Chambers Europe. Competition/Antitrust
Russian antimonopoly legislation has been radically overhauled over recent years, which can be put down to the comprehensive change in the country's economy. Due to the fact that antimonopoly legislation depends on economic changes, it is forced to transform alongside the economy. We can pinpoint main milestones of the development of modern antimonopoly legislation which have taken form of so-called “antimonopoly packages”.
First of all, the contained Law # 135-FZ of 2006 on Protection of Competition (Competition Law) and amendments to the Russian Administrative Code. The second came into force in 2009 and essentially amended the Competition Law itself. The “Third Antimonopoly Package” came into force in January 2012. Russia’s Federal Antimonopoly Service (FAS), the country’s general antitrust regulatory authority, has called these measures the last major reform of Russian antimonopoly legislation as a whole. Despite that fact the work on “fourth antimonopoly package” is well under way; another set of amendments is likely to be introduced into antimonopoly legislation in 2014.
One of the most prominent changes to the procedural rules of the FAS that would be introduced if the amendments came into force is new powers of the Presidium of the FAS. This body would become an appellate instance where decisions of regional offices of the FAS could be challenged. Thus the “fourth antimonopoly package” would create an out-of-court appeals procedure within the central office of the FAS. This amendment means there would be an additional procedure for enterprises to protect their rights.
The main areas covered by the Competition Law are prohibition against the abuse of dominant position, the regulation of prohibited agreements and concerted practices, merger control and the prohibition of unfair competition.
Over the recent years the FAS has been very proactive prosecuting various economic and governmental entities for violating anti-trust legislation. For example, every year the FAS initiate more than eight thousand administrative cases, the overwhelming majority of them for abusing dominant position.
It should be pointed out that Russian competition law is extraterritorial in nature. The most recent amendments has slightly clarified the provisions on this point. It is stated that the law is applicable to agreements concluded outside Russia by Russian or foreign legal entities or individuals, and to the actions such entities or individuals carry out provided that the agreements and actions in question can affect competition in Russia. The nature of an effect that a certain action or agreement has on the competitive environment inside Russia is decided by the FAS on a case-by-case basis.
Dominant Position and Abuse of Dominance
Russian competition law has traditionally placed an emphasis on the issue of dominance, the notion of which is fairly similar to the European concept of market dominance. It is presumed that a company which has a 50% share of the market dominates such market. However, it should be noted that a company which does not exceed such threshold could be recognised as dominant if its market share is higher than 35% and its dominance has been registered by the FAS. Russian competition law makes provision for the concept of collective dominance, which can make the threshold for a dominant position even lower. If a company has a market share higher than 8% and the market share of this company combined with other companies exceeds 50% for a group under 3 companies or 70% for a group under 5 companies, this could be recognised as collective dominance. The concept of collective dominance allied to the tendency of the Russian antimonopoly authority to define markets of specific products very narrowly, creates risks that businesses operating on the market, may be recognised as dominant.
Abuse of a dominant position according to the Article 10 of the Competition Law can take different forms, such as monopolistic and predatory pricing, restricting production, price discrimination, imposing unfair contractual terms or refusal to supply without an economic or technical justification for doing so, and creating barriers to entry or exit.
The "fourth antimonopoly package” if enacted will lay down that Russian Government may create rules of non-discriminatory access to the products manufactured by a dominant company which has a market share of more than 70%. The purpose of these rules is to limit the possibility of a company using its market power for discrimination. Under existing legislation such restrictions may be imposed only on natural monopolies, but the potential amendments would extend them to all dominant companies (with a market share over 70%). This indicates a stricter approach towards such companies.
The Competition Law lists transactions that fall within the merger control of the FAS. The law prescribes that a prior consent from the FAS is needed for incorporating and restructuring commercial organisations, transactions with shares (ownership interest) or the property of commercial organisations, and transactions with stocks (shares) or assets of financial organisations.
The Competition Law lays out that thresholds at which the FAS’s prior consent is required for the reorganisation of a commercial legal entity. If, in the preceding year, the gross asset value of the legal entities involved exceeds RUB7 billion (approximately EUR175 million), while its total sales exceed RUB10 billion (approximately EUR250 million), the FAS’s prior consent to the transaction is needed.
The Law also directs that the prior approval of the FAS is required for any transaction involving the acquisition by an entity (or group of entities) of more than 50% of the voting stocks or shares in a foreign legal entity, or other rights that would result in the ability to determine the conditions of such entity’s business. This rule applies if the foreign company in question made supplies within Russia in excess of RUB1 billion (approximately EUR25 million) during the year that preceded the transaction.
In early 2014 the Competition Law has been amended to the extent that it deals with merger control. The new edition of the law has mostly excluded the post-closing notification procedure from the antimonopoly legal terrain. A post-closing notification can still be employed as a merger control procedure in certain cases if undertakings choose to use it, but the obligation to notify the FAS after a transaction has been concluded no longer exists. Therefore the merger control rules have become more liberal. These amendments however have not affected the pre-closing notification procedure, which has remained untouched.
Sanctions for a failure to get a pre-closing consent of the FAS can take the form of administrative fines. These are imposed regularly, albeit in modest amounts.
Anticompetitive Agreements and Cartels
The notion of “cartels” means horizontal anticompetitive agreements between competitors. Such an agreement can be classified as a cartel agreement if it aims or leads or could lead to price-fixing, prices being maintained in a bidding process, a product market being allocated, reduction or termination of production or refusal to make a contract with certain sellers or customers.
The “fourth antimonopoly package” suggests an amendment to the definition of a cartel agreement. An agreement should be considered to constitute a cartel not only if it is concluded between sellers, but between buyers as well; this would result in there being a wider scope for the FAS to consider agreements anticompetitive.
The Russian Criminal Code stipulates criminal liability for breaching the antimonopoly legislation - a person may be imprisoned (for up to seven years) and disqualified (for up to three years). In 2011 most types of anticompetitive agreements and concerted practices were decriminalised, leaving only cartel agreements and recurrent abuse of dominance as a crime. That can also be seen as a step towards liberalisation.