Is Russian software unrivalled?
The conclusions of the Federal Antimonopoly Service of Russia ("FAS of Russia") relating to the Google case, in which the service pointed out the increased barriers for domestic developers seeking to enter the mobile software market, have prompted members of parliament to come forward with an initiative to introduce state regulation of the market of pre-installed applications. However, such an artificial restriction of competition may adversely affect the quality of products and entail an increase in their prices for consumers.
In recent years, the FAS of Russia has increasingly been checking mobile applications for compliance with the provisions of Federal Law No. 135-FZ dated 26 July 2006 “On the protection of competition” (the “Law on Protecting Competition”). An antimonopoly assessment is performed on a case-by-case basis since the developers use different methods for vying for a competitive edge, which sometimes results in some applications receiving unauthorised competitive advantages.
Since there is no adapted legal regulation of the activities of companies on high-tech digital markets and there are no established approaches, this circumstance obstructs the identification of offences and their subsequent classification. Based on the possibilities offered by the existing legal framework, the antimonopoly body has in practice already classified various anti-competitive actions of developers either as an abuse of a dominant position or as bad-faith competition.
Thus, while considering the case involving GetTaxi Rus LLC (the “Company”), the FAS of Russia for the first time faced a case when competition was restricted by the functioning of the competitor’s application being obstructed. The essence of the offence was that consumers could not use the Gett Drivers application without having deleted the aggregator application of a third-party manufacturer. For the time being, the Company’s actions are classified under article 14.8 of the Law on Protecting Competition as another form, not envisaged by that law, of bad-faith competition (Ruling of the FAS of Russia dated 28 June 2019 to refer case No. 08/01/14.8-65/2019 for consideration), since the company’s actions have caused losses to the owner of the third-party application and compromised its business reputation. The Company was issued a warning to discontinue these actions (Warning of the FAS of Russia dated 17 May 2019 to GetTaxi Rus LLC for it to cease acts or omissions containing signs of a violation of antimonopoly legislation).
In our opinion, the difficulty of classifying this offence lies in the correct definition of the relations between the participants of the case. The Claimant was not a direct competitor of the Company since it aggregates information from many services similar to Gett and acts as an intermediary between drivers and aggregators.
It is the marketing policy of the developers of the bundling and pre-installation of the applications that may be classified as an abuse of a dominant position.
In our opinion, the concept itself of the state regulation of the market of pre-installed applications has the following drawbacks.
1. The artificial restriction of competition in this market will result in the quality of the products decreasing and in them becoming less attractive for consumers. Now, against a backdrop of harsh competition with foreign developers, Russian companies, including major ones, have no choice but to constantly increase the quality of their products and seriously engage in marketing them in order to maintain their share in the market and the level of profitability. However, after the suggested amendments come into force, all the market power will be in the hands of large Russian developers irrespective of the quality of their products.
2. Foreign companies losing profit from pre-installed applications will result in increased prices for consumers themselves to download such applications after the devices have been bought.
In addition, there are gaps and deficiencies that may complicate the practice of enforcing the amendments. For instance, it remains unclear who will bear administrative liability for the sale of devices without pre-installed Russian software: the manufacturer or the seller.
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In recent years, the FAS of Russia has increasingly been checking mobile applications for compliance with the provisions of Federal Law No. 135-FZ dated 26 July 2006 “On the protection of competition” (the “Law on Protecting Competition”). An antimonopoly assessment is performed on a case-by-case basis since the developers use different methods for vying for a competitive edge, which sometimes results in some applications receiving unauthorised competitive advantages.
Since there is no adapted legal regulation of the activities of companies on high-tech digital markets and there are no established approaches, this circumstance obstructs the identification of offences and their subsequent classification. Based on the possibilities offered by the existing legal framework, the antimonopoly body has in practice already classified various anti-competitive actions of developers either as an abuse of a dominant position or as bad-faith competition.
Thus, while considering the case involving GetTaxi Rus LLC (the “Company”), the FAS of Russia for the first time faced a case when competition was restricted by the functioning of the competitor’s application being obstructed. The essence of the offence was that consumers could not use the Gett Drivers application without having deleted the aggregator application of a third-party manufacturer. For the time being, the Company’s actions are classified under article 14.8 of the Law on Protecting Competition as another form, not envisaged by that law, of bad-faith competition (Ruling of the FAS of Russia dated 28 June 2019 to refer case No. 08/01/14.8-65/2019 for consideration), since the company’s actions have caused losses to the owner of the third-party application and compromised its business reputation. The Company was issued a warning to discontinue these actions (Warning of the FAS of Russia dated 17 May 2019 to GetTaxi Rus LLC for it to cease acts or omissions containing signs of a violation of antimonopoly legislation).
In our opinion, the difficulty of classifying this offence lies in the correct definition of the relations between the participants of the case. The Claimant was not a direct competitor of the Company since it aggregates information from many services similar to Gett and acts as an intermediary between drivers and aggregators.
It is the marketing policy of the developers of the bundling and pre-installation of the applications that may be classified as an abuse of a dominant position.
Bundling is allowed as long as the developer authorises the purchase of the dominant application separately from other applications and services. Pre-installation becomes anti-competitive if the rejection by a manufacturer of electronics of the same service from the competitor of a developer becomes a condition for such developer and the manufacturer to collaborate, and if the end user does not have the possibility to delete the pre-installed applications which do not affect the functioning of the device’s operating system. These are the conclusions made by the FAS of Russia when considering the Google case in 2015 (Decision of the Commission of the FAS of Russia dated 14 September 2015 in case No. 1-14-21/00-11-15).
While analysing the situation concerning the Google case, the Russian antimonopoly authority pointed out that there are high barriers for pre-installed applications to enter the market and that, generally, only major foreign developers with global renown can overcome such barriers. This conclusion underlies the amendments to Law No. 2300-I of the Russian Federation “On protecting consumer rights” dated 7 February 1992; the amendments come into effect starting from 1 July 2020 (Federal Law No. 425-FZ dated 2 December 2019). According to the amendments, it is mandatory for Russian applications to be pre-installed on individual categories of technically complex goods (smartphones, computers and TV sets with the SmartTV function). The Russian Government will establish a list of software available for such pre-installation, the procedure for the pre-installation and a list of devices for which it is mandatory. For not complying with this requirement, it is planned to impose administrative liability in the form of a fine (see draft law No. 757430-7).
In our opinion, the concept itself of the state regulation of the market of pre-installed applications has the following drawbacks.
1. The artificial restriction of competition in this market will result in the quality of the products decreasing and in them becoming less attractive for consumers. Now, against a backdrop of harsh competition with foreign developers, Russian companies, including major ones, have no choice but to constantly increase the quality of their products and seriously engage in marketing them in order to maintain their share in the market and the level of profitability. However, after the suggested amendments come into force, all the market power will be in the hands of large Russian developers irrespective of the quality of their products.
2. Foreign companies losing profit from pre-installed applications will result in increased prices for consumers themselves to download such applications after the devices have been bought.
In addition, there are gaps and deficiencies that may complicate the practice of enforcing the amendments. For instance, it remains unclear who will bear administrative liability for the sale of devices without pre-installed Russian software: the manufacturer or the seller.
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