The year 2011 proved to be a rich one in legislative and regulatory initiatives, mainly by the Antimonopoly Committee of Ukraine (AMCU).
Changes to Competition Law
In July 2011 the Ukrainian Parliament adopted changes to the Competition Act proposed by the AMCU, the most notable of these being:
— introduction of fines for giving recommendations which induce or facilitate competition law offences in the amount of up to 1% of the offender's turnover;
— vesting local subdivisions of the competition authority with a broader competence and increasing the cap on fines which they can impose (to be approx. EUR 6,200);
— removing some procedural imperfections of Phase 2 review of mergers and concerted practices;
— detailing the AMCU's powers to deal with the effects of competition offences, in particular through requesting elimination or mitigation of the negative effects of concerted practices or concentrations; and
— allowing foreign applicants for merger clearance, authorization of concerted practices, and official clarifications to pay filing fees and make other payments in EUR or USD.
Some other changes proposed by the AMCU did not find their way through the parliamentary readings, in particular those related to broadening the individual powers of Commissioners.
On 30 September 2011 the AMCU published the Draft Regulation detailing rules and procedures applicable to leniency applications in cartel cases (the Regulation). Beyond all doubt, the document is an important step towards better prevention, detection, and fighting cartels.
The possibility to apply for leniency has been in place in Ukraine since 2002, first introduced by the Competition Act. However, the absence of clear and adequate procedural rules hindered its effective implementation. The long-awaited Regulation clarifies requirements to immunity applicants, details the information and evidence an undertaking should provide in order for its application to be successful, review procedure, etc. It also introduces several new concepts to the existing leniency regime: in particular, for the first time the term "cartel" is defined in Ukrainian antitrust legislation; the document also introduces the marker system (equivalent to the one that exists in the EU), the possibility to benefit from partial (2050%) fine reduction, etc.
A "cartel" is defined as anti-competitive concerted practices concerning (exclusively):
— fixing of prices (tariffs) of purchase or sale of goods;
— limitation (including termination) of production, purchase or sale of goods;
— dividing markets or sources of supply by territory, type of goods, sale or purchase volumes, or classes of sellers, purchasers or consumers or otherwise; and
— distortion of the results of auctions, contests, tenders.
The concept of a cartel is significantly narrower than that of the anti-competitive concerted practices (as defined in the Competition Act). Pursuant to general leniency rules of the Competition Act, the participants of any anti-competitive concerted practices may apply for immunity, while the Regulation appears to apply to cartels only.
Applicable requirements have been detailed to clarify:
— that only the first-to-apply (i.e., before anyone else has applied and before the AMCU has initiated its investigation into the same violation) can benefit from full immunity;
— which information will be necessary and sufficient to qualify for full immunity;
— that the applicant will not be considered in breach of the immunity requirements if it did not cease to participate in anti-competitive concerted practices with a view to obtaining necessary evidence (upon AMCU approval);
— that an applicant exercising coercion upon other undertakings with a view to their participation in a cartel cannot benefit from immunity.
The Regulation introduces detailed procedural rules:
— the AMCU will appoint an authorized person to accept and deal with leniency applications. Importantly, an application can be made to the authorized person verbally and will then be reflected in the minutes, a copy of which shall be provided to the applicant;
— the identity of the applicant and the fact that an application has been filed will be kept confidential;
— the application shall include information concerning: details of the applicant, information regarding all participants of the alleged cartel, detailed description of the activities of the alleged cartel (i.e., type of the cartel, product and geographical markets involved, duration of the cartel, role of each participant, etc.), all available evidence, and the applicant's role in the alleged cartel;
— types of admissible evidence are listed;
— a marker system is introduced, i.e., an undertaking can apply based on limited information for a marker-letter securing its 1st place on the list of immunity applicants, provided it is in a position to obtain and submit sufficient information later on;
— after receiving an immunity application (or an application for a marker-letter and subsequent completed immunity application) the AMCU will decide whether the information is sufficient to grant immunity; if it is not, an applicant may still qualify for a reduced fine;
— in case of doubt a potential applicant may request a preliminary conclusion from the AMCU regarding its chances to be granted immunity (such request should be supported by available information presented in generalized (hypothetical) form).
Reduction of Fines
To maximize the information inflow, the Regulation encourages other participants (besides the first immunity applicant) to a cartel to submit additional available information in exchange for a partial (20-50%) reduction of the fine, etc. Evidence provided in such subsequent applications should have added value and the AMCU has full discretion to decide whether such additional data is sufficient for the purpose. It appears that subsequent applicants may qualify for a partial fine reduction even after the AMCU investigation has already been initiated.
The timing of adoption of the Regulation is unclear even though it appears to be one of the authority's top policy priorities and its enactment may be expected in early 2012.
Collection of Fines
Another AMCU legislative initiative is aimed at a more efficient enforcement, and namely imposition and collect of fines. In particular, in the Draft Act amending Article 56 of the Competition Act the AMCU suggests the following:
— any member or several members of the violator's group may pay a fine, whether in full or in part, to discharge the liability of the group;
— all members of the offender's group are jointly and severally liable for payment of a fine imposed by the AMCU; and
— the AMCU may file a lawsuit seeking forcible collection of fines and accrued interest from any member of the offender's group.
Although the idea of bringing the concept of joint and several liability into the context of administrative sanctions was heavily criticized by the legal community, the changes are perceived quite positively as they will make the threat of fines more imminent, thus fostering compliance.
Dominance and Merger Control
There have been few Draft Acts coming from outside the competition authority. The most important Draft was submitted by two MPs in September 2011 and proposes the following major changes:
— overhauling and simplifying the definition of dominance to refer to an undertaking's market share in excess of 50% coupled with absence of significant competition that it suffers;
— removing such a trigger event for merger clearance as reaching/exceeding 25% of voting stock in an undertaking; and
— increasing the merger notification thresholds and setting a higher standard for the local nexus requirement.
The last proposed change goes along the lines of an earlier Draft Act which even passed the first reading in Parliament back in 2009. Thus, it is conceivable that Parliament will want to give this matter more thought.
The latest 2011 development was the AMCU's unveiling of the long-awaited Draft Regulation dealing with vertical agreements and concerted practices. The document generally follows the pattern of EC Regulation 330/2010 of 20 April 2010, though it also brings along some local flavour such as:
— allowing vertical interaction between an association of retailers and its individual members to the extent that no such individual retailer (together with its group) has turnover in excess of EUR 1 million (instead of EUR 50 million in EU);
— referring to market shares of the supplier and the purchaser instead of their market shares on the markets in which they sell and purchase, respectively;
— introducing dominance as a standalone disqualifier from the ability to benefit from the vertical exemptions; and
— inverting the exemption that may apply by way of derogation under Article 5(3) of EC Regulation 330/210 in a way that the elements permitting an obligation not to manufacture/purchase/sell/resell goods after termination of the agreement actually bar such obligation (which may well be a drafting mistake as the document looks like a rather rough draft for now).
It needs to be seen what laws and regulations and in what form will eventually be adopted. However, the AMCU's intense activity in this area is a sign of the increased demand for definitive and comprehensive regulatory guidance.