Ukrainian businesses have recently faced unprecedented antitrust fines. The domestic antitrust authority, the Antimonopoly Committee of Ukraine (AMCU), has moved ahead with its previously announced intentions to stick to a far stricter approach when considering cases on antitrust infringements and has started using the powers provided to it by antitrust legislation.
The AMCU has always been an agency which was hard to avoid, from a transaction point of view, due to extremely low notification thresholds set in Ukraine. Comparing the current situation to the situation of a couple of years ago, we can clearly point out that the AMCU's role has significantly grown recently. This statement can be supported by the amounts of fines announced every single month which are quite impressive from the Ukrainian perspective (in relation to its GDP). The specific sectors of particular interest to the AMCU for 2012-2013 were Life Sciences & Healthcare, Food & Drinks, Retail, Automotive and the Municipal Services sector.
This article provides an overview of the recent trends in the area of antitrust law enforcement in Ukraine.
In mid-June 2012 the AMCU imposed an unprecedented fine on certain Ukraine business entities – members of the Association "Mebelderevprom" as well as the association itself for bid rigging. The entities were accused of allotting raw food lots in advance of the tender. In accordance with AMCU statements, the entities participating in the tender exchanged information and conspired at the Association meetings. The AMCU, for the first time in its history, imposed the maximum possible fine amounting to approximately Euro 39 million, which is 10% of the infringers' annual revenues for 2011. This record fine shows the authority's ambitions in fighting antitrust violations.
Some of the entities managed to escape the huge fines by confessing their participation in the cartel. The others, namely Ukrainian subsidiaries of the Swiss Krono Group, Swiss group Kronospan and Swiss holding Sorbes, challenged the AMCU decision in courts. The first instance in late 2012 was not successful due to the strongarguments of the AMCU supported by audio recordings of association meetings. However, the companies managed to partly win the appeal. The Court of Appeals asked the AMCU to revise the imposed fines. In its decision, the court focused on the breach of the proportionality principle by the AMCU given the fact that the entities were first time offenders and cooperated with the AMCU during the investigation. The AMCU did not appeal to the higher court and revised its decisions by administratively reducing the fine amounts. There is no public information with regard to the final amount of fines paid.
This setback did not discourage the authority and other major fines were imposed one by one in October 2013. This time the official car distributor of Hyundai and the official dealer of Hyundai, Kias, Skodas, and Geelys vehicles in Ukraine were penalized for bid rigging for the procurement of trucks (Euro 7 million). The regional net of refueling stations and transportation services providers were also fined for bid rigging for the procurement of liquid oil refining products (Euro 20 million).
Within the last year and a half, the AMCU has been conducting a large-scale cartel investigation in the food retail sector resulting in the presentation of preliminary conclusions to the major retailers in Ukraine. The retailers include local companies as well as Ukrainian subsidiaries of international retail chains such as Spar, Metro Cash & Carry and Auchan.
The AMCU initiated the investigation in May 2012 based on the sudden increase in prices for staple products. The retailers are accused of two simultaneous infringements – the coordination of their suppliers' relations policies and a cartel involving commercial information exchange resulting in increased prices. The second infringement involves the research agency AC Nielsen which collected commercial information in the retail sector and shared it among cartel participants providing them the possibility to conform their policies and actions.
The entities which have allegedly breached the law are threatened with a new recordbreaking group fine totaling approximately Euro 2 billion. Namely, the AMCU is planning to impose the maximum possible fines amounting to 10% of the retailers' annual revenues for each of the two infringements. The retailers have prolonged the term for provision of their objections for two months.
Abuse of dominance
Abuse of dominance has also been among the "top five" infringements within 2012-2013. In 2013, several regional subdivisions of the State Railway were fined for a total amount of Euro 14 million for violating antitrust laws. Municipal services providers also faced huge fines especially for energy-related cases. The total amount of the fines imposed on them by the AMCU for three quarters of 2013 shall be Euro 30 million.
Unfair competition - Advertising in focus.
The AMCU as also focused on consumer advertising recently. In most cases, the AMCU is chasing misleading information disseminators. The main features of unfair competition cases are the revenue-based fines (same with fines for breaches in merger control amounting to 5% of the undertaking's annual revenues) and relatively speedy investigations (in comparison to cartel investigations).
In addition, 2012-2013 was marked by a number of serious fines demonstrating the great attention to unfair competition cases. In particular the Life sciences & Healthcare and Food & Drinks sectors players faced the fines of over Euro 700 thousand (Farmak, one of the major Ukrainian pharmaceuticals manufacturers, for Amizon advertisement campaign) in November 2012, Euro 280 thousand (Sandora, Ukrainian juice producer, being part of Pepsi Group, for misleading information on its products packaging) in December 2012, Euro 93 thousand (SanInBev, Ukrainian subdivision of Anheuser-Busch InBev for infringement of advertising action rules) in March 2013. Sandora also received another fine in June 2013 for an "advertisement" violation the amount of which is not publicly available.
With respect to unfair competition cases, another noticeable trend is the consumer protection tone of the AMCU's actions. While legislatively the AMCU is in charge of competition protection, a priori, the mentioned cases feature a strong consumer-oriented approach.
Ukrainian laws do not exclude double liability for advertisement infringements. The AMCU penalizes companies based on competitive advantages from their unfair activities. While another state body - the State Inspectorate on Consumers Rights Protection (SICRP) – may impose sanctions for the same infringement should it violate consumers' rights. The delineation of these two authorities' powers on unfair competition cases lacks clarity. This leads to weak predictability of such cases. For instance, in mid-June 2013, the SICRP imposed a fine of Euro 1,5 million on one of the leaders of the pharmaceutical market in Ukraine for its advertisement campaign containing misleading information. The AMCU officially had no claims against the company although the effect caused by the infringement could also touch upon competition. Even with this example, some cases which clearly look like those breaching consumers' rights have recently been the focus of the AMCU.
With respect to unfair competition investigations, 2012 featured a significant, possibly precedent setting, case. In late June 2012, the AMCU imposed a fine on Ukrainian confectionary factory Yarychiv for disseminating misleading information on its packaging. Yarychiv LLC named one of its products using the word "cream" even though it does not contain cream in its production formula. Therefore, the authority argued that information about the formula is false and is available to an unlimited number of consumers since it is indicated on the packaging and, thus, Yarychiv had breached the law.
The company challenged the decision in court winning the case in full. The court of first instance stated that the AMCU's conclusions did not correspond to the circumstances of the case due to the authority's incomplete examination. The court also held that the AMCU failed to prove the circumstances sufficient for the case, which the AMCU presumed were established. The court of cassation confirmed that the AMCU incorrectly applied the law.
In particular, Yarychiv's legal position was based on the fact that the AMCU did not seek an expert opinion. The respective expert opinion was requested during the first instance court proceedings and rebutted the AMCU's arguments regarding the possibility of influence on consumers' choice by including the word "cream" in the name of the product. The opinion was based on an examination of the IP issue on confusion regarding goods and services, namely on the most distinctive element of the product name. The results of consumer interviews showed that disseminated information was not perceived as relating to the content of the product but to the information regarding its flavor. Moreover, the opinion also included specific "Food & Drinks" related arguments that cream is similar to milk powder used in the production.
What is of most interest in this particular case is the newly-established practice (previously unknown in Ukraine) of IP expert examination conducted for cases of alleged unfair competition. In other words, the decision of the Higher Commercial Court has provided grounds for further extensive use of IP-related arguments as part of the expert opinion.
Obviously, the Ukrainian economy is young and both AMCU and court practice are developing. It is already noticeable that the AMCU is following the main world trends in antitrust enforcement with its activity and is "flexing its muscles" which makes it a respected, if not to say a fearsome, state body. While the recent developments may be interpreted in different ways, we consider them to be a straight path to antitrust compliance and development of legal culture and certainty in Ukraine.
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