Despite great expectations, 2009 has not seen any major legislative developments, the most noticeable changes relating to unfair competition regulation – 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 the year is that the draft amendment to the Competition Act 2001 introducing fundamental changes into national merger control regime has only afforded first reading in the Parliament, its prospects for being passed and enacted in late 2009 or early 2010 left obscure for now. However, the Antimonopoly Committee of Ukraine (AMC) 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 AMC. It appears that the majority of positive changes owe to the results of the extremely profound and comprehensive peer review of Ukrainian competition law and policy made by OECD. In its report the OECD identified a number of problems and deficiencies of the Ukrainian competition law framework and made various remedial proposals. In particular, the report focused on the imperfections of merger control regime, state aid legislation, AMC investigative tools as well as on the necessity to resolve conflicts in Ukraine's Commercial Code and harmonize Ukrainian laws with the EU's.

In October 2009 the AMC presented 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 AMC.

Apart from merger review routine, the AMC has been increasingly active investigating cartels and abuses of dominance mainly focusing on retail and "socially important" markets and capitalizing on consumer protection mottos. As always, the authority was busy with a large number of unfair competition cases of various magnitudes. 

Merger Control

Concentrations. Notifiability Thresholds. The AMC merger clearance is required where a transaction qualifies as notifiable concentration. The following actions are regarded to be 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, thus requiring prior clearance from the AMC where:

·             in the previous financial year (i) the aggregate worldwide assets value or turnover of the parties exceeded EUR12 million, and (ii) at least two parties had a worldwide assets value or turnover of over EUR1 million each, and (iii) the assets value or turnover in Ukraine of at least one party exceeded EUR1 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 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 before the concentration.

Applying for Clearance. AMC Review. Clearance Test. To get clearance, the parties should submit to the AMC an application accompanied by rather extensive set of documents, and pay a processing fee of approximately EUR500. The application is reviewed within up to 45 days (15 for ‘preview’ and 30 for substantive review) at Phase I. If grounds which may prevent the concentration from being cleared or require an in-depth examination are identified, the AMC will launch Phase II proceedings taking up to another 3 months. In practice, however, 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 are no further legislative guidance on the considerations on which the AMC’s substantive review should base. This gives AMC a considerable leeway in assessment of 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 sufficient level of competition would 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 are thus prohibited. Anti-competitive concerted practices include price fixing, limiting of production, dividing markets or sources of supply.

Where any kind of unilateral conduct may qualify as 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 raise of prices or deficits.

Another block exemption is provided by the AMC Model Requirements to Concerted Actions and says that the parties do not need AMC 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 Law 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 collection, use and disclosure of commercial secrets.

The law imposes on the infringers rather severe sanctions and liability.

Sanctions

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 anticompetitive concerted practices, and (iii) up to 5% for unfair competition. Fines may also be imposed for misrepresentation to the AMC, failure to timely provide information, etc.

The AMC is also empowered to order dissolution of a monopolistic undertaking, initiate invalidation of illegal transactions through the court, arrange for import/export bar by the Ministry of Economy, and otherwise eliminate the negative consequences of the 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 AMC possesses rather strong instruments to enforce its decisions, the only problematic issue probably being collection of fines in foreign-to-foreign transactions, where the infringers are located out of Ukraine and are not reachable for the authority.

Under the law, any infringer’s group’s member that benefited or might have benefited from the infringement may be subject to fines at par with the principal infringer. This allows the AMC to impose fine immediately on parties’ local subsidiaries. In this case the authority stands very good chances of forcible collection of the fines imposed.

It appears that collection of fines from foreign entities is only possible if the infringer would agree to voluntarily pay the fine. Forcible collection of fines appears hardly achievable.

Appeal and Judicial Review of AMC Decisions

AMC decision may be appealed to the commercial court within two months following its receipt.

The court may suspend the decision until the final award is rendered. However, in order to protect public interests or prevent negative impact the violation may have, the AMC is permitted to declare a decision nonsuspendable upon its issuance. Thus, the AMC may discretionary hinder suspension of the decision by the court.