2.1 Overview

2.1.1. Identification of monopolistic activity and unfair competition under Azerbaijani law

Types and forms of monopolistic activity and unfair competition as specified by the acting law of Azerbaijan, are as follows:

1. Types of monopolistic activities:
   • State monopoly resulting from the illegal actions of the relevant central executive power bodies which leads or may lead to the restriction or elimination of competition and to the infringement of the interests of economic subjects and customers:
   • Branch monopoly resulting from the illegal actions of branch administrative bodies;
   • Local monopoly resulting from the illegal actions of local bodies of executive power (regional, city and constituent administrative-territorial bodies);
   • Monopoly of economic subjects resulting from the illegal actions of economic subjects creating or maintaining a dominant position in the national Azerbaijani market;
   • Financial-credit monopoly resulting from the illegal actions of financial-credit organizations;
   • Monopoly formed as a result of horizontal and vertical agreements between market subjects resulting from the conclusion of illegal horizontal and vertical agreements between the central\local executive power and administrative bodies, between economic subjects or between the bodies of executive power, administration and economic subjects which cause or may cause a restriction of competition;
   • Natural monopoly – special form of antimonopoly control, over activity of the administrative bodies and economic subjects which, abusing their own power and authority as the only monopolist in the sphere of production of one or many kinds of commodities and services, cause damage to the interests of the country, rights of economic subjects and consumers1;
   • Patent-license monopoly resulting from the illegal actions of administrative bodies and economic subjects abusing, with the objective of restriction or elimination of competition in some market, their monopolistic right on patents and licenses;
   • Monopoly for use of subsoil resulting from unlawful actions of administrative bodies and economic subjects (users of subsoil) on use of subsoil.
2. Forms of unfair competition in entrepreneurship:
   • copying of economic activity of a competitor;
   • discrediting of economic activity of a competitor;
   • interference into the economic activity of a competitor;
   • unfair entrepreneurship;
   • unscrupulous business behaviour
   • delusion of consumers

2.1.2. Methods of prevention of monopolistic activity and unfair competition

2.1.2.1. Restriction of monopoly activity

In the case of economic subjects abusing their dominant position to carry out monopolistic activity and where these actions result in the restriction of competition and the violation of consumers' rights and interests, and the forced breakup of the economic subject does not seem possible for technological, territorial or organizational reasons, then AMSAR may apply to the respective executive power and administrative bodies with any of the following proposals concerning:

• the establishment of state control over the prices of products (or services) of the economic subjects which keep the monopolistic position in the market and, in certain cases, the fixing of permissible limits on market prices of one or another products (or services);
• the application of progressive tax rates on the revenue of the economic subjects in accordance with their market share;
• the application of unified standards for produced commodities with the objective of the simplification of entry barriers to that market;
• the replacement of accelerated depreciation with normative depreciation;
• changing the terms of credit allotment to make them more rigid;
• the forced licensing of new patents at relatively moderate cost whenever the economic subject abuses its right to patent;
• the annulment of limitation provisions in agreements concluded between the market subjects whenever they individually or collectively exercise monopolistic activity;
• the suspension of all kinds of state support;
• the establishment of restrictions on barter operations;
• the annulment of issued licenses on import-export operations.

2.1.2.2. Termination of monopolistic activity

If the economic subjects occupying a dominant position begin monopolistic activity and their actions lead to significant restriction of competition, AMSAR, where the organizational, technological and territorial conditions allow, may make a decision about the forced break up of the economic subject. In this case, AMSAR, taking into account the specificities of economic subjects, establishes the terms of their forced break up for a minimum 6 month period.

2.1.2.3. Right to information

AMSAR has the right to obtain any information necessary for implementation of its obligations and functions, including written (or oral) explanations in connection with violation of antimonopoly legislation by state control bodies, organization-administrative structures and economic subjects. The State Committee of the Azerbaijan Republic on Statistics provides AMSAR with statistical data determining the dominating position of enterprises in the national market based on an agreed program on keeping a State Register of enterprises-monopolists.

The enterprises-monopolists should present a report about monopolistic areas of their activity based on state statistical accountancy approved in the order stipulated by the State Committee on Statistics at the request of AMSAR. It is the obligation of AMSAR to keep confidential the information obtained from economic subjects within the limits of the provisions and requirements of antimonopoly law.

2.1.2.4. Obligation to disclose the information

Legal entities, occupying a dominant position in the local commodity market and having a special or exclusive right or natural monopoly, based on methods stipulated by the legislation, are obliged to disclose any information with regard to terms of goods or services offer and their prices, changes in such terms and prices at least 30 days prior to offer of such conditions, or prior to making changes to such terms and prices.

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2.2. Dominance

In fact, the antimonopoly legislation of Azerbaijan does not prohibit or restrict a dominant position of market power per se. Only abuse of a dominant position is prohibited by the law. The Antimonopoly Law of Azerbaijan (Article 4) defines dominant position as an exclusive position of an economic subject enabling it to exert decisive influence on goods circulation in a given market or to limit access to a relevant market for other companies. The key feature here is the use of an additional criterion - market share - for determination of the dominant position. This criterion is defined as a market share in excess of 35% or by a maximum rate established by the law or by the antimonopoly authorities.

The following acts or behaviour are considered by Azerbaijani antimonopoly legislation as being abusive:

• Creation of market access barriers for other companies;
• Maintaining or raising prices for the purpose of obtaining monopolistically high profits;
• Discriminatory (i.e. unjustifiably differentiated) pricing or terms and conditions for the supply or purchase of goods;
• Making the supply of particular goods dependent upon the acceptance of conditions in which a contractor is not interested or which do not relate to the subject of the contract;
• Withdrawing goods from circulation to create a scarcity or to increase prices;
• Refusing to conclude a contract with a particular buyer (customer) in the absence of alternative sellers/buyers;
• Violation of existing business relations with the contractors without preliminary notification and consent of the contractor;
• Reducing or stopping production of goods in demand (provided they can be produced without incurring losses).

It is expected that these provisions may be changed in the process of further modernization of the law. The list of actions defined by the antimonopoly laws as abuse of a dominant position is not exhaustive, thus enabling AMSAR to include other kinds of abuse in the enforcement process.

The natural monopoly entities (which are mostly state or state owned monopoly entities) with a dominant position in their respective markets are recognized as monopolistic entities. The antimonopoly law of Azerbaijan defines the "natural monopoly" as a status of commodity market when satisfaction of demand is more efficient in conditions of the absence of competition due to specific technological characteristics of production and when the commodity produced (sold) by the monopolist cannot be replaced with another commodity. The spheres of activity of a natural monopolist are specified by antimonopoly law and the filing and state registration of the natural monopolist is carried out by the respective executive power body (by AMSAR, the Ministry of Economic Development of Azerbaijan).

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2.3. Monopolistic agreements and concerted actions

As a rule the antimonopoly and competition laws of Azerbaijan prohibit horizontal agreements between rival or potentially rival firms and apply a rule-of-reason approach to vertical agreements (between enterprises at different stages of the manufacturing and distribution processes).

The following kinds of horizontal and vertical agreements are prohibited by the Azerbaijani antimonopoly legislation:

• agreements concluded between competing subjects if one of them occupies dominating place in the market, and leading to monopolization of the market by means of a restriction of economic activity, as follows:
  1. division of the market according to territorial principle, volume of sales or purchases, assortment of commodities or contingent of buyers (customers);
  2. establishment of fixed prices (tariffs), discounts, extra payments (extra charges);
  3. restriction on entry to the respective market and boycott against competitor, refusal in business relations with competitor;
  4. coordination of production quotas aimed to artificially change the amount of tender;
  5. increase, decrease or maintenance of prices at one and the same level in auctions and sales;
  6. blocking market prices;
  7. establishment of price discrimination;
  8. holding several administrative posts in two or more market subjects producing and selling similar products by one and the same person
• agreements between non-competing market subjects, one of them occupying a dominating position, and another being its supplier or buyer (customer) which are, or might become, the cause of restriction of competition in the market;
• agreements which by joining or amalgamation of economic subjects, and as a result of their integral market share, results in or strengthens their dominating position;
• agreements on the establishment of joint ventures incorporated between market subjects with the objective of restriction or elimination of competition;
• agreement about acquisition of a foreign company by an Azerbaijani company which might result in restriction of competition in the national market;
• binding agreements which put out conditions of sale of specific products or purchase of specific products;
• exclusive agreements requesting purchase of some product from a specific seller rather than from its competitors;
• agreements leading to the establishment of standards on produced commodities with the objective of the replacement of competitors from the market and creating in such a way barriers to entry of other economic subjects to the market.

As can be noticed this list of prohibited horizontal and vertical agreements stipulated by the law is, as a rule, not definitive, which means that other kind of agreement between rivals may also be prohibited by AMSAR.

The agreements between rival firms are also considered illegal if at least one of these firms occupies a dominant position in the market and if these agreements lead to monopolization of the markets.

Any concerted actions on mergers and acquisitions of economic entities are considered illegal if they lead to the creation or strengthening of these companies' dominant positions in Azerbaijan.

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2.4. Unfair competition

Unfair competition is determined by Azerbaijani law as an action of a market-oriented subject aimed to achieve advantage in entrepreneurship through application of illegal and unscrupulous methods, which can prejudice other market-oriented subjects (competitors) or lessen their business authority.

The forms of unfair competition in entrepreneurship prohibited by the Azerbaijani competition law are specified under the p. 2.1.1 above.

The profit, illegally raised by economic subjects through unfair competition, is withdrawn to the state budget in accordance with resolution of court.

Remuneration of losses, caused by unfair competition, is regulated in accordance with civil legislation of the Azerbaijan Republic.

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2.5. Antitrust investigation

The order and terms of an antitrust investigation and the adoption of the appropriate decisions on violation of the requirements of antimonopoly and competition legislation in Azerbaijan are regulated by the Rules "On Consideration of the Issues concerning violation of Antimonopoly legislation" approved by the Regulation of the Cabinet of Ministers of the Azerbaijan Republic "On Approval of the Rules On Consideration of the Issues concerning violation of Antimonopoly legislation" No 120, 29 May 1998 ("Rules").

Under the Rules an antitrust investigation may be initiated and started on the basis of information and an application on infringements submitted to AMSAR by:

• individuals and legal entities acting as local market subjects;
• executive power bodies, municipalities, respective state and governmental authorities;
• NGOs, and other public entities;
• mass media; and
• by AMSAR in the course of its activities.

An application on infringements submitted to AMSAR is considered by the commission ("Commission") established by AMSAR (which usually consists of 3 members) within a month from the date of the registration of an application.

While investigating the application, in case the Commission reveals any breach of antimonopoly law, it issues an order on starting the legal proceedings and sends copies to all parties concerned by registered mail. Legal proceedings take 3 months from the date of issuance of the order on starting the legal proceeding and can be prolonged by AMSAR for another 6 month period if necessary.

Information on the start of antitrust proceedings may also be published on the official website of AMSAR.

If the Commission identifies any evidence of criminal activity undertaken by the heads of economic subjects, individual entrepreneurs and officials of executive power bodies in the course of investigation, the commission reaches a decision on referring the materials of the case to the respective state administrative bodies.

The proceeding is to be held by participation of the representatives of concerned parties.

The decision of the Commission, which may be appealed in a court order, is taken by a majority vote of the Commission members and may contain a request that the economic subject stops violations, and\or eliminates the consequences of breaches by specifying deadlines.

The Commission's decision is to be announced immediately upon completion of proceeding and comes into effect from the date of that announcement. The Commission may apply additional financial sanctions, if the instructions specified in the decision of the Commission are not fulfilled in due time, by initiating execution of its instructions in a court order.

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2.6. Implications for infringers

In case of violation of the provisions of antimonopoly and competition regulations economic subjects, executive power bodies and their officials should:

• based on instructions of AMSAR, stop violations, restore original situation, change or annul the agreement and undertake other actions envisaged in said instructions;
• repay the profit obtained as a result of violation of the antimonopoly law to the state budget in the order envisaged by the legislation;
• reimburse the losses;
• pay the fines.

The fines applied to the economic subjects, their managers and also the officials of respective executive power bodies for violation of the requirements of antimonopoly regulations shall be as follows:

• in case of non-fulfillment of legal instructions of the respective executive power body within stipulated terms, for each day of delay - up to fifty five manats, but not exceeding in total twenty two thousand manats;
• in the form of financial sanction - up to five thousand five hundred manats in case of non-filing for obtaining the prior consent of AMSAR and for non-presentation of information and documents specified by the antimonopoly law to AMSAR or presentation of wrong information.

The financial health of economic subjects is taking into consideration when determining the level of fines applied by AMSAR.

Penalties in the form of financial sanctions are levied to the state budget within 30 days after the date of decision taken about it by AMSAR.

In case of late or partial payment of the penalty by the economic subjects AMSAR may apply to court about payment of a fine of 1% of the total sum or the unpaid part of the penalty for each day of delay.

Persons shall also bear criminal responsibility for monopolistic actions and violation of competition regulations stipulated by the legislation in accordance with the provisions of the Criminal Code of the Azerbaijan Republic.

Competent officials of AMSAR are responsible in an order established by the legislation for non-disclosure of information that is either a state or commercial secret and also for causing damage to economic subjects and the state as a result of wrong performance of their official duties.

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