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Competition Practice Newsletter (Issue 1, 2015)

New amendments to the Fourth Antitrust Legislative Package

New amendments have been added to the Fourth Antitrust Legislative package. The new amendments address a number of important issues in Russian competition law:

  • additional types of unfair competition
  • limitations on the dominant position doctrine
  • prohibited acts during competitive bidding
  • internal appeals within the Federal Antimonopoly Service
  • protection of previously approved agreements on joint activities
  • vertical agreements
  • minimum administrative penalties

The ART DE LEX competition law team alerted clients to this legislation in a Client Bulletin dated 14 April 2015.

New criminal antitrust laws take effect

On 20 March, 2015 amendments to the Article 178 of the Criminal Code of the Russian Federation came into the force. The amendments to Article 178 include:

  • The title of the article is changed to Restriction of Competition.
  • The principle of actus reus is clarified.  Under the new law, an agreement signed between economic entities (i.e., a cartel) is a criminal violation, if it causes major damage to individuals, entities, or the state, or leads to income on a large scale. Previously the conclusion of a cartel agreement and a repeated abuse of dominant position were recognized as crimes.
  • The amounts of income recognized as “large” and “large-scale” for the purposes of Article 178 were increased 10 times. “Large” income now is 50 million rubles instead of 5 million.  “Large-scale” is now defined as 250 million rubles instead of 25 million. The threshold for “large damage” has been raised from 1 million rubles to 10 million rubles.  “Large-scale damage” is now 30 million rubles, instead of 3 million.  These changes will protect small businesses from criminal liability.
  • Grounds for exemption from criminal liability under Article 178 have been modified.  The exemption now is available only to a person who is  “the first from the number of the accomplices who voluntarily report about this crime." Previously, one needed only to  contribute to the crime disclosure, indemnify, or otherwise undo the damage, in order to be exempt from the criminal liability.

Ministry of Economic Development to tender for the selection of electronic trading platform operators.

The Ministry of Economic Development of the Russian Federation will hold a tender for the selection of operators of electronic trading platforms for 2016-2020.  The Ministry will conduct the tender pursuant to Resolution of the Government of the Russian Federation On establishing the procedure and conditions for the selection of operators of electronic trading platforms for electronic auctions, which is expected to become effective in April 2015.  The tender is expected to be published on the Ministry’s official website, www.economy.gov.ru, at that time. The current operators of the electronic trading platforms are Sberbank AST CJSC, EETP JSC, ; RTS-Tender LLC, ETP MICEX, and SPA RT. Their contracts expired in January 2014 and were extended for another year, until 25 January 2015.  Currently, they operate without a contract, which has made the tender an urgent matter Competitors in the upcoming 2015 render will find tougher requirements than were in effect five years ago. These include:

  • an established legal identity for at least one year
  • 10 million rubles minimum capitalization
  • disqualification of bidders with foreign owners
  • increased technical requirements
  • a minimum customer base and experience in electronic trading 

Federal Antimonopoly Service considers a case against Google  

Yandex LLC has filed with the Federal Antimonopoly Service an unfair competition complaint against the American corporation Google. The case, initiated under the Part 1 of Article 14 of the Federal Competition Support Law, alleges illegal promotion of the services Google Play, Google Maps, and YouTube on the mobile operating system Android.  On 13 April, 2015 the FAS of Russia started to consider the case, but the consideration was delayed until the end of May, in order to give an opportunity for Google to provide documents in support of its position.

Earlier, in July 2014, Yandex LLC was a witness in the European Commission competition investigation of Google. The issue was similar: unfair competition in by requiring smartphone manufacturers who use the Android operating system to include the Google applications. The U.S. Federal District in the Northern District of California previously dismissed a private case brought by two American citizens for similar allegedly non-competitive actions by Google in the licensing of the Android operation system. The court dismissed the claim, with leave to refile, because the plaintiffs did not allege specific damages caused by Google’s actions.

Adjustments of terms permitted for certain contacts in 2015

Government Decree 198 of 6 March 2015 has authorized parties to contracts agreed before that date, and that will be completed by the end of 2015, to agree to changes in the execution period, contract price, unit prices, and quantity of goods and services. There are several requirements, however, based on the value of the contract and the subject of the contract   All parties to the original contract must sign the modifying agreement.  The request for modification should be originated by the supplier and addressed to the customer in writing.  The request must also establish that completion of the contract would be impossible under the original terms, due to a substantial change of circumstances.  

Competition litigation and administrative disputes

Supreme Court rejects Russian Railways appleal

On 24 February 2015, the Presidium of the Supreme Court of the Russian Federation rejected an appeal by the Russian Railways Company JSC against a decision by the Supreme Court’s economic disputes  panel, which found Russian Railways guilty of violations of paragraphs 3, 4 and 5 of Article 10 of the Federal Competition Support Law, The case was initiated in 2011 by a number of companies that complained about Russian Railways' practices with respect to cargo services, which they alleged resulted in increased costs and decreased service, such as the absence or shortage of railroad freight cars.  This resulted in economic losses to the plaintiffs, such as the need to lease rolling stock and the disruption of the delivery of supplies and products. Click here to read more about this case in the November 2014 issue of the ART DE LEX Competition Newsletter.  

Supreme Court confirms FAS recommendations on apatite concentrate pricing

On 13 January 2015 the Supreme Court of the Russian Federation refused the appeals of a group of plaintiffs against Apatite JSC.  The plaintiffs had alleged that Apatite JSC has a dominant position in the market for apatite concentrates.  They complained that the price set by Apatite JSC, which was determined according to a formula developed by the Federal Antimonopoly Service, was too high. They proposed an alternate formula, based on the industry growth index of prices, which would have produced a significantly lower price. The Supreme Court thus upheld the position of the Court of Appeal and recognized the binding nature of the FAS recommendations.

Arbitration Court of the Moscow region confirms that the exclusive rights in intellectual property do not apply to cases about abuse of the dominant position

The Israeli company Teva Pharmaceutical Industries Limited, which occupies a dominant position on the market of the pharmaceutical drug "Copaxone," was found to have violated Paragraph 5 of Part 1 of Article 10 of the Federal Competition Support Law by refusing to conclude a contract with the MFPDK Biotec CJSC.  

The Israeli company refused to conclude the sale and purchase contract of the drugs, referring to the exclusive rights of the patent holder. However, the Court stated that in accordance with the Paragraph 4 of Article 10 of the Federal Competition Support Law, the exemption of the actions for implementation of the exclusive rights on intellectual property do not apply to cases involving an abuse of dominant position by an economically and technologically unjustified refusal to deliver the goods.

On 12 March 2015, the Arbitration Court of the Moscow region denied the Teva Pharmaceutical’s request for further review of the case, finding that there was no basis to reassessment the findings, previously made by the Court of Appeal.

Click here to read more about this case in the November 2014 issue of the ART DE LEX Competition Newsletter.  

Noteworthy foreign cases

The European Commission files charges against Gazprom JSC

April 22, 2015, the European Commission filed charges against the Russian company Gazprom JSC with an obstruction of the free competition and inflation of the prices of gas for a number of European countries, including Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia.

Earlier, on 18 February 2015, Margaret Vestager, a member of the European Commission on antitrust regulation, announced the resumption of the antitrust investigation against the Russian company Gazprom JSC, which is suspected the abuse of a dominant market position. In September 2012, the government of Lithuania submitted a complaint in the European Commission against the Gazprom JSC, accusing it inflating the price on gas.  Lithuania demanded compensation in the amount of US$ 2 billion.  In the spring of 2014 the investigation was suspended. Now that it has resumed.

Gazprom JSC considers the charges baseless because it strictly complies with all the rules of international law and legislation of the countries where it operates. If the guilt of the Gazprom is proven, the company will face a heavy fine up to 10% of it annual revenue.

Legislative projects

Government decree to permit contract relief

The proposed decree would relieve small businesses or socially-oriented non-profit organizations from the enforcement of a government contract in certain circumstances.   The customer would be required to make a fractional final payment to the supplier, ranging from at least 15% to 30% of the contract price, depending on the purpose of the contract.  Adoption of this decree will reduce the cost of contract compliance and financial burdens of small businesses and non-profit organizations while the contracts are being executed.

Amendments to the Article 37 of the Federal Competition Support Law

Proposed amendments to the Federal Competition Support Law would provide an alternative method for calculating the compensation for damages arising from violations of the antitrust laws.  The person whose rights and interests have been injured as a result of the violation of the antitrust legislation will have the right to demand either damages calculated by civil legislation of the Russian Federation or, an amount ranging from 1% to 15%, at the discretion of the court, of the cost of the goods that were sold in violation of the antitrust laws.  

Amendments to the Article 15 and Article 16 of the Federal Law about foreign investments in economic entities that have strategic significance for the national defense and security

The amendments require a foreign investor or group of persons to report information about foreign persons or entities that have 5% or more interest in any entity that performs at least one of the activities that have strategic significance for the national defense and security of the Russian Federation.  The filing must be made within 90 days from the date of registration of the legal entity in the Uniform State Register of Legal Entities.  

FAS decrees

  • FAS Departmental Decree About the approval of the Regulations on Information Policy of the Federal Antimonopoly Service and its territorial bodies
  • FAS Departmental Decree About the order of conducting the register of unfair participants of the auction for sale of land, that is the state or municipal property, or the auction for the right to conclude the land rental agreement, that is the state or municipal property
  • FAS Departmental Decree About the approving the Procedure of analysis of competition in order to establish the dominant position of financial organization, supervised by the Central Bank of the Russian Federation