Fourth Antimonopoly Package: Major Changes In Russian Antitrust Laws - Trade Regulation & Practices

On 22 October 2014, the State Duma of the Russian Federation approved the final version of the draft Federal Law «On the Introduction of Amendments to the Federal Law «On Protection of Competition» and Some Legislative Acts of the Russian Federation» (the «Law») - a so-called «Fourth Antimonopoly Package» developed by the Federal Antimonopoly Service (FAS) to implement the "road map" for developing competition and antimonopoly regulation and in accordance with the Recommendations of the Organization for Economic Co-Operation and Development (OECD).

As compared to the first version adopted almost a year ago, the Law was supplemented with some technical improvements, clarifications (including those related to non-discriminatory access rules in particular industries), and some essential amendments. In particular, several articles were introduced to specify prohibitions on unfair competition in various forms, provisions relating to antitrust requirements to create state and municipal unitary enterprises were removed, and the procedure for consideration of cases on antitrust violations was substantially updated and supplemented.

Below there is an overview of the principal amendments to the Federal Law «On Protection of Competition» (hereinafter – the «Competition Law») and other Federal Laws envisaged by the Law.

The essential part of the amendments will come into force in 90 days after the official publication of the Law after it is signed by the President of the Russian Federation.

1. Dominant Position. Rules of Non-Discriminated Access

On one hand, the Law exempts a number of entities from antimonopoly control in connection with the dominant position:

provisions that FAS Russia may recognise as dominant the position of economic entity with a share of less than 35% were removed from Article 5 of the Competition Law;
the power of FAS Russia to maintain the register of economic entities whose market share exceeds 35%, or which hold a dominant position on the relevant market if other Federal Laws recognise the position of such economic entities as dominant was also abrogated.

Furthermore, actions of an economic entity holding a dominant position that infringe the interests of other persons and organisations in cases other than in the course of business activity will not be subject to antimonopoly regulation (Article 10.1 of the Competition Law).

On the other hand, the control over terms and conditions offered by the entities holding a dominant position to their customers will be tightened. The Government of the Russian Federation will be authorised to adopt the rules of non-discriminatory access to the goods and services of economic entities, which are not natural monopolies, but are recognised as dominant on the relevant market: such rules may be established by a regulatory act of the Government to prevent discriminatory conditions in cases where an abuse of a dominant position is established by a decision of FAS that came into force (Article 10.5 of the Competition Law). The rules shall include, in particular:

the list of goods, to which non-discriminatory access shall be provided;
the essential contract conditions and (or) standard contracts for providing access to the goods;
the procedure for determining the consumers that will receive mandatory servicing;
the requirements to the relevant goods, if not provided otherwise by the laws of the Russian Federation.

The rules of non-discriminatory access to the services provided by the operator of the national system of payment cards, operators of services in payment infrastructure of the national system of payment cards, operator of payment system of the Central Bank of the Russian Federation, operator of services in payment infrastructure of the payment system of the Central Bank of the Russian Federation shall be determined in accordance with the Federal law «On the National Payment System».

2. Cartels and Vertical Agreements

Not only agreements between the competing economic entities, but also agreements between the economic entities that buy goods on the same market shall be deemed cartels and therefore prohibited per se (Article 11.1 of the Competition Law).

The definition of a «vertical» agreement (an agreement between a seller and a buyer of goods/services/works) does no longer contain provisions that an agency agreement is not deemed a «vertical» agreement, since for the purposes of applying the Competition Law every agreement should be considered on the basis of rights and obligations of the parties established by such an agreement.

The criteria for the permissibility of «vertical» agreements are amended as follows: such agreements will be considered permissible, if neither the seller's nor the buyer's share exceeds 20 % on the market of the goods being the subject of the relevant «vertical» agreement (Article 11 of the Competition Law) rather than any commodity market.

3. Unfair Competition

Chapter 2 of the Competition Law is supplemented with several articles that provide for prohibitions on unfair competition in various forms:

a. through discrediting - dissemination of false, inaccurate, or distorted information which can inflict losses on economic entity or cause damage to its business reputation, including in respect to the quality, quantity, consumer properties of goods offered for sale by a competing entity, as well as conditions under which the goods are offered for sale, including price thereof;

b. through misrepresentation concerning the above characteristics and conditions of sale of the foods, as well as the place of their manufacture, manufacturer of the goods and guarantees of the seller and manufacturer;

c. through incorrect comparison of a business entity and(or) its goods to the competing entity and(or) its goods, including with the use of words such as «the best», «first», «number one» and other epithets that create an impression of superiority, without indicating characteristics or parameters of comparison that can be objectively verified, or when the relevant statement is false, inaccurate or misleading;

d. through the acquisition and use of exclusive rights to the means of individualisation of a legal entity, goods, works or services; it is provided that if FAS takes the decision on violation of this prohibition on the acquisition and use of exclusive rights to the trademark such decision shall be sent by the party concerned to the Rospatent for invalidation of the legal protection granted to the trademark in question;

e. through committing acts of sale, exchange or other goods introduction into circulation, when intellectual property was illegally used, except for the means of individualisation belonging to a competing economic entity;

f. through committing acts (omission) that can cause confusion with the activities of competing economic entity or with the goods or services that are put into circulation in the territory of Russia by the competing economic entity, including through the illegal use of a sign which is identical to the trademark, trade name, commercial designation, appellation of origin of a competing economic entity or confusingly similar thereto; through copying or simulating the look of the goods of a competing economic entity, packaging of such goods, labels, names, colours, corporate style or other elements individualising the goods;

g. through unfair competition related to the illegal receipt, use or disclosure of information that constitutes commercial or other secret protected by law, including without the consent of a person having the right to dispose of such information or due to breach of contract with such person.

The Law specifies that the above list is not an exhaustive – other forms of unfair competition are prohibited.

4. Transactions of Natural Monopoly Entities

The threshold values for state control over transactions of natural monopolies established by Article 7.2 of the Federal Law «On Natural Monopolies» is reduced from 10 to 1%.

At the same time, the requirement to notify FAS Russia on the purchase of stocks (shares) in the charter (pooled) capital of natural monopoly entities or acquisition thereof as a result of other transactions (such as agreements on trust management, gratuitous use agreements, lease contracts) of more than 10% of the total number of votes falling within voting stocks (shares) of the chapter (pooled) capital of natural monopoly entities, as well as on acquisition by a natural monopoly entity of stocks (shares) in the charter (pooled) capital of another economic entity granting over 10% of the total number of votes, is excluded.

5. Agreements for Joint Activity

To establish the legal certainty in performing joint activities and to reduce the risks for the participants connected with the antitrust prohibitions, there is the need to get a prior approval from FAS for entering by competing economic entities into agreements for joint activity, if:

an aggregate value of the assets of such entities (assets of their groups of persons) in accordance with the latest balance sheets exceeds RUB 7 billion or
aggregate revenues thereof (their groups of persons) from sales of goods/works/services within the calendar year preceding the year of entering into an agreement exceed RUB 10 billion.

If financial indicators of entities (their groups of persons) does not exceed any of the above-mentioned thresholds but the entities wish to obtain a decision of FAS on compliance of their agreement with the antitrust laws, they will have the right to file a draft agreement with FAS in accordance with the Article 33 of the Competition Law.

Agreements for joint activity that have been approved by FAS will not be subject to the prohibitions and restrictions related to agreements, including cartels, specified by Article 11 of the Competition Law.

6. Requests and Notices on Committing Transactions, Other Actions

The Law provides for the possibility to file requests or notices with FAS electronically. The procedure for such filings shall be established by FAS.

Following the publication on the website of FAS of the information on a request for approval of a transaction/action submitted by the party thereto, interested parties will be entitled to file with FAS the information on the impact on competition by the transaction/action.

In addition, persons submitting to FAS the requests and notices on transactions/actions that are subject to the state control, as well as the documents and information, will be entitled prior to such submission notify FAS on the contemplated transaction/action: provide information and documents, propose conditions aimed at ensuring competition.

When considering the relevant request or notice FAS will take into account all information and documents submitted.

7. Antimonopoly Requirements for Tenders

The list of prohibited actions that can restrict competition in the course of a tender is supplemented with agreements between tender organisers and (or) customers and bidders, if such agreements are aimed at, lead or can lead to restriction of competition and (or) creation of advantageous conditions for any bidders, unless otherwise provided for by laws of the Russian Federation.

In the course of an open auction or an open tender a customer - federal state (municipal) executive authority, executive authority of a constituent entity of the Russian Federation, local government, state extra-budgetary fund, will be entitled to establish stricter requirements to the participating financial organisation regarding financial stability and solvency to be determined in accordance with the criteria provided by laws of the Russian Federation and established on the basis of financial and economic or other accounting reports of the financial organisation to be filed with the Central Bank of the Russian Federation.

It is specified that the customer may establish the requirement of a certain rating granted by rating agencies accredited according the procedure prescribed by the laws of the Russian Federation only in case of failure by the financial organisation to comply with the stricter requirements regarding its financial stability and solvency (Article 18.21 of the Competition Law as amended by the Law).

8. Procedure for Considering of Cases on Antitrust Laws Violation

Cases on violation of antitrust laws shall be considered in an open hearing. Closed hearings are applicable to the cases when an open hearing could lead to the disclosure of state secrets or in case where it is necessary to keep commercial, professional or other secrets protected by law.

FAS Committee in the course of considering a case of violation of antitrust laws may at the request of the parties involved or at its own initiative invite experts, interpreters as well as persons who have knowledge of the circumstances relevant to the case.

When an expert appraisal is appointed, parties involved in the case may propose to the Committee experts and expert organisations as well as the list of issues that require an expert appraisal. However shall be the Committee who takes the decision on appointment of experts and determination of the issues that require expert appraisal.

Parties involved in the case will have the right to challenge an expert if there are any circumstances that may raise doubts as to his/her impartiality or if such person is a member of the Committee who has a conflict of interest.

Each party involved in the case within the time limit set by the Committee shall disclose to other parties involved the evidence to which it refers as to the ground of its claims and objections.

On the other hand, it is provided that the parties involved may review the statements, objections, explanations and other materials submitted by the other parties involved to confirm the presence or absence of a violation of the antitrust laws, except for applications for release from administrative liability and(or) criminal liability under paragraphs 1 and 3 of Article 14.32 of the Code of the Russian Federation On Administrative Violations (the «Administrative Code») and Article 178 of the Criminal Code of the Russian Federation, respectively.

The Law provides for an additional document to be adopted by the Committee before the proceedings is completed where antitrust laws violation is established in the actions (omission) of the defendant – an opinion on circumstances of the case.

If the said opinion is adopted the proceedings on violation of antitrust laws shall be postponed and a copy of the opinion shall be sent to the parties involved within 5 business days after the date of ruling to postpone the proceedings.

Before the completion of the case consideration and announcement of the operative part of the relevant decision parties involved may submit to the Committee an explanation, evidence and arguments in writing as to the circumstances covered by the opinion on circumstances of the case.

If such explanations, evidence and arguments indicate the absence of antitrust law violations in the actions (omission) under consideration, the Committee terminates the proceedings.

The decision on the case shall consist of an introduction, descriptive, declaration of intent and operative parts. The Law establishes the requirements to the content of each of the parts.

9. FAS Collegial Bodies. Appealing Decisions and Prescriptions

The Law provides for organisation of the collegial bodies with FAS with the following authorities:

to consider materials on the study and generalisation of decisions of antitrust authorities (territorial divisions of FAS) and to provide clarifications on the antitrust practice issues; and
to review decisions and(or) prescriptions of territorial authorities of FAS on cases of violation of the antitrust laws.

The Law sets a one-month period after the date of the decision or prescription of the territorial antitrust authority for appealing such decisions to a collegial body by the parties involved in the case on violation of the antitrust laws.

The ground for the amending or cancellation of the decision of the territorial division of FAS is a violation of the uniformity in application of the antitrust laws by the antitrust authorities.

It will be possible for the parties involved and the territorial division of FAS to participate in the meeting of the collegial body to review the decision and (or) prescription by means of video-conferencing.

The applicants shall be notified on the progress and results of the appeal by means of publication of the relevant information on the official website of FAS Russia.

10. Warnings and Notices

The Law expands the list of persons to whom FAS may issue warnings with prohibitions from violating antitrust laws (Article 257 of the Competition Law): it will include officials of the federal executive authorities, bodies of public authority of the constituent entities of the Russian Federation, municipal authorities, organizations involved in providing public or municipal services, public extra-budgetary funds.

The list of offences which trigger a notice by FAS (Article 391 of the Competition Law) is also expanded: now it includes actions of public authorities and municipal governments (Article 15 of the Competition Law), unfair competition (except cases of violation of exclusive rights) and abuse of a dominant position (Articles 10.1.3, 10.1.5, 10.1.6, and 10.1.8 of the Competition Law).

11. Administrative Liability and Release Therefrom

It will become impossible to bring wrongdoers to more than one type of liability for one and the same violation of antitrust law: in case an administrative fine equal to a multiple sum of wrongdoer's profit from sales of goods on the market where this offence is committed is imposed on a person, an order for transferring the profit received from the offence to federal budget may not be issued (Article 51.3 of the Competition Law).

The Administrative Code is supplemented with a new Article 7.324 which establishes liability for violation of the procedures for tenders required under the laws (the «tender»), the sale of state or municipal property, the procedure for entering into agreements resulting from the tender and sale or, if such tender declared invalid, for, in particular:

a. failure to provide information on the tender, sale of state or municipal property, or placing false information on the tender, sale of state or municipal property, or provision of documents containing false information, or violation of terms for providing such information;

b. violation of the procedure for determining the form of the tender;

c. violation of the procedure for submission of tender documentation, procedure for explanation of such documents, procedure for the receipt of bids, applications for participation in the sale of state or municipal property;

d. violation of the procedure for admission to the tender, sale of state or municipal property;

e. violation of the procedure for determining the winner of the tender, sale of state or municipal property;

f. violation of terms for entering into agreements resulting from the tender, sale of state or municipal property, or, if the tender is declared invalid, for evasion of the tender organiser, the seller of the state or municipal property, organiser of the sale of state or municipal property from entering into such an agreement;

g. changing by the tender organiser, the seller of the state or municipal property, as well as by the party to the agreement of the terms and conditions of the agreement when entering thereto or performing thereof, which are established by the tender documents, tender notice, notice on the sale of state or municipal property, the draft agreements, as agreed by the parties or unilaterally, when it is prohibited by the federal law.

For the abovementioned violations administrative fines will be imposed: on officials - up to RUB 50,000, on legal entities - up to RUB 300,000.

In part 1 of Article 14.9 of the Administrative Code the administrative fine on officials of federal executive authorities, executive authorities of the constituent entities of the Russian Federation, municipal governments and other authorities or organisations performing the same functions, state budget funds, as well as organisations involved in rendering state and municipal services for the actions (omission), which restrict or eliminate competition and free movement of goods (works, services) is increased for up to RUB 50,000.

Article 14.32 of the Administrative Code is supplemented with provisions that a minimum amount of administrative fine may be imposed for entering by an economic entity into an agreement prohibited according to the antitrust laws, participation and taking measures impermissible according to the antitrust laws if an entity involved voluntarily informs FAS of its having entered into the relevant agreement (cartel) and that the following conditions are met: the entity admits the fact of administrative violation, refuses to participate in the agreement (cartel) and the scope of submitted information and documents is enough for establishing an administrative violation.

Article 14.31.1 of the Administrative Code on the liability for abuse of a dominant position by an economic entity, whose share in the market of a particular product is less than 35% is abrogated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Russian Federation: Fourth Antimonopoly Package: Major Changes In Russian Antitrust Laws