New Opportunities and Tools to Boost Antitrust Compliance
Compliance has been gaining momentum within the business environment in Ukraine over the last few years. However, some scepticism remains in relation to antitrust compliance. The lack of efficient leniency program that could allow companies to report violations to the Antimonopoly Committee of Ukraine (the AMCU) in exchange for immunity from fines, no criminal sanctions for cartels and no carrots for antitrust compliance programs from the AMCU, lack of legal certainty — all these factors caused certain reluctance on the part of senior management to direct resources on antitrust compliance programs. 2017 anticipates a number of significant changes to Ukrainian competition law regime, which are expected to bring new opportunities for boosting antitrust compliance.
The AMCU declared its plans to adopt the regulation on vertical and concerted practices and updated guidelines on definition of the dominant position by the end of 2017-beginning of 2018. The above developments are expected to enhance legal certainty for business, in particular, in clarifying what practices are considered illegal by the AMCU in vertical relations with suppliers, distributors and customers, particularly regarding online sales.
In parallel, long-awaited amendments to the leniency regulation are in the pipeline. The applicable leniency regulation is rather dead than alive since it provides immunity from fines for antitrust violations only for the first applicant to notify the AMCU about the infringement. No benefits are provided to the subsequent applicants, which discourage companies to use leniency in view of the risks of not being the first in and incur full liability in this case. In the European Union, the reduction by up to 50% of a fine is available for any subsequent applicants if they provide evidence that represents significant added value to that which is already in the European Commission`s possession. Provided that the AMCU sticks to the EU model of leniency, additional incentives for antitrust compliance will arise, allowing companies to benefit from full immunity or fine reduction in case of early detection and reporting of antitrust violation.
This article suggests some practical tips that could help tune up the existing or newly-built antitrust compliance programs as a tool for preventing, early detection and mitigation of risks of antitrust violations.
Identify key areas of antitrust risks
Building a robust antitrust compliance program starts with identification of the key areas of antitrust risks. A good old “copy and paste” method would not work here since antitrust compliance should address particular risks faced by the company in its line of business and in the respective market environment. For example, it does not make sense to raise the awareness of employees on bid-rigging risks if the company does not participate in public procurement.
To ensure a proper risk assessment it is important (i) to monitor market shares to keep track of the markets where the company may have signs of dominance; (ii) to take account of enforcement priorities of the competition authority, such as industries or types of conduct in focus, (iii) to rank the identified risks depending on likelihood of their occurrence and potential negative financial and reputational implications for the company.
A distinction should be made in risk management of (i) clearly illegal violations such as cartels (including bid-rigging, price fixing, market allocations), exclusionary conduct in segments where the company is dominant, exchange of competitively sensitive information, which should be banned with no exception and (ii) so called “grey areas”, where employees should seek antitrust advice from lawyers for assessment if certain conduct, for example, the way recommended prices are communicated, may create risks of infringement (i.e. illegal resale price maintenance).
Allocate responsibility for risk handling
After the risks have been identified, the responsibility for active risk management should be allocated. Particular employees should be appointed for regular review of those agreements that may potentially raise antitrust concerns. For example, as of the conclusion of the distribution agreement the company’s market share could be below 15%, in 1-2 years it could have risen above 35%. Such market share increase may be a sign of a dominant position held by the company, thereby automatically making certain conditions of this agreement illegal, such as loyalty rebates or multi-product rebates.
Such contract reviews should be made on a regular basis, involving both the sales person responsible for the agreement and a lawyer / compliance manager. It is also advisable to involve the marketing department, which should update the risk handlers once the triggering market share thresholds are met by the company for the products in question.
Build a compliance culture not a compliance rule-set
According to the OECD report1, the factors that drive non-compliance include “an ambiguous commitment — or no commitment — to compliance by management, uncertainty about legal requirements, employee naiveté and/or simple error, “rogue” employees, arrogance, and competing interests from other compliance areas.” All these drivers of misconduct should be duly addressed when building a compliance program. “Tone from the top” is a must-have ingredient since competition culture is driven mainly by senior management who should demonstrate zero tolerance to antitrust violations and encourage a compliant behaviour with their own example.
The particularity of antitrust infringements is that they are financially beneficial to the company. A number of studies show that the employees engaging in them are primarily motivated by what they perceive to be their company’s interest and what they think is expected from them. Often it is actually the pressure that they feel from ambitious performance goals or profit targets set by the company that drives them to antitrust violations.2 In this respect, top management should give a clear message that compliance matters as much as fulfilling financial targets and no violation may be tolerated. Including a compliance criteria in the annual professional evaluation of the employees can be an effective tool, if along with other factors it can impact bonus payments.
Senior management and business leaders should encourage employees to speak up and create comfortable reporting tools with no risks of retaliation. Depending on the size of the company it can be a 24/7 phone hot-line, e-mail or a possibility of a tete-a-tete meeting with a compliance officer to discuss competition concerns.
Adopt safeguards in communication
The employees, especially those acting as contact persons with competitors and customers, distributors, and suppliers should be aware of the basic “do’s and don’ts” in communication. In search of collusion related evidence the AMCU traditionally keeps an eye on meetings within trade associations and other encounters with competitors. The following steps can help to minimise the related risks3:
— Only people that have completed antitrust training can be allowed to participate in trade association and other meetings with competitors;
— Every meeting with competitor(s) and its agenda should be preliminarily registered/approved by the legal department, a record should be kept of such meetings;
— “Do’s and don’ts” leaflets, or electronic reminders, should be used to remind the participants just before the meeting about those topics that may raise antitrust concerns;
— An in-house counsel should from time to time assist trade association meetings.
Particular care must be taken with written communication where bad drafting may lead to a wrong impression that the company engages in anti-competitive conduct. Employees should be aware of dangerous wording and forbidden topics. It is rewarding to adopt a habit among employees to use the so-called “The New York Times test” in their correspondence with competitors, customers and suppliers. How would the person feel if his/her email appeared on the front page of the newspaper? Would it be embarrassing for the person and/or the company? Such a simple test could help avoiding dangerous drafting.
Given the boom in social media, Internet blogs and other online channels, all staff should be aware of taboo topics in on-line communication (such as future pricing, statements on dominance, discussing strategic plans of the company or any particular customers, etc).
Keep an eye on competitive benchmarking and pricing algorithms
Competitive intelligence specialists should be aware of antitrust risks related to information exchanges, competitive benchmarking and data collection. The employees should be also instructed to properly record the sources, dates and the employees who collected the data so that the company could demonstrate the pro-competitive nature of data collection.
Similar to other competition agencies, in recent years the AMCU has been paying particular attention to analysis of competitive intelligence tools used by companies.
According to the European Commission’s e-commerce sector inquiry4, the majority of retailers track the online prices of competitors. Two thirds of them use automatic software programmes that adjust their own prices based on the observed prices of competitors. Pricing algorithms already dominate certain sectors such as online sales in hotel booking, travel, retail, sports and entertainment5. Depending on the way firms employ them, antitrust risks can arise, for example, if competitors outsource their pricing to the same supplier’s pricing algorithm, which result in price alignment similar to classical “hub and spoke” cartels6. An example is the so-called Poster Cartel case of 20157 where poster-selling firms adopted pricing algorithms that collected pricing information of competitors to coordinate their own prices on Amazon.
In this respect, a compliance program should envisage a review of the pricing algorithms by antitrust specialists both at the development and application stages as well as sufficient human and technical safeguards to prevent the algorithms from engaging in automated price fixing.
Keep updating the compliance program
In order to properly address competition risks faced by the company, an antitrust compliance program needs regular updates to reflect any important changes in a company’s business model, its market environment, legislative developments and enforcement priorities of the competition authority. Old fashioned compliance tools tailored against “smoke-filled” room agreements would be helpless in digitalized algorithm-based markets where rivals are just a click away.
1 See OECD, Promoting Compliance with Competition Law, DAF/COMP(2011)20 (30 August 2012), available at: http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP(2011)20&docLanguage=En
2 Sonnenfeld and P.R. Lawrence, Why do companies succumb to price fixing?, Harvard Business Review 145 (July-August 1978), available at: https://hbr.org/1978/07/why-do-companies-succumb-to-price-fixing; D. Daniel Sokol, Cartels, Corporate Compliance, and What Practitioners Really Think About Enforcement, 78 Antitrust L.J. 201 (2012), available at: http://scholarship.law.ufl.edu/facultypub/298
3 ICC Antitrust Compliance Toolkit, available at: https://iccwbo.org/publication/icc-antitrust-compliance-toolkit/
4 Report from the Commission to the Council and the European Parliament, Final report on the E-commerce Sector Inquiry, COM(2017) 229 final (10 May 2017), available at: http://ec.europa.eu/competition/antitrust/sector_inquiry_final_report_en.pdf.
5 Salil K. Mehra, “Antitrust and the Robo-Seller: Competition in the Time of Algorithms,” Minnesota Law Review 100 (March 2015), http:// ssrn.com/ abstract = 2576341
6 Ariel Ezrachi, Maurice E. Stucke, Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy, Harvard University Press (2016) — 378pp.
7 United States v. David Topkins, Case No. CR 15-0020 I WHO, available at: https://www.justice.gov/sites/default/files/opa/press-releases/attachments/2015/04/06/topkins_information.pdf and https://www.justice.gov/atr/case-document/file/628891/download
