law proceedings in 701 cases, it also conducted 1,035 inspections of businesses, which resulted in initiation of 660 cases. Obviously, most proceedings resulted in imposition of various sanctions.

The total amount of fines imposed in 2012 (UAH 814.7 million) was 18 times higher than in 2011.

Statistics indicate that in 2012 the punished business entities challenged the AMCU’s decisions in 314 cases, but only 19 of them were declared invalid by the courts (fully or partially), which not only suggests that the courts a priori are more likely to take the side of the public agency, but is also proof of the really responsible approach of the AMCU to consideration of cases and decision-making.

In addition, despite the seemingly huge amount of fines imposed in 2012, the budget managed to collect only UAH 40 million (inclusive of interest). It means that in some cases business entities, which disagreed with the AMCU’s decisions and were convinced that they were right, managed to defend their interests. For instance, this spring we succeeded in protecting the interests of two companies in the case of anti-competitive concerted actions of business entities regarding distortion of tender

results on the sale of raw wood in 2011, which resulted in imposition of the largest and therefore the “loudest” fine in the amount of UAH 419 million over 14 entities. Two of our clients were unjustly ordered to pay more than UAH 120 million, which could result in the total or partial termination of their operations. However, following judicial considerations, the AMCU’s decision was reversed, and the fine still to be paid by our clients has been reduced more than 2,000 times. Therefore, successful challenge of an AMCU decision is possible, and court disputes involving business entities with the AMCU should turn into ordinary routine ones just like disputes with the tax authorities.



What is your forecast as to the possible changes to the competition legislation of Ukraine in the near future?

Alexander Tretiakov,
senior associate, Antika Law Firm

Due to the fact that current Ukrainian anti-monopoly legislation has been based on EU legislation, only minor changes were made during the period of 2001-2013. Surely, current regulations are somewhat outdated and do not correspond with the most recent international practices.

The main problem is the low financial threshold which provides

liability to obtain permission for concentration in the AMCU. Due to this, even in case of minor transactions participants are subject to the procedure for obtaining a permit. Both the AMCU and business representatives repeatedly state that the financial threshold should be increased. The respective Draft was submitted to the Verkhovna Rada several years ago, but it has not been adopted yet. Nevertheless, we can expect the AMCU to renew its efforts regarding the threshold because year by year this problem is becoming more and more critical.

Another change expected by most business representatives is the approval of standard requirements to vertical concerted actions (i.e. between distribution companies and manufacturers) that allows non-application to the AMCU if the action meets the requirements. The absence of such regulations greatly hinders the development of dealer agreements and dealer networks from one side and allow manufacturers to include anti-competitive provisions into the agreement.

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