Regulatory Framework for Concerted Practices is Developed

Definitions
Anti-competitive Concerted Practices
Model Requirements
Comment

In order to implement the new Anti-monopoly Law, two resolutions of the Anti-monopoly Committee of Ukraine (ACU) and one of the Cabinet of Ministers of Ukraine were recently passed which develop the law's provisions on concerted practices. These resolutions are as follows:

• ACU Resolution 26-r of February 12 2002, which approves the procedure for applying to the ACU for authorization to engage in concerted practices;
  
  
• ACU Resolution 27-r of February 12 2002, which approves the conditions under which businesses will be exempted from the requirement to obtain preliminary authorization from the ACU before engaging in concerted practices (known as the Model Requirements); and
  
  
• Cabinet of Ministers Resolution 219 of February 28 2002, which approves the procedure under which the Cabinet will grant authorization for concerted practices and concentrations.

Definitions

The first ACU resolution sets out a list of concerted practices, while the second classifies these practices. The following activities are identified as concerted practices:

• the entry into agreements by business entities;
  
  
• the creation of a business entity that results in concerted competitive conduct of the founders, or of the founders and the created entity;
  
  
• concerted decision-making by unions or associations; and
  
  
• any other concerted conduct that results in the exclusion, elimination or restriction of competition.

Concerted practices are classified as follows:

• horizontal - where the persons/entities who engage or intend to engage in the concerted practices, or the respective corporate groups to which these parties belong, compete with each other on a certain commodities market;
  
  
• vertical - where the participants or their corporate groups do not compete with each other in a certain commodities market, but maintain, or are able to maintain, seller-purchaser relationships on relevant markets;
  
  
• conglomerate - where the participants or groups do not compete with each other in a certain commodities market, and do not or cannot maintain seller-purchaser relationships on relevant markets; and
  
  
• mixed - where horizontal, vertical and conglomerate concerted practices are engaged in simultaneously.

Anti-competitive Concerted Practices

Concerted practices are defined as 'anti-competitive' if they result or may result in the exclusion, elimination or restriction of competition. Such activities include:

• price fixing;
  
  
• market or customer/supplier division; and
  
  
• the application of different terms and conditions to identical agreements.

Before engaging in anti-competitive concerted practices, the participants must obtain express authorization from the ACU.

The ACU will authorize an anti-competitive concerted practice where the participants can prove that this activity will:

• modernize the production, purchase or sale of products;
  
  
• stimulate technological or economic development;
  
  
• promote the development of small or medium-sized businesses;
  
  
• boost exports;
  
  
• encourage the development and utilization of uniform technical conditions or standards for products; or
  
  
• rationalize production processes.

The ACU will decide whether to authorize the concerted practice within three months of receiving the participants' application for consideration, unless it decides to commence an in-depth investigation. If the ACU issues no decision within this three-month period, authorization is considered to have been granted. The application (with attached documents) is deemed as received 15 days after its submission, unless the ACU has returned it because it is incomplete or has not met the necessary formal requirements.

ACU authorization is not required in the following cases:

• where the participants are small and medium-sized businesses which have entered into a concerted agreement to purchase products jointly, if this agreement will not result in a substantial restriction of competition and will help the participants to become more competitive;
  
  
• where the participants have imposed certain restrictions on each other regarding the supply or use of products, if these will not (i) result in a substantial restriction of competition, (ii) result in unreasonable price increases or product shortages, or (iii) restrict market access for other entities;
  
  
• where the participants have transferred rights or imposed lawful restrictions on the basis of an agreement on the transfer of IP rights; and
  
  
• for other concerted practices that meet the Model Requirements.

Model Requirements

Compliance of the concerted practices with the Model Requirements depends on the following criteria:

• the market shares of the participants or groups on certain product markets;
  
  
• the aggregate asset value or the total turnover of the participants or groups;
  
  
• the type of concerted practice involved;
  
  
• the participants' relationships with the state, local authorities or natural monopolists;
  
  
• the expected consequences of the concerted practice; and
  
  
• the degree of affiliation between the participants.

Upon a special request, the ACU will provide the participants with (i) details of how the proposed concerted practice will be classified, or (ii) preliminary conclusions on the concerted practice. The preliminary conclusions, made on the basis of the materials submitted, may indicate:

• whether ACU authorization is necessary;
  
  
• if so, whether it is likely that authorization will be granted or denied; or
  
  
• that the data which has been provided is not sufficient to make any conclusions.

Comment

The concept of concerted practices has been significantly developed in the new anti-monopoly legislation. The new resolutions set out:

• the types of activities that will be considered as concerted practices;
  
  
• the procedure for seeking ACU authorization to engage in anti-competitive concerted practices;
  
  
• the cases in which such authorization is not required; and
  
  
• the preconditions for granting authorization.

If the participants have difficulties in classifying a concerted practice, they may apply to the ACU to obtain clarification or preliminary conclusions on the proposed activity. Where the ACU refuses to authorize a concerted practice, the participants will still be permitted to conduct such activity if they can demonstrate to the Cabinet of Ministers of Ukraine that the social benefits will outweigh the negative effects of competition restriction.

For further information on this topic please contact Igor Svechkar or Gennady Molchanov at Shevchenko, Didkovskiy & Partners by telephone (+380 44 230 6000) or by fax (+380 44 230 6001) or by email ([email protected]).