UKRAINE: NEW DEVELOPMENT IN PRACTICE OF ANTIMONOPOLY
COMMITTEE WITH RESPECT TO NON-COMPETE ARRANGEMENTS 

Legal Alert, Baker & McKenzie - CIS Limited, Kyiv, Ukraine, Mon, May 25, 2009

KYIV - The Antimonopoly Committee of Ukraine (the "AMC") has recently opened an investigation against Kyivstar, Ukrainian mobile operator, and its shareholders - Telenor and Storm, to assess whether they have included non-compete arrangement in their shareholder agreement in violation of the Competition Law of Ukraine.

The parties included non-participation clause whereby they agreed not to invest more than 5% into the competing business without the consent of the other parties. 

If as a result of this investigation, the AMC comes to the conclusion that a non-compete arrangement among the parties has been included in the shareholder agreement not in compliance with the Competition Law, then the AMC may impose penalties on all of the parties in the amount of up to 10% of the global annual turnover of each party and all other entities related to it by control.

There are many types of non-compete arrangements, which are currently part of a wide market practice, and, which are generally included in shareholder agreements, joint venture agreements, share purchase agreements, and many other types of agreements.

Before this case, there has been no consistent practice of the AMC in this respect; in fact the AMC has been silent on whether non-compete arrangements are subject to AMC approval.

Nonetheless, a close analysis of the applicable legislation suggests that such arrangements may constitute anti-competitive concerted actions under the Competition Law, and, thus, parties are required to obtain separate AMC approval, unless they fall under limited exemptions provided by the law.

Earlier this year the AMC issued a new regulation, which provided additional exemptions for non-compete arrangements, provided that the parties to such arrangements meet specific criteria.

In view of this recent development in the practice of the AMC in this respect, all concerned market players, which are or which plan to be parties to a shareholder agreement or other types of agreements containing non-compete arrangements, should assess whether they may benefit from the exemptions provided by the applicable Competition Law or whether they should obtain the preliminary conclusion of the AMC on whether the particular non-compete arrangement requires AMC approval.

Likewise, if they do not satisfy the exemptions criteria, they should seek AMC's approvals (including also retrospective approvals) for such types of arrangements.

Please note that agreements containing non-compete arrangements do not need to be governed by Ukrainian law in order to be subject to Competition Law of Ukraine. It is sufficient that they have or may have an effect on the competition in Ukraine.

CONTACT: For More Information: Antonina Yaholnyk, Counsel, +380 44 590 0101, antonina.yaholnyk@bakernetcom. Baker & McKenzie - CIS, Limited Renaissance Business Center, 24 Vorovskoho St., Kyiv 01054, Ukraine, Tel: +380 44 5900101, Fax: +380 44 5900110.

Baker & McKenzie is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.