Abuse of a Dominant or Monopoly Position

Pursuant to Article 172 of the Entrepreneurial Code, a dominant or monopoly position shall be understood as the position of a market entity or several market entities in the relevant commodity market that enables such market entity or entities to control the relevant commodity market, including exercising significant influence over the general conditions of circulation of goods.

At the same time, pursuant to the second part of this Article, the dominant position of a market entity shall be determined in accordance with the Methodology for Conducting an Analysis of the State of Competition in the Commodity Market, approved by the antimonopoly authority.

Subparagraph 2) of paragraph 2 of Article 218 of the Entrepreneurial Code provides that, where the signs established by Article 174 of this Code are present, the antimonopoly authority shall, prior to conducting an investigation, carry out an analysis of the state of competition in commodity markets for the purpose of identifying whether a market entity holds a dominant or monopoly position.

The judicial analysis of cases in this category has shown that the antimonopoly authority has committed violations of the requirements of the Entrepreneurial Code and the Methodology for Conducting an Analysis and Assessment of the State of the Competitive Environment in the Commodity Market, approved by Order No. 741 of the Minister of National Economy dated 30 November 2015.

For example, in three disputes with the antimonopoly authority, based on claims filed by JSC (Case No. 6001-22-00-6ap/211), LLP (Case No. 6001-22-00-6ap/2595), and JSC (Case No. 4794-22-00-4/344), the courts granted the claims because no analysis of the state of competition in the relevant commodity markets had been conducted prior to the commencement of the investigations.

For example, in the case brought by JSC (Case No. 6001-22-00-6ap/211), the local courts dismissed the market entity’s claim seeking to have the notice regarding the existence of signs of a violation of competition protection legislation declared unlawful. The courts accepted the antimonopoly authority’s argument that an analysis was not required because the company had been included in the Register of Natural Monopoly Entities in the field of thermal energy production.

The Judicial Collegium for Administrative Cases of the Supreme Court, having overturned the decisions of the lower courts, concluded that it was necessary to conduct such an analysis.

An analysis of the state of competition shall be conducted in accordance with Article 196 of the Entrepreneurial Code and the Methodology for Conducting an Analysis of the State of Competition in the Commodity Market.

Paragraph 3 of Article 196 of the Entrepreneurial Code provides that an analysis of the state of competition in commodity markets consists of eight stages.

For reference:

1) determining the criteria for the interchangeability of goods;

2) determining the boundaries of the commodity market;

3) determining the time period for studying the commodity market;

4) determining the composition of market entities operating in the commodity market;

5) calculating the volume of the commodity market and the market shares of market entities;

6) assessing the state of the competitive environment in the commodity market;

7) identifying circumstances or signs indicating the existence of obstacles, difficulties, or other restrictions affecting the activities of market entities and the development of competition, including determining barriers to entry into the commodity market;

8) drawing conclusions based on the results of the analysis of the state of competition in the commodity market, which shall be reflected in the relevant report.

Paragraph 11 of Article 196 of the Entrepreneurial Code provides that, in cases involving abuse of a dominant or monopoly position, an analysis of the state of competition in commodity markets shall be conducted for the purpose of determining the market share or shares indicating the dominant position of the market entity or entities. Such analysis shall not include the stages provided for in subparagraphs 6) and 7) of paragraph 3 of this Article.

At the same time, where an analysis of the state of competition in commodity markets conducted for the purpose of identifying signs of abuse of a dominant or monopoly position shows that the market share of a market entity exceeds thirty-five percent but is less than fifty percent, or where collective dominance of market entities is present, the analysis of the state of competition in the commodity market shall be conducted in compliance with all stages.

Illustrative cases demonstrating shortcomings on the part of the antimonopoly authority in conducting such analysis, as well as conducting investigations for periods not covered by the analysis, show that this results in the absence of evidence establishing that market entities held a dominant or monopoly position.

In cases brought by JSC (Case No. 6001-23-00-6ap/1223) and JSC (Case No. 4794-22-00-4/1725), the antimonopoly authority failed to ensure consistency between the period covered by the investigation and the period covered by the analysis of the state of competition in the commodity markets.

This is because, pursuant to Article 172 of the Entrepreneurial Code and paragraph 36 of the Methodology, the position of each of several market entities shall be recognised as dominant where the combined market share of no more than three market entities holding the largest shares in the relevant commodity market amounts to fifty percent or more, or where the combined market share of no more than four market entities holding the largest shares in the relevant commodity market amounts to seventy percent or more, provided that the following circumstances are established cumulatively in respect of such market entity:

1. over a prolonged period of time, being at least one year or, where the relevant commodity market has existed for less than one year, throughout the period of existence of that commodity market, the relative sizes of the market shares of the market entities have remained unchanged or have been subject only to insignificant changes;
2. the goods sold or purchased by the market entities cannot be replaced by other goods in consumption, including consumption for production purposes;
3. information on the price and/or conditions for the sale of such goods in the relevant commodity market is available to an indefinite circle of persons.

Accordingly, the courts properly granted the claims, since, pursuant to the above requirements, a dominant position must exist for a period of at least one year.

With regard to recognising the actions of a market entity as an abuse of a dominant or monopoly position expressed in the establishment of monopolistically high prices, the antimonopoly authority has also committed shortcomings in complying with the conditions provided for in Article 175 of the Entrepreneurial Code.

Likewise, in the case brought by LLP (Case No. 4794-22-00-4/172), the local courts, in granting the claims, correctly concluded that the antimonopoly authority had failed to prove that the prices charged by the JSC exceeded prices in the relevant or comparable market.

Pursuant to subparagraph 1) of paragraph 1 of Article 175 of the Entrepreneurial Code, a monopolistically high price of goods shall mean a price established by a market entity holding a dominant or monopoly position where such price exceeds both the amount of costs and profit necessary for the production and sale of such goods and the price formed under competitive conditions in the relevant or comparable commodity market, including where such a price is established:

by increasing a previously established price of goods, provided that the following conditions are cumulatively met:

the costs necessary for the production and sale of the goods have remained unchanged, or changes in such costs are disproportionate to changes in the price of the goods;

the composition of sellers or purchasers of the goods has remained unchanged, or changes in the composition of sellers or purchasers are insignificant;

the conditions of circulation of goods in the commodity market, including those resulting from measures of state regulation, such as taxation, customs and tariff regulation, tariff regulation and non-tariff regulation, have remained unchanged, or changes therein are disproportionate to changes in the price of the goods.

Paragraph 3 of this Article provides that a comparable commodity market shall mean another commodity market comparable in terms of the volume of goods sold, the composition of purchasers or sellers (suppliers) of goods, determined based on the purposes for which the goods are purchased or sold, and the conditions of access to the commodity market.

In view of the foregoing, the antimonopoly authority must request information and identify the relevant commodity market not only within the Republic of Kazakhstan but also outside its borders, and must substantiate in its report the absence of a relevant commodity market.

Where it is impossible to compare the price within the same commodity market, the comparison shall be made with the price of goods in a comparable commodity market, including a market located outside the Republic of Kazakhstan.

Where it is impossible to determine the price formed under competitive conditions in a comparable commodity market, or to identify a comparable commodity market, including one outside the Republic of Kazakhstan, an analysis of the costs and profit of the market entity shall be conducted and a justified price for the goods shall be determined.

Accordingly, the courts properly granted the claims because the antimonopoly authority had failed to substantiate the absence of a market comparable in terms of the relevant criteria outside the Republic of Kazakhstan. At the same time, the authorised authority had not sent requests to the antimonopoly authorities of the Member States of the Eurasian Economic Union.

REGULATORY SOURCES AND ABBREVIATIONS

The principal regulatory legal acts to be applied by the courts when considering cases related to the application of antimonopoly legislation are as follows:

1. the Constitution of the Republic of Kazakhstan dated 30 August 1995;
2. the Entrepreneurial Code of the Republic of Kazakhstan dated 29 October 2015 (EC);
3. the Administrative Procedural Code of the Republic of Kazakhstan dated 29 June 2020 No. 350-VI (APC);
4. the Code of the Republic of Kazakhstan on Administrative Offences dated 5 July 2014 No. 235-V (CAO);
5. the Law of the Republic of Kazakhstan “On Natural Monopolies” dated 27 December 2018 No. 204-VI (Law);
6. the Judicial Collegium for Administrative Cases of the Supreme Court of the Republic of Kazakhstan (JCAC SC);
7. the Agency for the Protection and Development of Competition of the Republic of Kazakhstan and its territorial divisions (antimonopoly authority);
8. the Committee for the Regulation of Natural Monopolies of the Ministry of National Economy of the Republic of Kazakhstan and its territorial divisions (the authorised authority for the regulation of natural monopolies).

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