The digital package
The role of digital companies and platforms in the modern market economy has greatly increased. They began to occupy dominant positions, influence the real sector, which in turn increases the risks for competition. In order to reduce them, the fifth set of antitrust amendments has been developed. Elena Sokolovskaya, partner at Pepeliaev Group, will consider the most significant new developments.
Of course, current antimonopoly legislation applies to digital companies and platforms and provides mechanisms that help prevent the monopolization of the digital market. However, the issue of the need to amend legislation with the aim of regulating activities specifically in the IT field has remained relevant in recent years. In particular, this is because, when considering antitrust cases, assessing the position of a business entity on the market, the Russian Federal Antimonopoly Service (“FAS Russia”) has increasingly had to take into account such a phenomenon of the information sector of the economy as network effects.
Concept definition
The network effect is the influence of a business entity that, through the use of a computer program via the Internet, ensures the transactions of other persons acting as sellers and buyers of certain goods on the general conditions of the circulation of goods in the market where such sellers and buyers interact by increasing their number.
An example is the case of Apple Inc., initiated on the basis of an application of Kaspersky Lab JSC. Based on the results of the consideration of the case, the fact of Apple's abuse of its dominant position in the market for the distribution of mobile applications on iOS was established: the company performed consistent actions as a result of which its own products were provided with competitive advantages and at the same time the conditions were worsened for the distribution of competitors' products that were "parental control" applications. At the same time, FAS Russia assessed the impact of network effects on the circulation of goods, which is reflected in the analytical report on the state of competition in this commodity market.
The need to update antimonopoly regulation became obvious over time, and the fifth antitrust package of amendments was prepared.
In particular, it is proposed to supplement the Law on Protecting Competition with a new article 10.1. It provides for the prohibition of monopolistic activity by persons using computer programs in the Internet to conclude transactions between sellers and buyers, provided that:
Of course, current antimonopoly legislation applies to digital companies and platforms and provides mechanisms that help prevent the monopolization of the digital market. However, the issue of the need to amend legislation with the aim of regulating activities specifically in the IT field has remained relevant in recent years. In particular, this is because, when considering antitrust cases, assessing the position of a business entity on the market, the Russian Federal Antimonopoly Service (“FAS Russia”) has increasingly had to take into account such a phenomenon of the information sector of the economy as network effects.
Concept definition
The network effect is the influence of a business entity that, through the use of a computer program via the Internet, ensures the transactions of other persons acting as sellers and buyers of certain goods on the general conditions of the circulation of goods in the market where such sellers and buyers interact by increasing their number.
An example is the case of Apple Inc., initiated on the basis of an application of Kaspersky Lab JSC. Based on the results of the consideration of the case, the fact of Apple's abuse of its dominant position in the market for the distribution of mobile applications on iOS was established: the company performed consistent actions as a result of which its own products were provided with competitive advantages and at the same time the conditions were worsened for the distribution of competitors' products that were "parental control" applications. At the same time, FAS Russia assessed the impact of network effects on the circulation of goods, which is reflected in the analytical report on the state of competition in this commodity market.
The need to update antimonopoly regulation became obvious over time, and the fifth antitrust package of amendments was prepared.
In particular, it is proposed to supplement the Law on Protecting Competition with a new article 10.1. It provides for the prohibition of monopolistic activity by persons using computer programs in the Internet to conclude transactions between sellers and buyers, provided that:
- the revenue of such persons exceeds RUB 2 billion for the last calendar year;
- the share of transactions made between sellers and buyers by providing access to the computer program of such a person accounts for more than 35% of the total volume in value terms of transactions made in the relevant commodity market;
- there are network effects that make it possible to influence the circulation of goods.
At the same time, the draft law provides that the antimonopoly authority has the obligation to take into account network effects when analysing the state of competition in digital markets: Article 5 of the Law is proposed to be supplemented with Part 8.1. But the question remains whether the relevant amendments will be made to the regulations of the antimonopoly authority, in particular in FAS Russia’s Order No. 220 dated 28.04.2010, which defines the procedure for analysing the state of competition in the commodity market.
It is worth noting that, in the context of the functioning of digital markets, approaches to monitoring economic concentration transactions have also changed. Traditional criteria, taking into account modern realities, may not reflect the actual impact on the economic conditions of the transaction, as evidenced by the practice of the antimonopoly authority in recent years.
Therefore, when considering the merger of Bayer and Monsanto, for the first time FAS Russia did not use the traditional approach to market analysis, in which the size of the market shares of the participants in the transaction is estimated, but focused on the study of big data, digital platforms and technologies as key factors of the market power of the parties to the transaction. The Bayer – Monsanto deal is also a precedent because when the FAS Russia approved it, FAS Russia for the first time issued an order that measures be taken aimed at creating non-discriminatory access of Russian companies to platform solutions. The order included a requirement to establish a Technology Transfer Centre to monitor the execution of the order.
This practice is reflected in the fifth package of antitrust amendments. First, in order to improve the procedure for monitoring economic concentration, in addition to the existing thresholds indicating the need to coordinate transactions, the draft law establishes an additional criterion – the transaction price: it should exceed RUB 7 billion. We believe that this rule should first of all solve the problem of an anticompetitive takeover of start-ups, which FAS Russia has repeatedly pointed out.
Second, the expansion of the institute of an expert examination is envisaged: in the new Article 9.2 of the Law, it is proposed to fix transparent rules for the appointment of experts, as well as their rights, obligations and the procedure for carrying out activities. In particular, it establishes the possibility to appoint an expert examination within the framework of state control over economic concentration when the antimonopoly authority considers applications and when it is necessary to ensure control over the execution of the order.
The fifth package also attempts to resolve the issue of failure to comply with an order of the antimonopoly authority within the prescribed time. Digital giants often allow this violation.
It is worth noting that, in the context of the functioning of digital markets, approaches to monitoring economic concentration transactions have also changed. Traditional criteria, taking into account modern realities, may not reflect the actual impact on the economic conditions of the transaction, as evidenced by the practice of the antimonopoly authority in recent years.
Therefore, when considering the merger of Bayer and Monsanto, for the first time FAS Russia did not use the traditional approach to market analysis, in which the size of the market shares of the participants in the transaction is estimated, but focused on the study of big data, digital platforms and technologies as key factors of the market power of the parties to the transaction. The Bayer – Monsanto deal is also a precedent because when the FAS Russia approved it, FAS Russia for the first time issued an order that measures be taken aimed at creating non-discriminatory access of Russian companies to platform solutions. The order included a requirement to establish a Technology Transfer Centre to monitor the execution of the order.
This practice is reflected in the fifth package of antitrust amendments. First, in order to improve the procedure for monitoring economic concentration, in addition to the existing thresholds indicating the need to coordinate transactions, the draft law establishes an additional criterion – the transaction price: it should exceed RUB 7 billion. We believe that this rule should first of all solve the problem of an anticompetitive takeover of start-ups, which FAS Russia has repeatedly pointed out.
Second, the expansion of the institute of an expert examination is envisaged: in the new Article 9.2 of the Law, it is proposed to fix transparent rules for the appointment of experts, as well as their rights, obligations and the procedure for carrying out activities. In particular, it establishes the possibility to appoint an expert examination within the framework of state control over economic concentration when the antimonopoly authority considers applications and when it is necessary to ensure control over the execution of the order.
The fifth package also attempts to resolve the issue of failure to comply with an order of the antimonopoly authority within the prescribed time. Digital giants often allow this violation.
In particular, in September 2015 FAS Russia found Google guilty of abusing its dominant position in the market of pre-installed application stores in the Android OS and issued an order to eliminate violations, and in November 2015 imposed administrative liability on Google Inc. and Google Ireland Limited for a failure to comply with the order, fining each of the companies RUB 500,000 and extending its execution period. At the same time, these companies still did not execute the order, and FAS Russia was forced to go to court.
Article 19.5 of the Russian Administrative Code is proposed to be supplemented by Part 2.8, which provides for a mechanism for doubling the previously imposed administrative fine for non-compliance with a decision or an order, if a person has already been had administrative liability for non-compliance with this decision or an order. In order to reduce the excessive administrative burden, limits on the application of such a sanction are provided for: no more than one fiftieth of the total amount of the offender's proceeds from the sale of all goods (works, services) for the calendar year preceding the year in which the administrative offence was detected, and no less than RUB 100,000.
Law enforcement practice and antitrust legislation in Russia is actively developing to face the new challenges of the digital economy. We believe that the adoption of the fifth package of antitrust amendments will ensure the efficiency of control in digital markets, as well as strengthen mechanisms for protecting the rights and interests of good-faith companies from possible demonstrations of monopolistic activity of IT giants.
Source: Competition and Law