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1. What are the legal sources that set out the antitrust law applicable to vertical restraints
The main legal source is the Law of Ukraine on Protection of Economic Competition of 2001 (the Competition Law), available in English at www.oecd.org/countries/ukraine/2381565.pdf (this version is not the most recent one). Other sources applicable to antitrust aspects of vertical restraints include:
- the Law of Ukraine on the Antimonopoly Committee of Ukraine of 1993;
- the Resolution of the Antimonopoly Committee of Ukraine (AMC) on the Procedure for Filing Applications with the AMC for Obtaining its Approval of the Concerted Practices of the Undertakings of 2002 (the Authorisation Regulation);
- the Resolution of the AMC on the Standard Requirements to Concerted Practices of the Undertakings for their General Exemption from the Requirement to Obtain Prior AMC Clearance of 2002 (the General Exemption Regulation); and
- the Law of Ukraine on the State Regulation on Technology Transfer Activities of 2006 (the Technology Transfer Law).
2. List and describe the types of vertical restraints that are subject to antitrust law. Is the concept of vertical restraint defined in the antitrust law?
The Competition Law generally prohibits any agreements, decisions of associations, as well as any other concerted behaviour (including acts and failure to act) of the undertakings that resulted or may result in the prevention, elimination or restriction of competition (anticompetitive concerted practices).
Further, the General Exemption Regulation defines the concept of ‘vertical concerted practices’. These are any agreements or other concerted practices entered into between the undertakings, decisions of associations, incorporation of an undertaking (or association) aiming at or resulting in coordination of competitive behaviour (of the parent undertakings or of those and the incorporated entity) or entry into the association as a member in the situation where the participants to such concerted practices do not and cannot compete under the actual conditions in the same product market, having at least potentially the purchase-and-sale relations in the relevant product market or markets.
Therefore, vertical restraints are those that may relate to the described vertical concerted practices. The Competition Law and the Technology Transfer Law contain non-exhaustive lists of prohibited concerted practices (which may contain vertical restraints), including:
- fixing of prices or other conditions of purchase or sale of goods;
- limiting production, markets, technological development or investment, as well as assuming control thereof;
- dividing markets or sources of supply according to territory, type of goods, sale or purchase volumes, or classes of sellers, purchasers or consumers or otherwise;
- ousting of other undertakings, buyers, sellers from the market or limitation of their access into (or exit from) the market;
- application of dissimilar conditions to equivalent transactions with other undertakings, thereby placing them at a competitive disadvantage;
- making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;
- substantial limitation of competitiveness of other undertakings on the market without objectively justifiable reasons; and
- export limitations (in case of technology transfer)
3. Is the only objective pursued by the law on vertical restraints economic, or does it also seek to promote or protect other interests?
The objective is predominantly economic: protection of competition and consumer welfare. In addition, other objectives may overwhelm the economic purpose of protection of competition (exempted individually under the Authorisation Regulation), such as promotion of technical and technological development, improvement of the production and distribution processes, development and application of uniform standards, and so on.
4. Which authority is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible authorities, how are cases allocated? Do governments or ministers have a role?
The AMC, as a state authority with special status, is responsible for the protection of economic competition. The AMC and its regional divisions (which are involved in supervision of compliance as well as investigation of violations of competition laws on the regional product markets) form the system of the AMC bodies responsible for ensuring compliance with the competition laws and, in particular, enforcement of prohibitions on anticompetitive vertical restraints.
Also, prohibitions on anticompetitive vertical restraints may be enforced by commercial courts.
The Cabinet of Ministers of Ukraine (the Cabinet) is not directly involved in the enforcement of prohibitions on anticompetitive vertical restraints. However, it may authorise certain concerted practices that were prohibited by the AMC if the practices have an overwhelming positive effect on competition. When deciding on a case the Cabinet may involve any relevant governmental authorities (industry-specific ministries, national agencies, etc) as well as independent experts.
5. What is the test for determining whether a vertical restraint will be subject to antitrust law in your jurisdiction? Has the law in your jurisdiction regarding vertical restraints been applied extraterritorially? Has it been applied in a pure internet context and if so what factors were deemed relevant when considering jurisdiction?
The Competition Law applies to relations that have or may have an impact on economic competition in Ukraine, irrespective of the parties’ domicile, place of conclusion of an agreement, and so on. This provision can be reasonably interpreted as an effects doctrine applicable to concerted practices in general and vertical restraints in particular. In practice, however, considering that the AMC has exclusive competence to decide on whether certain concerted practices have or may have an impact on economic competition in Ukraine, there is very little room for self-assessment.
There is no public record of extraterritorial application of the Ukrainian competition law regarding vertical restraints; however, the AMC regularly acts extraterritorially on other issues (eg, foreign-to-foreign mergers), and theoretically may do so with respect to vertical restraints that are imposed by non-Ukrainian undertakings and which concern Ukrainian product markets. One should note, however, that extraterritorial enforcement of the AMC decision appears hardly practicable due to a number of legal uncertainties and technical complications associated with cross-border reciprocal recognition of court judgments (through which the AMC decisions are forcibly enforced).
There is also no public record of the Ukrainian competition rules regarding vertical restraints being applied in a pure internet context.
6. To what extent does antitrust law apply to vertical restraints in agreements concluded by public entities?
The Competition Law and other applicable regulations apply with respect to vertical restraints to both private and public entities, irrespective of their legal form and type of ownership if they are ‘undertakings’ in the sense provided in the Competition Law, which stipulates that state bodies, local self-administration authorities, bodies of administrative and economic management and control are considered undertakings for these purposes, including in the context of vertical restraints, in that part of their activities that concerns manufacture, sale and purchase of goods or other commercial activity.
7. Do particular laws or regulations apply to the assessment of vertical restraints in specific sectors of industry (motor cars, insurance, etc)? Please identify the rules and the sectors they cover.
The Competition Law provides for a general exemption of concerted practices involving the transfer of intellectual property rights or the use of intellectual property. It is worth nothing that the list of prohibited restraints contained in the Technology Transfer Law should be taken into account when considering technology transfer agreements.
8. Are there any general exceptions from antitrust law for certain types of agreement containing vertical restraints? If so, please describe.
The General Exemption Regulation provides for a general exception in the following cases:
- de minimis exemption - where the aggregate market share of the parties (including their respective groups) in any of the product markets concerned is less than 5 per cent; and
- market share-based exemption - applicable to vertical restraints if the aggregate market share of the parties (including their respective groups) in any of the product markets concerned is lower than 20 per cent, but under the General Exemption Regulation 20 per cent exemption cannot apply if (cumulative conditions):
- the aggregate worldwide turnover or assets value of the parties (including their respective groups) exceeded €12 million in the preceding financial year;
- the aggregate worldwide turnover or assets value of at least two undertakings that belong to the parties’ groups separately exceeded €1 million in the preceding financial year; and
- the aggregate turnover or assets value in Ukraine of at least one undertaking that belongs to either party’s group exceeded €1 million in the preceding financial year.
However, to the best of our knowledge, in the AMC’s practice the above value of assets or turnover test does not serve as an appropriate benchmark for assessment of potential competition concerns because the effects of vertical restraints on competition primarily depend on market positions of the parties (eg, their market shares).
9. Is there a definition of ‘agreement’ - or its equivalent - in the antitrust law of your jurisdiction?
The Competition Law and regulations applicable to vertical restraints do not define ‘agreement’ and thus, the more general civil law notion should be considered. In particular, the Civil Code of Ukraine of 2003 defines the term ‘arrangement or transaction’ (which was accepted as a substitute for ‘agreement’ in the course of the civil law reform) as actions aimed at the establishment, alteration or termination of civil rights and obligations. The term ‘agreement’ is similarly defined in the Methodology on Determination of Control Relationships of 2002.
The AMC may assess agreements in aggregate, in particular in cases where competition is substantially restricted on the whole market or a significant part thereof, or the restriction of competition constitutes a threat to the system of the market economy.
10. In order to engage the antitrust law in relation to vertical restraints, is it necessary for there to be a formal written agreement or can the relevant rules be engaged by an informal or unwritten understanding?
No. The prohibition of anticompetitive practices generally applies to any concerted practices irrespective of their form (eg, formal written agreements, informal oral arrangements, gentlemen’s agreements and mutual understandings).
11. In what circumstances do the vertical restraints rules apply to agreements between a parent company and a related company (or between related companies of the same parent company)?
The vertical restraints rules apply with respect to undertakings. Pursuant to the Competition Law, when defining composition of an undertaking all controlling and controlled persons or entities of a separate undertaking in question should be included (ie, a group of undertakings is considered an undertaking itself). Thus, prohibition of anticompetitive concerted practices, including anticompetitive vertical restraints, does not apply to agreements concluded between separate undertakings belonging to the same group of undertakings, since they occur within the same undertaking.
12. In what circumstances does antitrust law on vertical restraints apply to agent-principal agreements in which an undertaking agrees to perform certain services on a supplier’s behalf for a sales-based commission payment?
There are no particular circumstances (prerequisites) affecting the applicability of general rules to agent-principal agreements.
13. Where antitrust rules do not apply (or apply differently) to agent-principal relationships, is there guidance (or are there recent authority decisions) on what constitutes an agent-principal relationship for these purposes?
14. Is antitrust law applied differently when the agreement containing the vertical restraint also contains provisions granting intellectual property rights (IPRs)?
The Competition Law does not apply to agreements concerning the transfer of IPRs or the rights to use the IP where such agreements contain certain allowed limitations on the economic activities of the transferee, in particular, on the volume of transferred rights, the period and the territory of permitted use of the IP, type of activity, application and the minimal production volume.
However, if the provisions on the transfer of IPRs form a part of a broader agreement, general rules apply to the remaining part of the agreement. If an agreement involves technology transfer it should also be analysed against the list of prohibited restraints contained in the Technology Transfer Law.
15. Explain the analytical framework that applies when assessing vertical restraints under antitrust law.
There are no specific guidelines regarding assessment of vertical restraints and the AMC practice on the issue is rather limited. The Competition Law generally prohibits any anticompetitive concerted practices, listing certain prohibited hard-core arrangements or restrictions (unless exempted individually) (see question 2 for the non-exhaustive list).
The analytical framework for assessment of vertical restraints may include the following steps:
- define the product markets concerned and the respective market shares of the parties;
- if the aggregate market share of the parties (including their respective groups) in any of the product markets concerned is less than 5 per cent, a vertical restraint is covered by the de minimis exemption (except for certain hard-core restrictions between competitors);
- if the aggregate market share of the parties (including their respective groups) in any of the product markets concerned is between 5 per cent (inclusive) and 20 per cent (not inclusive), a vertical restraint may be covered by the market share-based exemption (except for certain hard-core restrictions between competitors), provided certain turnover or assets thresholds are met (see question 8);
- define whether the restraint may benefit from a block exemption (see question 18);
- if the vertical restraint is not covered by any applicable general exception or block exemption, the potential impact of the restraint on competition should be comprehensively assessed; and
- if the conclusion is that the restraint is potentially problematic, it may still be exempt from prohibition by obtaining the AMC clearance decision to that effect, if such restraint contributes to rationalisation of production, promotion of technical or economic development, optimisation of export or import processes, development and application of uniform product standards, etc, unless it results in substantial restriction of competition on the market or a significant part thereof.
In exceptional cases, and as a last resort, a vertical restraint may be exempt by a decision of the Cabinet. This will involve illustrating that:
- the relevant efficiencies outweigh the negative impact on competition;
- the restraint is indispensable to the attainment of said efficiencies; and
- the resulting restriction of competition does not constitute a threat to the market economy system.
16. To what extent are supplier market shares relevant when assessing the legality of individual restraints? Are the market positions and conduct of other suppliers relevant? Is it relevant whether certain types of restriction are widely used by suppliers in the market
Market shares will be most relevant when considering whether any general exceptions (see question 8) or block exemptions (see question 18 with respect to product supply and use exemption) apply.
The national antitrust legislation does not provide clear guidance regarding the assessment of the legality of individual vertical restraints. However, in cases of hard-core restrictions it is unlikely that the authority will consider their economic background or whether they may be considered an established practice (eg, non-compete clauses), unless the parties specifically apply for an individual AMC clearance under the Authorisation Regulation claiming that the analysed restraint will carry strong efficiencies (ie, better quality of the products, cost efficiencies, etc; see question 15). In the latter case, the authority would consider the market position of other suppliers (as well as other market players), the general market structure and the resulting changes of the individual restraint.
In practice, the AMC also tends to rely on EU Commission practice and guidelines on vertical restraints.
17. To what extent are buyer market shares relevant when assessing the legality of individual restraints? Are the market positions and conduct of other buyers relevant? Is it relevant whether certain types of restriction are widely used by buyers in the market?
The AMC’s approach is similar to that outlined in question 16.
18. Is there a block exemption or safe harbour that provides certainty to companies as to the legality of vertical restraints under certain conditions? If so, please explain how this block exemption or safe harbour functions
The Competition Law provides for block exemption of the vertical restraints concerning a product’s supply and use and the transfer of IPRs or use of IP.
Products supply and use
The general prohibition does not apply to those restrictions imposed on the other party to the agreement, which limit:
- use of products supplied by the imposing undertaking or use of products of other suppliers;
- purchase of other products from other suppliers or sale of such other products to other undertakings or consumers;
- purchase of products that, owing to their nature or according to custom in trade and other fair business practices, are not related to the subject matter of the relevant agreement (tying); or
- price formation or establishment of other contractual terms and conditions for selling the products supplied by the imposing undertaking to other undertakings or consumers.
This exemption does not apply, however, where such restrictions:
- result in substantial restriction of competition on the market or a significant part thereof, including monopolisation of the relevant markets;
- limit other undertakings’ access to the market; or
- result in economically unjustified price increases or product shortages.
In 2012 the AMC published draft Standard Requirements to Concerted Practices on Supply and Use of Products (the Draft Verticals Regulation) in order to clarify the exemption framework. It reflected the relevant criteria for assessment of vertical restraints that were quite similar to the approach in EU competition law and practice. In particular, while generally allowing vertical restraints, the Draft Verticals Regulation viewed resale price maintenance as a hard-core restriction excluded from the scope of the exemption. More specifically, under the Draft Verticals Regulation the exemption did not apply to vertical concerted actions that aimed at or resulted in the restriction of the buyer’s ability to determine its sale price. This would not prejudice the ability of the supplier to impose a maximum sale price or recommend a sale price, provided that these could not amount to a fixed or minimum sale price as a result of pressure from or incentives offered by any of the parties (see questions 28, 29, 33 and 37). The Draft Verticals Regulation has not been adopted and the work on this draft has been suspended. However, it may be assumed that in practice the AMC will continue to follow the approaches laid down in the draft in its assessment of vertical restraints.
Transfer of IPRs or use of IP
The general prohibition does not apply to those restrictions imposed on the transferee (licensee) that do not exceed the limits of the legitimate rights of the owner of the IP (for the list of permitted restrictions, see question 14).
The safe harbour exemptions are provided by the General Exemption Regulation (see question 8).
19. How is restricting the buyer’s ability to determine its resale price assessed under antitrust law?
Generally, anticompetitive concerted actions that set prices or other conditions with respect to the purchase or sale of products are prohibited. Yet this prohibition does not apply to concerted practices restraining supply and use of products that limit the buyer’s ability to form prices or establish other contractual terms and conditions with respect to resale of supplied products, unless they:
- result in substantial restriction of competition;
- result in economically unjustified price increases or product shortages; or
- hinder market access for other businesses.
The Competition Law lacks the proper definition of substantial restriction of competition and a great degree of discretion is vested, in this respect with the AMC. However, the market share-based exemption (see question 8) may apply.
The establishment of maximum and recommended resale prices is generally not viewed as resulting in substantial restriction of competition. As regards resale price fixing and setting minimum resale prices, the Draft Verticals Regulation published in 2012 (see question 18) provided for their prohibition. Although the Draft Verticals Regulation was subsequently withdrawn by the AMC (and is no longer available on the AMC’s website), to our knowledge the AMC continues to follow these approaches. As for recent AMC enforcement activity in this respect, it is difficult to comment, since until mid-July 2015, when the AMC started to publish decisions on its website, there was no public registry of AMC decisions and there are no publicly available AMC decisions on the issue yet.
20. Have the authorities considered in their decisions or guidelines resale price maintenance restrictions that apply for a limited period to the launch of a new product or brand, or to a specific promotion or sales campaign; or specifically to prevent a retailer using a brand as a ‘loss leader’?
There are no publicly available AMC decisions on the issue and such arrangements are likely to be analysed under the general rules and exemptions applicable to the establishment of resale prices (see question 19).
21. Have decisions or guidelines relating to resale price maintenance addressed the possible links between such conduct and other forms of restraint?
There are no publicly available AMC decisions on the issue, but it is likely that in order to assess the degree of impact on the market and possible foreclosure effects, the AMC may consider other restrictive provisions in combination with resale price maintenance restrictions.
22. Have decisions or guidelines relating to resale price maintenance addressed the efficiencies that can arguably arise out of such restrictions?
There are no publicly available AMC decisions or guidelines containing such analysis. The AMC makes an assessment of any efficiencies that may be brought about by a restrictive provision (including resale price maintenance restrictions) in the course of the review of the parties’ application for individual exemption under the Authorisation Regulation (for the list of acceptable efficiencies, see question 15). The burden of proof lies on the parties who should argue that the restriction will contribute to certain economic benefits to the public. It is also likely that the AMC will analyse efficiencies employed by the parties during the investigation of an alleged violation of Ukrainian competition law.
23. Explain how a buyer agreeing to set its retail price for supplier A’s products by reference to its retail price for supplier B’s equivalent products is assessed.
There are no publicly available AMC decisions in this respect, but, given that the AMC considers alignment with competitors’ prices anticompetitive, it may be assumed that setting retail prices for supplier A’s products by reference to supplier B’s retail price may be also seen by the AMC as anticompetitive and preventing price competition between suppliers at the retail level.
24. Explain how a supplier warranting to the buyer that it will supply the contract products on the terms applied to the supplier’s most favoured customer, or that it will not supply the contract products on more favourable terms to other buyers, is assessed.
It may be assumed that where sufficient competition at the retail level exists, MFNs may benefit end customers and may be regarded by the AMC as pro-competitive. If, however, MFN clauses are applied to buyers that have strong market positions at the retail level, the AMC may find wholesale MFNs as facilitating coordination of competitive behaviour and softening of competition between the retailers (eg, via unjustified price growth). Reportedly, there has been at least one decision of the AMC’s local office in one Ukrainian city (although this decision is not publicly available), where very similar practices were found to be anticompetitive, but this does not appear indicative of the AMC’s position, given that the AMC comes across similar provisions in contracts quite often, and has not expressed concerns (at least where no dominant players were involved).
25. Explain how a supplier agreeing to sell a product via internet platform A at the same price as it sells the product via internet platform B is assessed.
The supplier is free to set prices for its products within an agent-principal arrangement, but competition concerns may arise if the supplier enjoys some degree of market power at the supply level and the agent acts as an independent undertaking at the resale level. Since there are no publicly available AMC decisions in this respect, it is difficult to give more details on the prospective assessment of ‘retail MFNs’ by the AMC.
26.Explain how a supplier preventing a buyer from advertising its products for sale below a certain price (but allowing that buyer to subsequently offer discounts to its customers) is assessed.
There is no relevant guidance or precedent enforcement practice by the AMC on the minimum advertised price policy (MAPP)/internet minimum advertised price (IMAP) issue. There is an appreciable risk that such restrictions will be treated by the AMC as an indirect resale price maintenance obligation. Thus, it is advisable to get either a positive opinion letter from the authority or individual antitrust clearance before implementing such MAPP or IMAP.
27. Explain how a buyer’s warranting to the supplier that it will purchase the contract products on terms applied to the buyer’s most favoured supplier, or that it will not purchase the contract products on more favourable terms from other suppliers, is assessed.
The AMC’s assessment is usually similar to that outlined in question 24.
28. How is restricting the territory into which a buyer may resell contract products assessed? In what circumstances may a supplier require a buyer of its products not to resell the products in certain territories?
Generally, market sharing on the territoriality principle is considered an anticompetitive concerted practice and, as such, is prohibited. However, the market share-based exemption (see question 8) may apply. According to the former Draft Verticals Regulation, if the combined market share of the parties did not exceed 30 per cent, the following could have been implemented:
- the restriction of active sales to a customer group within the exclusivity system, where such a restriction does not limit sales by the relevant customers; and
- prohibiting a member of a selective distribution system from operating out of an unauthorised place of establishment.
After withdrawal of the Draft Verticals Regulation the AMC has not issued any other official guidelines on assessment of restrictions on ‘active’ and ‘passive’ sales. In the absence of explicit provisions in this respect, overall the AMC tends to follow the approaches expressed in the withdrawn draft as well as in EU enforcement practice, except for the 20 per cent combined market share test, which is explicitly provided under the General Exemption Regulation (see question 8).
29. Have decisions or guidance on vertical restraints dealt in any way with restrictions on the territory into which a buyer selling via the internet may resell contract products?
The antitrust aspect of internet sales is not specifically regulated by the Competition Law. There are also no publicly available AMC or court decisions in relation to restrictions on internet sales.
30. Explain how restricting the customers to whom a buyer may resell contract products is assessed. In what circumstances may a supplier require a buyer not to resell products to certain resellers or end consumers?
Generally, division of customers or consumers by the territoriality principle or any other type of customer classification is considered an anticompetitive concerted practice and as such, is prohibited. However, 20 per cent market share-based exemption (see question 8) may apply. According to the withdrawn Draft Verticals Regulation (see question 18) the following was to be permissible if the combined market share of the entities concerned did not exceed 30 per cent:
- the restriction of active sales to a customer group within the exclusivity system, where such a restriction does not limit sales by the relevant customers;
- the restriction of sales to end consumers by a buyer operating at the wholesale level of trade;
- the restriction of sales by the members of a selective distribution system to unauthorised distributors within the territory reserved by the supplier to operate that system; and
- the restriction of the buyer’s ability to sell components, supplied for the purposes of assembling of goods, to customers who would use them to manufacture the same type of goods as those produced by the supplier.
Since the Draft Verticals Regulation was withdrawn, currently the above restrictions are subject to the 20 per cent combined market share test under the General Exemption Regulation (see question 8).
31. How is restricting the uses to which a buyer puts the contract products assessed?
Restrictions on the use to which a buyer may put the contract products may be caught by the prohibition on putting into agreements additional obligations that are not related to the subject matter of the agreement. However, such restrictions may be allowed under block exemptions:
- unconditionally in agreements concerning the transfer of IPRs or on granting the right to use the IP; and
- in agreements concerning product supply and use, provided such restriction will not:
- result in substantial restriction of competition on the market or its significant part;
- result in monopolisation of the market;
- limit other undertakings’ access to the market; or
- result in economically unjustified price increases or product shortages (see questions 14 and 18).
- In addition, the market share-based exemption (see question 8) may apply.
32. How is restricting the buyer’s ability to generate or effect sales via the internet assessed?
The antitrust aspect of internet advertising and sales is not specifically regulated by the Competition Law. There is also no public record of AMC decisions in relation to restrictions on using the internet for advertising or selling, or antitrust-based litigation resulting in court judgments regarding restrictions on internet sales.
33. Have decisions or guidelines on vertical restraints dealt in any way with the differential treatment of different types of internet sales channel? In particular, have there been any developments in relation to ‘platform bans’?
Ukrainian competition laws and regulations do not address the issues of the differential treatment of different types of internet sales channels. As regards the AMC’s practice, there is no publicly available AMC decision analysing such discrimination.
34. Briefly explain how agreements establishing ‘selective’ distribution systems are assessed. Must the criteria for selection be published?
The Competition Law does not specifically address selective distribution systems and there are no clear guidelines in this respect. In 2012 the authority published the Draft Verticals Regulation, which addressed, inter alia, the following restrictions that are used in selective distribution:
- the restriction of sales by the members of a selective distribution system to unauthorised distributors within the territory reserved by the supplier to operate that system; and
- prohibiting a member of a selective distribution system from operating out of an unauthorised place of establishment.
At the time of writing, the Draft Verticals Regulation had not been adopted and the work on this draft has been suspended. To our knowledge, no other official regulations or guidelines with respect to selective distribution systems have been issued by the AMC.
A specific exception is established in the Technology Transfer Law, which prohibits imposition of an obligation on the transferee to sell the products incorporating the transferred technology to the buyers preselected by the transferor.
35. Are selective distribution systems more likely to be lawful where they relate to certain types of product? If so, which types of product and why?
There is no clear legal guidance on the issue. However, it is likely that selective distribution systems relating to certain types of product requiring specific presentation and protection of brand reputation (eg, luxury products, cars) or treatment and personnel (eg, pharmaceuticals) will be justified.
36. In selective distribution systems, what kinds of restrictions on internet sales by approved distributors are permitted and in what circumstances? To what extent must internet sales criteria mirror offline sales criteria?
There is no legal guidance on the issue.
37. Has the authority taken any decisions in relation to actions by suppliers to enforce the terms of selective distribution agreements where such actions are aimed at preventing sales by unauthorised buyers or sales by authorised buyers in an unauthorised manner?
There is no public record of such decisions.
38. Does the relevant authority take into account the possible cumulative restrictive effects of multiple selective distribution systems operating in the same market?
The AMC may consider the market structure as one of the relevant factors for market analysis. Possible cumulative restrictive effects of multiple selective distribution systems may also be taken into account. The Draft Verticals Regulation provides that vertical restraints may have cumulative restrictive effects if selective distribution systems cover more than 50 per cent of the market. Although the draft was not adopted, this approach may still be relevant for the AMC’s assessment of selective distribution systems.
39. Has the authority taken decisions (or is there guidance) concerning distribution arrangements that combine selective distribution with restrictions on the territory into which approved buyers may resell the contract products?
There is no public record of such decisions and there is no official guidance on the issue.
The Draft Verticals Regulation prohibited the combination of selective distribution with restrictions on the territory, except for permissible restriction from selling to unauthorised distributors or unauthorised points of sale located in the territory of the selective distribution system. Although the draft was withdrawn, it may be assumed that the AMC will still stick to these approaches.
40. How is restricting the buyer’s ability to obtain the supplier’s products from alternative sources assessed?
Restriction on the buyer’s ability to obtain the supplier’s products from alternative sources may come within several categories of prohibited practices (eg, as dividing markets or sources of supply, ousting of other suppliers from the market or limitation of their access to the market, or substantial limitation of competitiveness of the buyer without objectively justifiable reasons), but the market share-based exemption (see question 8) may apply.
41. How is restricting the buyer’s ability to sell non-competing products that the supplier deems ‘inappropriate’ assessed?
Restriction on the buyer’s ability to sell non-competing products that the supplier deems ‘inappropriate’ may come within several categories of prohibited practices (eg, market allocation by products, entering into agreements on the condition that the buyer will assume additional obligations that are not related to the subject matter of the agreement, or substantial limitation of competitiveness of the buyer without objectively justifiable reasons).
However, such restriction may be allowed under the ‘products supply and use’ block exemption, provided such restriction will not result in:
- substantial restriction of competition on the market or a significant part thereof;
- monopolisation of the market;
- limiting other undertakings’ access to the market; or
- economically unjustified price increases or product shortages (see question 18).
Also, the market share-based exemption (see question 8) may apply.
42. Explain how restricting the buyer’s ability to stock products competing with those supplied by the supplier under the agreement is assessed.
Restriction on the buyer’s ability to stock products competing with those supplied by the supplier may amount to a non-compete obligation and come within several categories of prohibited practices (eg, ousting of other suppliers from the market or limitation of their access to the market, entering into agreements on the condition that the buyer will assume additional obligations that are not related to the subject matter of the agreement, or substantial limitation of competitiveness of the buyer or such other suppliers without objectively justifiable reasons).
However, such restriction may be allowed under the ‘product supply and use’ block exemption, provided such restriction will not result in any of the restrictions listed in question 40 above.
Also, the market share-based exemption (see question 8) may apply.
43. How is requiring the buyer to purchase from the supplier a certain amount or minimum percentage of the contract products or a full range of the supplier’s products assessed?
A requirement that the buyer purchase a certain amount, a minimum percentage of the contract products or a full range of the supplier’s products may be termed a non-compete obligation and come within several categories of prohibited practices. As such, it will be assessed similarly to restrictions discussed in question 41.
44. Explain how restricting the supplier’s ability to supply to other buyers is assessed.
Restricting the supplier’s ability to supply to other buyers may be acceptable under the product supply and use exemption (see question 18), however, there are no official AMC guidelines or any other publicly available enforcement practice in this respect. Under the withdrawn Draft Verticals Regulation (see question 18) such restriction could have been implemented if the combined market share of the parties had not exceeded 30 per cent. Since the draft was not adopted, currently only the 20 per cent combined market share test under the General Exemption Regulation may serve as an appropriate benchmark for assessment of the attendant competition concerns. Importantly, there is no presumption of restriction of competition if the above-mentioned 20 per cent threshold is reached or exceeded. However, such restriction of the supplier is likely to be deemed anticompetitive by the AMC if any of the parties enjoys some degree of market power in any of the markets concerned.
45. Explain how restricting the supplier’s ability to sell directly to end consumers is assessed.
Restricting the supplier’s ability to sell directly to end consumers is not prohibited as such and, for example, can make up part of an exclusive distribution system that allows a supplier to keep the wholesale and retail level of trade separate. However, the AMC is likely to consider such restriction anticompetitive if any of the parties enjoys some degree of market power in any of the markets concerned.
46. Have guidelines or agency decisions in your jurisdiction dealt with the antitrust assessment of restrictions on suppliers other than those covered above? If so, what were the restrictions in question and how were they assessed?
No. Generally speaking, there are no guidelines or public record of the AMC decisions that would set out the general principles for the antitrust assessment of vertical restraints by the AMC.
47. Outline any formal procedure for notifying agreements containing vertical restraints to the authority responsible for antitrust enforcement.
The Competition Law provides for the possibility of individual exemptions: agreements containing vertical restraints that are not covered by a block exemption or the market share-based exemption or otherwise permitted may not be executed, unless individually exempt in accordance with the procedure prescribed by the Authorisation Regulation. A more reasonable interpretation of this prohibition allows execution of an agreement prior to clearance, provided the parties refrain from its implementation until it is authorised by the AMC.
The notified agreement may be exempt if the parties prove its economic efficiencies, such as:
- rationalisation of production, purchase or sales processes;
- promotion of technical, technological or economic development;
- development of small or medium-sized enterprises;
- optimisation of export or import processes;
- development and application of uniform technical terms and product standards; and
- rationalisation of production processes.
However, the AMC authorisation may not be granted if the agreement results in substantial restriction of competition on the market or a significant part thereof.
The parties seeking individual exemption must submit an application for clearance to the AMC. Upon review of the application, which may last three-and-a-half months (and can be further extended), the AMC takes a reasoned decision to authorise the notified agreement. If the notified agreement raises any competition concerns, the AMC initiates an in-depth investigation (Phase II review). The statutory Phase II review period is limited to three months from the date when all the information requested by the AMC was provided. However, in practice the AMC investigation may take much longer since the AMC may request additional information, in which case a new three-month period would begin from the date on which the requested information was filed with the AMC. In practice, depending on the complexity of the case, the Phase II review period may last up to one year or even more. Within the second phase the AMC may hold hearings of the applicants and interested parties. Following an in-depth investigation, the AMC may authorise, conditionally authorise or prohibit implementation of the notified agreement. The authorisation decision may be issued for an indefinite or definite term (which normally should not exceed five years). Pursuant to the Law on Ensuring Transparency of the AMC (the Transparency Law), the AMC publishes non-confidential versions of the AMC decisions and resolutions on or in:
- applications and cases on agreements, including those containing vertical restraints;
- cases on violation of competition cases; and
- initiation of the AMC investigations within 10 working days of the decision or resolution.
Although the Transparency Law enters into force on 3 March 2016, the AMC has been publishing its decisions since mid-July 2015.
Exceptionally, prohibited agreement may be exempted by a decision of the Cabinet based on the above efficiencies analysis, unless the restrictions contained therein are not indispensable to the attainment of the above efficiencies or the resulting restriction of competition constitutes a threat to the market economy system.
48. If there is no formal procedure for notification, is it possible to obtain guidance from the authority responsible for antitrust enforcement or a declaratory judgment from a court as to the assessment of a particular agreement in certain circumstances?
It is possible to obtain guidance from the AMC. The following procedures are available:
- conclusions in the form of non-binding recommendations on whether the intended actions fall under the general prohibition or may be eligible for an individual exemption (or both); or
- preliminary conclusions of the AMC based on the detailed information regarding the intended action on whether such action may be authorised or prohibited or whether such action requires authorisation of the AMC (or both).
49. Is there a procedure whereby private parties can complain to the authority responsible for antitrust enforcement about alleged unlawful vertical restraints?
Private parties may file complaints to the AMC bodies about the alleged violation of the relevant competition laws. The complainants may either be parties to the relevant restrictive agreement or third parties. The filing and investigation procedure is governed by the Rules for Investigation of Antitrust Violations of 1994.
If not rejected on formal grounds, the complaint shall be reviewed by the AMC within 30 calendar days (extendable further by 60 calendar days if additional information is required). Review of the complaint is finalised by issuance of the resolution to initiate or reject initiation of the investigation of the case. The time of investigation on the substance is not limited.
50. How frequently is antitrust law applied to vertical restraints by the authority responsible for antitrust enforcement? What are the main enforcement priorities regarding vertical restraints?
No separate statistics are publicly available with regard to vertical restraints. Based on available general AMC statistics, the vertical restraints proportion is likely to be significantly below 15 per cent.
51. What are the consequences of an infringement of antitrust law for the validity or enforceability of a contract containing prohibited vertical restraints?
The Competition Law does not declare agreements containing prohibited vertical restraints void per se. Respective provisions of an agreement and even the entire agreement may be rendered null and void by a court if requested by interested parties based on the AMC’s decision establishing the violation of Ukrainian competition law. It is worth noting, however, that recent case law argues that agreements among shareholders aimed at the restriction or elimination of economic competition in the Ukrainian product markets are void. It is not clear whether the courts will extend this approach to cases regarding vertical restraints.
52. May the authority responsible for antitrust enforcement directly impose penalties or must it petition another entity? What sanctions and remedies can the authorities impose? What notable sanctions or remedies have been imposed? Can any trends be identified in this regard?
The AMC is entitled to impose fines for violation of Ukrainian competition law, including implementation of prohibited concerted practices, as well as to impose other obligations on the parties (eg, imposing conditions on the authorisation of the restrictive agreement or obliging the parties to terminate the violation). If the fine is not paid voluntarily, the AMC decision may be enforced in court.
No separate AMC statistics regarding fines for implementation of prohibited vertical restraints are available. Theoretically, the maximum possible fine may amount to up to 10 per cent of the group worldwide turnover of the infringing undertaking in the financial year preceding the year in which the fine is imposed.
53. What investigative powers does the authority responsible for antitrust enforcement have when enforcing the prohibition of vertical restraints?
The AMC has broad investigative powers, including the power to:
- conduct on-site inspections of business premises and transport facilities;
- request expert opinions;
- retain or seize documents, items or information media that may contain evidence;
- engage police, customs and other enforcement authorities; and
- request information or documents from the parties or other undertakings (or both), irrespective of their location.
Failure to provide information at the AMC’s request or provision of incorrect or incomplete information, as well as prevention of the AMC’s inspections and other evidence-collection activities, is punishable by a fine of up to 1 per cent of the group worldwide turnover of the infringing undertaking in the financial year preceding the year in which the fine is imposed.
54. To what extent is private enforcement possible? Can non-parties to agreements containing vertical restraints obtain declaratory judgments or injunctions and bring damages claims? Can the parties to agreements themselves bring damages claims? What remedies are available? How long should a company expect a private enforcement action to take?
An infringing party may be exposed to damages claims by aggrieved third parties (eg, competitors) and theoretically a party to a prohibited agreement is not precluded from recovering damages from the other parties to the agreement.
Persons that sustained damage as a result of an unauthorised or prohibited transaction may seek damages in court. Damages are awarded at twice the amount of the loss. Claims for damages are subject to a general three-year limitation period.
55. Is there any unique point relating to the assessment of vertical restraints in your jurisdiction that is not covered above?
Updates and trends
The Fining Guidelines
On 15 September 2015 the AMC adopted the Fining Guidelines, which set key principles and calculation methods for fines in antitrust cases. The statutory ceiling for a fine, which is 10 per cent of the group worldwide turnover of the infringing undertaking in the financial year preceding the year in which the fine is imposed, remains unchanged. However, the Fining Guidelines provide for more detailed rules of calculation of fines for violations within this statutory limit, ie, the basic amount of fine for anticompetitive concerted practices (including vertical restraints) is 30 per cent of the turnover of the undertaking from the sales of products on the relevant and adjacent markets for the period between the commencement of the violation and its termination or the AMC’s fining decision. This basic fine amount can be adjusted (increased or decreased) by up to 50 per cent in view of aggravating or attenuating circumstances.
There is also a new draft law on amendments to competition laws regarding calculation of fines (passed in the first reading by parliament in November 2015 and now pending a second reading) that aims to make the Fining Guidelines binding upon the AMC and empower courts to annul in part the AMC’s decision on fines or obligations imposed on the parties, and to order that the AMC reconsider the case in this part.
The Law on Ensuring Transparency of the AMC (the Transparency Law) provides for publication of non-confidential versions of AMC decisions and resolutions, in particular, on or in:
• concerted practices applications and cases;
• cases on violation of competition cases; and
• initiation of the investigation on concerted practices within 10 working days of the decision or resolution.
Although the Transparency Law enters into force on 3 March 2016, the AMC has been publishing its decisions since mid-July 2015. When submitting confidential information to the AMC, the Transparency Law requires the parties provide a grounded justification for the relevant confidentiality claim, as well as a non-confidential version of the information.
Remedies in antitrust notification
The new draft law on amendments to competition laws (passed in the first reading by parliament in November 2015 and now pending a second reading) aims, inter alia, to clarify rules applicable to remedies to be imposed by the AMC while authorising concerted practices (antitrust clearance) that raise competition concerns, including introduction of consultations on possible remedies with the AMC. Under the draft law, if the AMC sees any grounds for prohibition of the notified concerted practices, they should inform the parties about the substance of such grounds and the parties may submit proposed remedies to the AMC within a 30-day period, which can be extended upon the request of the parties.
The EU Association Agreement
Under the Association Agreement between the European Union and Ukraine, which is currently under ratification by the EU member states, Ukraine is committed to approximating its competition laws and enforcement practices to the EU competition rules. In p