RUSSIA: An Introduction to Competition/Antitrust

The main areas covered by Russian anti-monopoly legislation are the prohibition of an abuse of a dominant position, the regulation of prohibited agreements, anti-monopoly requirements to bidding, merger control, and the prohibition of unfair competition.

In recent years more attention has been paid to the development of Russian anti-monopoly legislation. For this purpose, the State Duma of the Russian Federation (the lower chamber of Russia’s parliament) is considering draft measures billed as the ‘Fourth Anti-Monopoly Package’. This comprises amendments to Law No. 135-FZ ‘On Protecting Competition’ (the “Law on Competition”) as well as to the Russian Administrative Code. The measures have already been passed in the first reading and are expected to make it onto the statute book before the end of 2015.

In terms of substantive law, the following changes are proposed:

• to take commercial bidding processes out of the scope of anti-monopoly law requirements. Anti-monopoly requirements will apply only to public bidding processes which are required to be carried out by the law;

• to change the factors regarded as mitigating administrative liability when a legal entity is reported for concluding an anti-competitive agreement on a second or third occasion. Such legal entity will have to pay a minimum level of fine;

• to extend the range of situations in which warnings may be applied so that the actions of public authorities, unfair competition and other types of abuse of a dominant position are covered;

• to extend the list of forms of unfair competition. 

The Fourth Anti-Monopoly Package also contains procedural provisions under which the following amendments will be enacted:

• it will be possible in antitrust cases to use as evidence: data from investigations, as well as personal and business correspondence; 

• a new type of document will be introduced that must be approved before the end of proceedings, called “conclusion about the circumstances of the case”. Such conclusion will contain information about the facts of the matter, as well as the evidence and the reasons based on which the commission accepts or rejects the evidence and the arguments of the parties to the case. The adoption of a procedural document of this nature will provide the parties to the case with the opportunity to submit explanations and objections concerning the facts of the case before the completion of consideration of the case;

• to introduce a new out-of-court appeals procedure within the central office of the Federal Anti-Monopoly Service (FAS). There will be a dedicated body within the FAS’s central administration that will review the decisions of regional anti-monopoly offices, will analyse and summarise anti-monopoly law enforcement practice, and will put forward clarifications regarding the enforcement of anti-monopoly law. This amendment will allow antitrust practice to be harmonised within the central and regional offices of the FAS and will allow market players to safeguard their rights more rapidly and efficiently.

Russian competition law is extraterritorial in nature. It is applied to agreements concluded outside Russia by Russian or foreign legal entities or individuals, and also to the actions such entities or individuals carry out, if these agreements and actions are capable of affecting competition in Russia. Recently, the first antitrust cases have been considered in which foreign companies without any representatives or subsidiaries within Russia were held to have breached Russian anti-monopoly legislation. Such violations were established by the FAS on the markets for telecommunications, medical devices and the supply of fish. However, legal gaps still remain that prevent comprehensive investigations into foreign defendants from being carried out and administrative fines from being imposed on them.

A “cartel” is a horizontal anti-competitive agreement between competitors. Such an agreement can be recognised as a cartel if it leads or could lead to price-fixing, to prices being maintained in a bidding process, to a product market being allocated, to production being reduced or terminated, or to a company refusing to enter into a contract with certain sellers or customers. It is proposed that the definition of a cartel be modified. An agreement should be recognised as a cartel not only if it is concluded between sellers, but also between buyers; this will lead to the FAS having a wider scope to deem agreements anti-competitive.

It is also important to note that the Russian Criminal Code stipulates criminal liability for breaching anti-monopoly legislation: an individual officer of a company may be imprisoned (for up to seven years) and disqualified from holding office (for up to three years). In 2015, the repeated abuse of a dominant position has been decriminalised, leaving only cartel agreements as a crime. This can be viewed as a step towards liberalising the current legislation.

The Law on Competition stipulates that dominance is presumed when a company has a market share of more than 50%. Under the Law on Competition, dominance per se is not forbidden but there is a prohibition on companies abusing their dominant position. Abuse of a dominant position can take different forms, such as setting monopolistically high and predatory prices, placing unjustified restrictions on production or price or imposing other discriminatory restrictions, imposing unfair contractual terms, refusing to supply the products without any economic or other justification, and creating barriers to entry onto the market.

The forthcoming amendments will allow the Russian government to establish rules for non-discriminatory access to the products manufactured by dominant companies which have a market share of more than 70%. The purpose of these rules is to make such companies subject to more stringent regulation.

There are also amendments aimed at abolishing the FAS register of legal entities whose shares on particular product markets exceed 35%. This means that dominance will be established on a case-by-case basis when abuse of a dominant position is considered, based on up-to-date and reliable information, rather than based on data from a register that has often become out of date.

Further amendments are intended to rule out the possibility that companies with a market share of less than 35% will be held to be dominant, unless there is an instance of collective dominance. This means that these companies, which do not have any substantial impact on the market, will not be recognised as being dominant, and they will not have prohibitions on the abuse of a dominant position applied to them.

The Law on Competition lists transactions that fall within the scope of the FAS’s merger control. The law prescribes that the prior consent of the FAS is needed for commercial companies to be incorporated and restructured, for transactions to be undertaken with shares (ownership interests) in or the property of undertakings, and for transactions to be carried out with stocks (shares) or assets of financial companies.

The amendments aim to extend the requirements for the FAS’s prior consent so that joint venture agreements between competitors are also covered. The FAS will exercise control over such an agreement when the parties to it exceed thresholds for total assets and turnover. The amendments exclude the possibility that such agreements between competitors will be treated as cartels.

On 1 January 2015, the Eurasian Economic Union (EAEU) started to operate. As things stand, the member states of the EAEU are Belarus, Kazakhstan, Russia and Armenia, but Kyrgyzstan’s accession is expected in the near future.

The Eurasian Economic Commission (EEC) is a body of the EAEU that carries out functions in the areas of anti-monopoly regulation, competition policy, natural monopolies and government and/or municipal procurement. The EAEU exercises control over violations that have or are capable of having a negative impact on competition in cross-border markets – i.e. in two and more member states (except for the financial markets). This is the fundamental criterion based on which the EAEU’s enforcement powers are differentiated from the enforcement powers of the local antitrust authorities in individual member states of the EAEU. The EEC has already specified the cross-border markets: electric power, oil and gas, coal, pharmaceuticals, international telecommunication services (roaming), international air and rail transportation, foodstuffs, mineral fertilisers and cement. It is expected that the first investigations will be initiated towards the companies operating in these markets.