Competition Practice Newsletter (Issue 2, 2015)
Recent events in Russian competition law
Legalization of parallel imports
Russian Prime Minister Dmitry Medvedev has given the Federal Antimonopoly Service of Russia (FAS Russia) and the Ministry of Economic Development of the Russian Federation to until the end of July 2015 to study and submit proposals for the legalization of parallel imports for a number of products. He believes that the phased transition toward the international exhaustion of trademark rights for certain groups of goods, through the legalization of parallel imports, will lead to lower prices in Russia. This could alleviate some of the effects of the present economic crisis. The effective date for the legalization of parallel imports would be 1 January 2016.
At the end of May 2015, FAS Russia submitted, to First Deputy Prime Minister Igor Shuvalov, a proposed list of affected products. The list, which currently awaits approval, includes medical equipment, pharmaceuticals, hygiene products, auto parts, children's goods, perfumes, and cosmetics.
Current Russian law permits only the owner of the intellectual property rights or an entity that has the permission of the owner to import and circulate goods in Russia. Goods that do not comply are counterfeit.
New amendments to the defense procurement law
Federal Law No. 159-FZ, On Amendments to the Federal Law “On the State Defense Order” and Certain Legislative Acts of the Russian Federation (29 June 2015), went into effect on 1 July 2015. It introduced significant changes to procurement under the Russian State Defense Order Law, which came into force at the end of 2012. It also amends the Code of Administrative Offenses to include sanctions.
The amendments establish an interdepartmental monitoring system, involving the Ministry of Defense, the Federal Antimonopoly Service of Russia (FAS Russia), the Federal Service for Financial Monitoring, and the Bank of Russia, to watch government funds destined for defense and defense-related procurement. The system will contain information about governmental and private parties that fulfill defense contracts. The principal objective is to provide more efficient supervision and control as well as to prevent unjustified price increases.
The amendments prohibit actions and the failure to act on the part of government executives that lead or might lead to unreasonably high prices for defense supplies or to the nonperformance or improper performance of a government contract. The amendments also define and regulate the functions and powers of FAS Russia as the supervisory authority, and they establish procedures for the initiation, review, and appeal of alleged violations.
The Russian text of Federal Law No 159-FZ is available here.
Proposed legislation to permit Russian manufacturers to supply products to state customers on a noncompetitive basis
Recently proposed amendments to Federal Law No. 44-FZ, "On the Contract System in the Purchase of Goods, Works and Services for State and Municipal Needs" (5 April 2013), would allow noncompetitive government procurement from Russian suppliers, including sole-source agreements.
The Ministry of Economic Development, the Ministry of Finance, and the Ministry of Industry and Trade drafted the amendments to create or upgrade production in Russia and to reduce the reliance on imports.
To ensure oversight and control, the Russian Government must approve the terms of such noncompetitive agreements, the amount of investment, and the adequacy of documentation concerning the design, research, and development of the manufactured products. Only state customers on an approved list will be able to procure manufactured goods from sole-source suppliers. To provide stability in sole-source and noncompetitive relationships, the agreements could have terms of up to seven years.
FAS Russia enlarges the scope of the competition law case against Google
In the case of Yandex LLC against Google Inc., Google Ireland Ltd., and Google (Russia) LLC, which began on 20 February 2015, Google is accused of violating Article 14 of the Russian Federal Competition Law for restricting access to key components of Android, such as the Google Play app store and Google Mobile Services. FAS Russia added an additional allegation of a violation of Article 10, which prohibits the actions or inactions of a dominant economic entity that will result or can result in preventing, restricting, or eliminating competition or infringing on the interests of other persons. Google denies that it violated Russian antitrust law.
A delay in the case until 4 September 2015 is to allow the parties to develop their positions in response to the new allegations under Article 10. This is the second postponement since the initiation of FAS Russia proceedings.
Additional background information about the Google case is available at the ART DE LEX website. Click here.
FAS Russia adopts new factors to consider when evaluating market competition conditions
On 15 March 2015, FAS Russia amended FAS Order No. 220 (28 April 2010) to improve its evaluations of competitive conditions in markets. The new edition of Order No. 220 clarifies or adds several important points:
- It gives a greater role to businesses suspected of antitrust violations to evaluate the competitiveness of a market, such as the submission of their own market research.
- It broadens and clarifies the requirements on antimonopoly bodies to analyze market conditions.
- It expands the requirements for guidelines that FAS Russia and its territorial bodies use to analyze a commodity market.
- It requires that penalties based on the revenue gained from antitrust violations reflect all violations in a market so that the penalties are proportionate.
Competition litigation and administrative disputes
RUB 2.2 billion fine invalidated in the Russian Railways case
On 9 June 2015, based on the appeal of Russian Railways and other operators, the Arbitration Court of Moscow overturned the decision of the Federal Antimonopoly Service and the combined fines of RUB 2.2 billion against Russian Railways and 16 other operators. The court concluded that the companies did not violate Article 16 of the Railway Act on the Protection of Competition in their allegedly anti-competitive agreements for the provisioning of rolling stock to export coal from the Kuzbass Region.
Please click here for additional background information and commentary about the charges FAS Russia presented, including “white spots,” that is, gaps in the evidence. The companies attacked FAS Russia’s incomplete and “cut down” study and its inability to establish who made an illegal agreement to divide the market as well as when and how they did so. During the discussion of the fines’ legality, the court found evidence of FAS Russia’s flagrant procedural violations.
ART DE LEX lawyers represented two of the successful parties in the case, Ferrotrans LLC and New Forwarding Company PLC.
The Constitutional Court supports “dawn raids,” with limits
On 14 May 2015, the Russian Constitutional Court decided the appeal of Argus-Spectrum CJSC, which had originated from an unannounced inspection, informally known as a “dawn raid,” that FAS Russia had conducted in February 2013. FAS Russia was investigating alleged violations in the fire safety systems market. During the audit, without Argus-Spectrum management or legal representatives present, FAS Russia inspectors confiscated 1,860 pages of documents and copied data from Argus-Spectrum computers.
While upholding the legitimacy of FAS Russia’s unscheduled inspections, the court imposed two conditions. During such inspections, FAS Russia may gather only those documents and materials necessary to confirm or refute alleged activities related to a violation of the law. Moreover, to limit arbitrary actions, antitrust bodies are obliged to warn the target legal entities of a planned exit check at least 24 hours in advance.
FAS Russia may not conduct inspections, based on anonymous reports
On 30 April 2015, the Arbitration Court of the Moscow District issued a landmark judgment on unscheduled inspections. In a case arising from a FAS Russia investigation of the liquid caustic soda market, the court ruled that conducting an unscheduled inspection, based on anonymous statements, contradicts Russian law.
The anonymous statements, in this case, were e-mail messages someone sent from a single IP address, using electronic mailboxes that someone had created only minutes before sending the messages. Lower courts, in three separate instances, had found that the e-mails contained no indication of antimonopoly violations.
Noteworthy foreign cases
The Swedish Competition Authority takes action against the NASDAQ OMX Group
The Swedish Competition Authority (Konkurrensverket) has accused the NASDAQ OMX Group Inc., one of the leading stock exchange operators in the world, of abusing its dominant market position. The NASDAQ OMX Group Inc. allegedly blocked the access of Burgundy, one of the first alternative trading platforms in the European Union, to the NASDAQ OMX data processing center in Stockholm. The action forced Burgundy to use another data center, and its competitive position suffered, in comparison to NASDAQ OMX.
A guilty verdict would result in the NASDAQ OMX Group Inc. facing an administrative penalty of USD 3.7 million.
The European Commission investigates online shopping
The European Commission has launched an antitrust investigation of online stores. According to Margaret Vestager, the European commissioner for competition policy, EU citizens face too many obstacles when trying to buy a product or service on the Internet offered in another country. Some online companies create these barriers themselves.
The European Commission wants to identify how these obstacles affect fair competition and consumers. If they violate EU standards of fair competition, the EC will take action to ensure compliance with EU antitrust law. The report will appear by late 2017.
The EC also plans to analyze the role of such online platforms as search services, social networking, and mobile application stores. It will examine the transparency of web search engines, the pricing policies of various online services, and the use of personal data that online platforms collect.
Legislative and regulatory projects
- Draft FAS Russia Order On the Coordination of the Central Apparatus of the Federal Antimonopoly Service of Russia and the Regional Offices of FAS Russia in Monitoring Procurement, in Accordance with the Federal Law of 5 April 2013, No. 44-FZ, "On the Contract System in the Procurement of Goods, Works, and Services for Public and Municipal Needs"
- Draft Order of the Federal Antimonopoly Service on the approval of the minimum amount of petroleum products as well as of certain categories of goods produced from oil and gas that are sold on the stock exchange; on the approval of the requirements for exchange trading, involving deals for oil products and for certain categories of goods produced from oil and gas, with a business entity having a dominant position in the relevant market; and on the annulment of the Order of the Federal Antimonopoly Service of Russia and the Ministry of Energy of Russia of 12 January 2015, No. 3/15/Draft amendments to the draft federal law On Amendments to Article 15 and 16 of the Federal Law "On the Procedure for Foreign Investment in Business Entities of Strategic Importance for National Defense and State Security"
- Draft amendments to the draft federal law On Amendments to Article 15 and 16 of the Federal Law "On the Procedure for Foreign Investment in Business Entities of Strategic Importance for National Defense and State Security"
- Draft Resolution of the Government of the Russian Federation On Amending the Rules Regarding the Formation and Maintenance of a Register of Persons Involved in the Administrative Responsibility for Violations of the Antimonopoly Legislation of the Russian Federation
- Draft Resolution of the Government of the Russian Federation On Approving the Procedure for Keeping the Register of Complaints, Scheduled and Unscheduled Inspections, Decisions Made, and Instructions Issued