Competition Practice Newsletter (Issue 6, 2014)
News
Fourth antitrust package sent to the State Duma
According to the Government decree 1793-р, dated 11 September 2014, the legislative package Development of the Competitiveness and Antitrust Policy Advancement, which amends to Federal Law 135-FZ (26 July 2006) About Competition Protection, was sent recently to the State Duma.
The bill provides a significant reduction of administrative restrictions for business and a simultaneous reduction of the state involvement empowers the Government of Russian Federation to implement rules for non-discrimination in the access to the goods of economic entities in non-monopolistic activities.
The proposed amendments received a cold greeting from experts and lawyers including those in the ART DE LEX competition law team. Examples include the proposed amendments affecting tariff cases, requirements that monopolists publish their trade practices, and antitrust legislation affecting intellectual property.
Federal Antimonopoly Service proposes to change the compensation for losses caused by antitrust violations
The Federal Antimonopoly Service (FAS) has prepared legislation that would amend Article 37 of the Federal Competition Law, based on the action plan for competition support and antitrust policy improvement.
FAS believes that the amendments would further the civil and judicial support of people who had suffered from antitrust legislation violations.
If it is impossible to determine the exact amount of damages, the tribunal should calculate the compensation in a range 1% to 15% of the product costs. According to FAS, with new amendments would better defend the customer’s interests.
According to the head of ART DE LEX competition law practice, Yaroslav Kulik, the bill requires analysis on such matters as:
- To determine a list of entities that may ask for compensation
- To determine the necessity to substantiate and determine the claim for damages
- To determine the cases that may be characterized as antitrust violations, and when the victim may demand compensation, including cases in which the violating product was not actually sold
- To determine how to calculate the compensation and the basis for calculation of specific elements of damages, such as the cost of illegal work, services (bought or sold), and products
- To exclude cases involving the possible transfer or lack of damages
- Problem-solving methods in various types of cases
FAS continues to fight to legalize parallel import
Russian law currently allows the importation of goods and their introduction into the domestic market only by owner of the intellectual property rights or with the owner's agreement. Otherwise the importation is considered to be an infringement of the owner's rights, and therefore illegal.
Some of the effects of this rule have been criticized, such as:
- It restricts competition among sellers of the same trademark and results in higher prices.
- It can take an unreasonably long time to obtain spare parts and service.
- It limits customers to specific types of equipment, prices, and materials.
FAS has preposed amendments to Article 1487 of the Civil Code of the Russian Federation to delete this principle and to introduce the international regime of exhaustion by January 2020. The changes would be implemented earlier in some particular goods and markets.
FAS plans non-discrimination rules for access to gas transportation and gas pipeline connections
FAS plans to introduce non-discrimination rules for connections to gas pipelines and technical connections to gas pipeline systems.
These new rules were the result of FAS conciliation to ensure compliance with Article 10 of the Federal Competition Law and Article 8 of the Federal Law 147-FZ (17 August 1995) About Natural Monopoly, and Article 27 of the Federal Law 69-FZ (31 March 1999) About Gas Supply in the Russian Federation.
ART DE LEX competition lawyers view the proposed rules as being consistent with the existing market peculiarities arising from gas pipelines being under am natural monopoly. The amendments would protect the rights and interests of gas producers and their customers and would strengthen competition and support to the investment climate.
FAS looks at municipal and national needs in procurement of goods and services
Igor Artemyev, the head of Federal Antimonopoly Service, while meeting with members of Association of European Business stated that it is important to expand the scope of Federal Law 223-FZ About the Purchase of Goods, Services, and Legal Assistance to declassify several purchases in defense sphere. He said that declassification should include products such as clothes, leather goods, and other items.
Judicial and administrative practice
Supreme Court upholds domination ruling against the Russian Railways Company
On 24 September 2014, the Supreme Court of the Russian Federation has upheld the decision of lower courts the the Russian Railways Company (RJD LLC) had violated the prohibition against market domination.
RJD LLC had challenged the FAS decision that the RJD LLC subsidiaries "First Cargo-Carrying Company" and "Second Cargo-Carrying Company" violated points 3, 4, and 5, part 1, or Article 10 of the Federal Competition Law.
The complaints arose from economic entities, executive bodies of the Russian Federation, and trade associations of cargo shippers, and focused on total transport expenses, rail transportation and existing cargo transportation limits, incomplete coordination of application forms GU-12 for transportation, and unlawful refusals of requests.
The Supreme Court upheld lower court rulings that RJD LLC failed to undertake necessary measures to find wagons for railway delivery by the cargo shippers, and failed to establish any other lawful grounds for the refusals.
Ninth Arbitration Court supports FAS decision against Israeli pharmaceutical company
On 23 September 2014 the Ninth Arbitration Court upheld the FAS decision against an Israeli company, Teva Pharmaceutical Industries Ltd. Teva Pharmaceutical's product Kopakson dominates the market, and Teva violated Article 10 of the Federal Competition Law by refusing to sign an agreement with CJSC MFPDK Biotek.
A senior FAS official, Timofey Nizhegorodzev has noted that the decision confirms that the part 4 of the Article 10, which deals with the exceptional rights on the results of intellectual activity, may not be used to justify a refusal to deliver the goods due to economic and technologic reasons.
The exceptional rights of Teva Pharmaceuticals in the patent of Kopakson is possible with a license agreement about the scope of rights and terms. However, actions by the rights holder must not violate antimonopoly law, regardless of whether the patent rules were violated in the production and realization of the goods.
Moscow Arbitration Court rejects Aeroflot challenge to FAS warnings
On 15 September 2014, the Moscow Arbitration Court upheld the FAS position on decreasing the costs of flights, which had been the subject of FAS warnings to several Russian airlines (Aeroflot, Sibir, Transaero, and Russia) arising from their practice of setting fares without reference to the actual demand for seats.
Previous cases had supported the proposition that the factual basis for warnings based on unproven allegations must be established in court. The court is limited a review to the statement of fact or nonconformity of the warning to the Article 39.1 of the Federal Competition Law, as confirmed by FAS Decree 874 (14 December 2011) when considering the issuances of warnings about unlawful actions. The stated consequences for continued violations should correspond to the aims of warnings, and should not go beyond the measures necessary to terminate unlawful activities. The legitimacy and validity of claim is connected as well with an evaluation of its implementation, including the actions and terms of the implementation.
Therefore, by rejecting the Aeroflot challenge, the Moscow Arbitration Court has confirmed violations that may become a private cause of action.
According to Kirill Dozmarov, an associate of ART DE LEX Law Firm, the Aeroflot decision has created a precedent that FAS and arbitration courts could use in future. In case of a disagreement with FAS warnings, the economic entity has the burden to prove its position.
Foreign antitrust news
Leading auto producers penalized for the antimonopoly activity in China
The Shanghai and Hubei provincial administrations of the National Committee on Reformation and Development have imposed fines of US$ 40.7 billion on Volkswagen and US$ 5.17 billion on Chrysler arising from "recommended prices" provisions in their agreements with their dealers.
Dealers that deviated from the recommended prices were penalized by Volkswagen and Chrysler. The two companies also enforced "unified prices" for care repair and service, which also violated Chinese competition law.
Other pending legislation
- FAS administrative regulations to provide public service and assistance in competitive selections
- amendments to the Russian Federation Government Decree 409 (26 June 2007) about rules on recognition of dominant positions of credit organizations
- amendments to the Russian Federation Government Decree 359 (6 September 2007) on rules of recognition of dominant position of financial organizations (except credit organizations)
- government decree about amendments to cases