The economy in good graces

In 2021 the Plenum of the Russian Supreme Court recommended that courts investigate in more detail objective economic reasons for the conduct of market players, assess whether profit can be generated and establish a causal link between an agreement and unlawful consequences. This has changed approaches to proving cartels. Already today practice contains an example of a court of the highest level referring a case for retrial based on the economic part of it.

The courts have assessed positively the positions of the Plenum of the Russian Supreme Court expressed in Resolution No. 2 “On certain issues arising in connection with the courts applying antitrust legislation” (the “Resolution”) dated 4 March 2021 and are actively applying them in disputes on anticompetitive agreements being concluded. More attention has been given to economic evidence and special emphasis has been placed on it.

In one case the courts unanimously dismissed a decision of the antitrust authority referring to clauses 21 and 24 of the Resolution. They specified that the facts had not been proved of competition being restricted during a bidding process, nor had it been proved that the company’s actions affected the establishment or maintenance of prices and that someone had generated profit from the results of the auction (the Resolution of the Commercial Court for the Far East Circuit dated 23 November 2021 in case No. A73-18974/2020).

In another dispute the circuit court referred a case for a retrial and subsequently courts of three instances dismissed a decision of the antitrust authority referring to clause 24 of the Resolution. In their opinion, the regulator did not take into account that the commodity market under analysis was specific and narrow and that in the event of such bidding process an insignificant decrease in the guaranteed maximum price of a contract is typical. Moreover, the causal link was not proved between the actions of business entities and the prices during bidding being maintained. Nor was it confirmed that the claimants initially agreed their actions and that there was collusion (the Resolution of the Commercial Court for the Volgo-Vyatka Circuit dated 18 October 2021 in case No. A28-11809/2019).
Below is a more detailed analysis of a cartel case that was referred for a retrial by the Judicial Panel for Economic Disputes of the Russian Supreme Court.

In 2020 the Department of the Federal Antimonopoly Service for Novosibirsk Region recognised two companies as having violated article 11(1)(2) of Federal Law No. 135-FZ dated 26 July 2006 (the “Law on Protecting Competition”) by concluding and performing an anticompetitive agreement for one of the companies to win the bidding process.

The antitrust authority took into account the “classic” set of evidence of a cartel, including: the actual addresses of the companies coinciding, identical IP addresses for actions in the “bank-client” system, mutual bank transfers being carried out, the same employees working simultaneously at different companies at the same time.

That the companies had concluded an agreement for technical cooperation was taken into account as one more piece of evidence: the business entities agreed to conduct joint marketing research, to search for potential customers and to take part in bidding processes. According to the regulator, the conditions of the agreement pointed to its anticompetitive nature.

An instruction was issued for the companies to terminate the violation. The companies contested the document together with the decision first before the antitrust authority (in Decision No. SP/97832/20 dated 10 November 2020 the Appeal Panel of the Russian Federal Antimonopoly Service took the side of the territorial authority) and then through court proceedings.

Courts of three instances supported the claimant’s claims (the Resolution of the Commercial Court for the West Siberian Circuit dated 10 October 2022 in case No. A45-28299/2020) specifying that:

• there was insufficient evidence of collusion: strong business ties between the companies do not prevent them from jointly taking part in a bidding process;
• using a single infrastructure as well as financial and HR relationships, in themselves, do not evidence that a cartel has been concluded;
• the subject matter of the agreement concluded between business entities is mutually profitable cooperation, which is not prohibited by the law (during the court hearing the companies specified on multiple occasions that the purpose of the agreement was to perform contracts on time and to a high standard of quality as well as to develop and create new goods intended for import substitution).

The Department of the Federal Antimonopoly Service contested the decisions before the Russian Supreme Court. The principal argument of the antitrust authority was as follows: in the procurement procedures “a certain model of conduct is traced” whereby both companies took part in each auction and “formally acting as competitors, they yielded victory to each other at the maximum possible price”. According to the regulator, such conduct is economically unjustified, since it does not explain the participants acting passively in the bidding process, i.e. refusing to provide price quotes.

The case was referred to the Judicial Panel for Economic Disputes which took the side of the antimonopoly service (the Ruling of the Judicial Panel for Economic Disputes of the Russian Supreme Court dated 6 June 2023 in case No. A45-28299/2020 of Radiatsionnaya Tekhnika LLC and Sibmer LLC). In particular, the panel pointed out clause 24 of the Resolution, whereby the aggregate of evidence should be assessed that testifies to there being a causal link between the actions of the participants in a bidding process and the prices being increased, decreased or maintained. The panel also specified that the courts have not appropriately examined the arguments of the antitrust authority regarding the companies’ similar model of conduct. The above includes the arguments regarding the appearance of competition and the price being decreased to a minimum extent (more frequently by 0.5-1%) during a bidding process in which only two companies participated. If other business entities took part in the auction, the decrease in the guaranteed maximum price of a contract was substantial (by 49-87%) owing to the proposals of the specified two limited liability companies.

According to the Judicial Panel for Economic Disputes of the Russian Supreme Court such conduct can confirm that the companies not only agreed regarding technical cooperation and mutually exchanged financial resources and workforce resources (which in itself is not prohibited by the law), but also concluded another agreement to create the appearance of competition by maintaining prices.

The panel also specified as follows.

1. The companies did not deny that they generated profit from the performance of the anticompetitive agreement, since contracts were concluded following the bidding process with the price being maintained close to the level of the guaranteed maximum price.
2. For a cartel to be identified, it should be established that the coinciding price quotes are a result of an agreement that the parties have reached which is aimed at maintaining the price, or that they have resulted from specific objective economic reasons, including the rules for holding the bidding process and market prices for the relevant services.
3. The lower-level courts did not provide reasons explaining the companies’ position that if competitors jointly take part in bidding processes on a regular and permanent basis, this does not involve them having a uniform strategy and a joint agreed plan of how to behave with respect to the contact price, or pursuing an unlawful goal, which in this case is to maintain the price (with respect to the concluded agreement for technical cooperation).

Actually, the case was referred for a retrial owing to the economic part of the issue - the arguments of the antitrust authority regarding the companies’ particular model of conduct that are supported by an analysis of the bidding process with both the results of the decrease in the guaranteed maximum price and the price quotes being specified.

Source: Competition and Law