Information bulletin on antimonopoly regulation practice (Issue 1, 2018)
EVENTS
THE PRESIDENT OF THE RUSSIAN FEDERATION SIGNS A DECREE ON A DEVELOPMENT PLAN FOR NATIONAL COMPETITION
On 21 December 2017, Russian President Vladimir Putin signed Decree No. 618, “On the main directions of state policy on the development of competition.” The purpose of the document is to strengthen and develop the national economy, increase the economic efficiency and competitiveness of economic entities, and prevent monopolistic activity. The decree is aimed at reducing the number of violations of antimonopoly legislation by state authorities by 2020 and at increasing the volume of purchases by 18 percent for small and medium businesses (SMB) by state and municipal customers and state companies. To achieve these goals, the decree approved the National plan for the development of competition for 2018-2020.
In addition, the decree is designed to increase competition in various markets by ensuring the presence of at least three players (at least one of them must be private) in each branch of the economy, with the exception of natural monopolies and the military-industrial complex (MIC).
The head of FAS Russia, Igor Artemyev, noted that the National plan for the development of competition was the first document of its kind in the history of the country. According to him, it sets out principles that do not tolerate any unfair competition or abuse of monopoly power in the economy. The head of FAS expressed his hope that the document will be updated every three years.
THE PRESIDENT OF THE RUSSIAN FEDERATION APPROVES LARGE-SCALE AMENDMENTS TO LEGISLATION IN THE PROCUREMENT FIELD
The president of the Russian Federation signed Federal Law No. 504-FZ, of 31 December 2017, “On amendments to the federal law that deals with the contract system for the procurement of goods, works, and services for ensuring state and municipal needs” (hereafter “the Law on the contract system”) and with Federal Law No. 223-FZ, of 18 July 2011, “On the procurement of goods, works, and services by individual types of legal entities” (hereafter “the Law on procurement”).
Amendments to the Law on the contract system abandon paper forms for procurement, making all open procurement procedures use electronic forms.
Amendments to the Law on procurement establish a closed list of methods of procurement from small and medium business entities and involve a complete transition to electronic forms. Such purchases will be carried out on universal trading platforms that operate in accordance with the Law on the contract system. These measures will provide support to the small and medium businesses involved in the procurement process of state-owned companies.
The deputy head of FAS Russia, Rachik Petrosyan, noted that the agency seeks to substantially simplify the procurement procedure and to make it as clear and streamlined as possible for potential participants. The transfer of all open procurement procedures to electronic forms is an important step in this direction that will greatly simplify purchasing processes for the user.
JUDICIAL AND ADMINISTRATIVE PRACTICE
GLOBAL PORTS AND FAS RUSSIA REACHED A FINAL AGREEMENT
The three stevedore companies of Global Ports peacefully settled the most complicated dispute with FAS Russia, invalidating FAS Russia's decisions regarding the violation of Clause 1, Part 1, Article 10 of the Federal Law No. 135-FZ from 26 July 2006, “On the protection of competition" (hereinafter “Law on the protection of competition”).
JSC First Container Terminal, LLC East Stevedoring Company, and JSC Petrolesport concluded a settlement with FAS Russia that the Arbitration Court of the city of Moscow approved on 12 December 2017, 19 December 2017, and 21 December 2017, respectively. The agreements significantly reduced the size of the initially excessive monetary penalty, and they minimized the risk of possible violations of the antimonopoly legislation in the future by creating a balanced system of innovative obligations that satisfy FAS Russia and do not impose unjustified restrictions on the companies in carrying out business activities.
The head of the Competition Practice of ART DE LEX, Yaroslav Kulik, as well as the law firm’s group head, Kirill Dozmarov, and the lawyers Anna Mitroshkina and Elizaveta Savina represented the interests of all three companies of the Global Ports Group. More detailed information about the case can be found in the following link.
FAS RUSSIA RECOGNIZES EVRAZ GROUP TO BE A VIOLATOR
The bases for initiating antimonopoly legislation violation procedures against JSMC, EVRAZ, NTMK, and LLC EvrazHolding TC (hereafter referred to as “the EVRAZ Group”) were documents and information the antimonopoly authority received during its analysis of the competition in the market for solid-rolled wheels. The EVRAZ Group produces a wide range of solid-rolled wheels and occupies a dominant position in the Russian market for the production of wheels with a diameter of 1058 mm for maneuverable locomotives.
FAS Russia compared the profitability of production of wheels for locomotives with the profitability of production of the main product of the wheel-rolling shop: railway wheels with a diameter of 957 mm. The last of these products accounts for more than 80 percent of the wheel-rolling production of the EVRAZ Group. These indicators determine the economic and technological feasibility of the plant as well as its level of profitability, including the "necessity" of the rest of the wheel-rolling shop, from the standpoint of production and sales.
During the examination of the antimonopoly case, FAS Russia determined that, from 2013 to 2015, the profitability of production of 1058 mm wheels for locomotives exceeded the profitability that the enterprise established for the main type of products by four or more times. Following the consideration of the case, FAS Russia recognized that the EVRAZ Group violated Clause 1, Part 1, Article 10 of the Law on protection of competition.
FAS RUSSIA RECOGNIZES THE FEDERAL CARGO COMPANY AND JSC RUSSIAN RAILWAYS AS VIOLATORS
The JSC Federal Cargo Company (JSC FCC) and JSC Russian Railways (JSC RZD) are guilty of establishing and maintaining a monopolistically high price for the provision of open wagons from July 2016 to March 2017.
The antimonopoly authority initiated the case, claiming violations of paragraph 1, part 1, Article 10 of the Law on Protection of Competition, on the basis of information it received during the consideration of a number of client requests.
As a result of violations, according to FAS Russia, the rates of operation increased from 400-500 RUB per car per day to 1300 RUB and more per car per day.
LLC UVZ-Logistik leased its car fleet to JSC FCC in March 2016, with the subsequent provision of wagons at a price of 400-500 RUB for a car a day. FAS Russia agreed to the transaction, with several provisions, including one that required submitting in advance to the antimonopoly authority an economic justification for raising the price of wagons by more than 7.5 percent. JSC FCC grossly violated this provision by raising prices without justification, despite repeated warnings from FAS Russia.
According to FAS Russia, the actions of JSC FCC resulted in a local deficit of wagons in a number of regions and industries, and as a result, prices increased for the provision of open wagons since July 2016.
INTERNATIONAL EXPERIENCE
ANTIMONOPOLY SERVICES OF ITALY AND FRANCE JOIN THE INVESTIGATION OF THE "PLANNED AGING” OF APPLE AND SAMSUNG PRODUCTS
In late December 2017, the Italian Antimonopoly Authority reported that it started a verification process regarding allegations that Apple Inc. and Samsung Electronics Co., Ltd. used software updates to slow down the work of smartphones, encouraging customers to upgrade to new smartphone models. The statement said that both companies did not inform customers that updates could adversely affect the performance of devices.
The Italian agency believes that the American and South Korean corporations could thus violate as many as four articles of the national consumer protection code. If they are found guilty, both companies may be subject to multimillion-dollar fines.
The regulator said that it suspects Apple and Samsung of the coordinated implementation of a common commercial policy that uses the capabilities of certain software components to limit the usefulness of their products and encourage consumers to purchase new models of devices.
Apple representatives acknowledged that iPhone software affected the slowdown of some phones with problematic batteries, but it denied that they ever had undertaken deliberate actions aimed at reducing the life of products. Samsung has refused to comment.
Lawsuits against Apple were filed in California, New York, and Illinois: plaintiffs claim that the company was deceiving users by slowing down devices without warning. Apple also has faced claims in France, where "planned obsolescence" also constitutes a violation of the law. In addition, the Prosecutor's Office of Paris took up the investigation against the corporation on this matter. A similar fate can soon happen to Samsung.
FIVE SUPPLIERS OF JAPANESE AUTO PARTS CONCLUDED ANTICOMPETITIVE AGREEMENTS
The European Commission fined Tokai Rika, Takata, Autoliv, Toyoda Gosei, and Marutaka a total of 34 million EUR for violating antitrust laws in the European Union.
Each of the listed companies was convicted of one to four cartel agreements in the auto parts market (automobile belts, airbags, and steering wheels for Japanese automakers) in the European Economic Area (EEA).
The creation and coordination of cartels took place outside Europe, primarily in Japan, where participants organized communication by e-mail and met in restaurants, hotels, and the offices of suppliers. The European Commission found that all five suppliers agreed to prices for specific markets and exchanged confidential information on supplies to Japanese companies Toyota, Suzuki, and Honda in the EEA. Each of the five companies recognized their participation in cartels and agreed to resolve the conflict. Takata was not fined for participation in three of the four cartels and Tokai Rika in one of them because the companies actively cooperated with the European Commission and proved their noninvolvement in specific cartels.
Commissioner Margrethe Vestager, who is in charge of EU competition policy, noted that seat belts and airbags protect people’s lives on a daily basis and are important for all motorists in the EU. She stressed that the five fined suppliers had conspired to maximize profits from the sale of specific auto parts. This could have resulted in an increase in the prices of auto parts for a number of car manufacturers in Europe. Margrethe Vestager also noted that the conclusion of cartel agreements affecting the European market is unacceptable both in Europe and abroad.
PROPOSED REGULATORY AND LEGAL ACTS
DRAFT FEDERAL LAW "ON AMENDMENTS TO THE CODE OF ADMINISTRATIVE OFFENSES"
FAS Russia developed the draft federal law “On amendments to the code of administrative offenses” in order to tighten the responsibility for re-engaging in cartels. According to the text of the bill, resigning of competition-restricting agreements within three years from the time of determining that a person was administrative liable for a previously concluded anticompetitive agreement will entail a penalty that is double the administrative fine stated in the current legislation. In addition to this initiative, FAS Russia proposes to clarify the conditions for the application of the "softening program." According to the current version of Article 14.32 of the Code of administrative offenses of the Russian Federation, a person or a group of persons who admitted that they had participated in a cartel and provided evidence to FAS Russia is released from responsibility. At the same time, the note to Article 14.32 of the Code of administrative offenses of the Russian Federation does not provide for how many times a mitigation program can be applied to one person. The amendments that FAS Russia proposed are aimed at excluding the possibility of abusing this right and establishing the possibility of exemption from liability and mitigation of liability only for those economic entities that are first-time offenders.
DRAFT OF A FEDERAL LAW "ON AMENDMENTS TO THE FEDERAL LAW ‘ON PROTECTION OF COMPETITION’ AND SEPARATE LEGISLATIVE ACTS OF THE RUSSIAN FEDERATION"
FAS Russia sent to authorities, for their consideration, a bill that proposes to supplement the Law on protection of competition by including a new chapter providing for a ban on the establishment of state and municipal unitary enterprises or changing their activities, without preliminary agreement with the antimonopoly authority.
According to FAS Russia, the participation of unitary enterprises in economic activities has a negative impact on and restricts competition in local markets. Accordingly, it is necessary to establish a mechanism for monitoring their creation and market behavior.
The draft law provides for the written consent of the antimonopoly body for the creation, reorganization, or changes in the types of activities of unitary enterprises, except in cases when federal law or an act of the president of the Russian Federation or the government of the Russian Federation provides for their creation.
According to the draft law, failure to comply with the requirements of the antimonopoly authority, as outlined in point 4, part 2, Article 213 of the draft law, entails administrative responsibility. A unitary enterprise created in violation of the requirements of the draft law is subject to liquidation, following a judicial procedure that the antimonopoly authority is to initiate.
Prepared by Elizaveta Savina, Assiya Radzhabova