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Competition Law Bulletin (Issue 3, 2018)

EVENTS

FAS RUSSIA CLARIFIES THE QUALIFICATION OF CARTEL AGREEMENTS BY TRADE PARTICIPANTS

The Federal Antimonopoly Service of Russia (FAS Russia), in its Clarification No. 14 of May 30, 2018, On the Qualifications of Agreements of Business Entities Participating in Bidding (the Clarification), pointed to the need for antimonopoly bodies to consider the possibility of negative consequences during the preparation and participation in tenders – such as raising, lowering, or maintaining prices at the auction – as well as the need to prove the causal link between the agreement and those possible negative consequences.

In the Clarification, FAS Russia settled the issue of an agreement between an economic entity wishing to participate in trading and another economic entity whose behavior at the auction will be passive. The purpose of such an agreement is to recognize the auction that is being held and to facilitate the right of one of the parties to conclude a contract. FAS Russia identified two models for their regulation, based on the results of failed trades. If the contract is binding, then the collusion will make it a cartel agreement. If the contract is not compulsory, then there are no negative consequences for the customer; and such a preliminary agreement will not be considered as a violation of Russian antimonopoly.

A lawyer in the ART DE LEX competition law practice, Elizaveta Savina, points out that the new Clarification requires the antimonopoly authority to carefully study the causal relationship between the concluded agreement and its possible consequences, as well as the purpose of the agreement. This analysis is an improvement in the application of Clause 2, Part 1, Article 11 of the Federal Law of July 26, 2006, No. 135-FZ, On Protection of Competition (the Competition Protection Law). She also notes that, in addition to the cases specified in the Clarification, other auction-related agreements would no longer necessarily violate the Clause 2, Part 1, Article 11.

Thus, the use of such agreements to increase the number auction participants cannot lead to an increase, decrease, or maintenance of prices at the auction, and can benefit the customer. For example, even if there is only one bidding participant that meets the documentation requirements, the customer will be obliged to accept the price offered by such that single participant, as prescribed by the Federal Law of April 4, 2013, No. 44-FZ, On contract system in the sphere of procurement of goods, works, services for provision of state and municipal needs. At the same time, as more economic entities participate in the auction, the more likely that the competition will lead to a reduction in the initial maximum price and a faster conclusion to the contract procedure, which benefit the customer.

RUSSIAN SUPREME COURT SYSTEMATIZES JUDICIAL PRACTICE IN SPECIAL PROCUREMENT CASES

On May 16, 2018, the Presidium of the Supreme Court of the Russian Federation approved the Review of Judicial Practice on Issues Related to the Application of Federal Law No. 223-FZ of July 18, 2011, On Procurement of Goods, Works, Services by Individual Types of Legal Entities (the Federal Procurement Law) This review is the first in the field of special procurement.

The Supreme Court summarized the relevant practice of arbitration courts in recent years and introduced legal certainty into a number of outstanding issues arising when courts apply the Federal Procurement Law. In particular, the Court indicated that the establishment of evaluation criteria by the customer is not a violation if they are objective and measurable – experience in the relevant commodity market, for example. The Court also explained that a requirement for the personal performance of the contract, without involving subcontractors, that meet the needs and interests of the customer is not an improper limitation of the range of potential participants in the procurement.

According to the Deputy Head of FAS Russia, Rachik Petrosyan, the Review plays an important role in procurement-related jurisprudence. It provides uniform approaches for courts to resolve disputes under the Federal Procurement Law and creates equal conditions for ensuring competition among procurement participants.

NEW RULES FOR TARIFF DISPUTES

The Government of Russia has established a single procedure for settling tariff disputes, by issuing its Decree of April 30, 2018, No. 533, On Approval of the Rules for Consideration (Settlement) of Disputes and Disagreements Related to the Establishment and (or) Application of Prices (Tariffs), on Amendments to Government Decree No. 14 of January 9, 2009 and the recognition as invalid of certain acts of the Government of the Russian Federation. (hereinafter referred to as the Tariff Dispute Rules).

The Tariff Dispute Rules cover disputes and disagreements in the areas of electricity, heat supply, water supply and sanitation, as well as in the areas of activity by natural monopoly entities. Previously, Russian law had no single procedure for these disputes, which had been conducted in accordance with by-laws for each sector, which often contradicted each other and caused many problems for tariff regulation.

Under the new Tariff Dispute Rules, the relevant disputes and disagreements shall be reviewed by the antimonopoly service. An application for review must be submitted to FAS Russia within three months from the date when the applicant learned or should have known about the alleged violation. Within ten days of filing, FAS Russia shall decide whether to accept the application, refuse it, or defer action on it. The Tariff Dispute rules provide a unified time frame for decision: 90 days. The application shall be reviewed in the presence of the parties, with not less than five calendar days advance notice of the hearing. The Rules stipulate that, if other tariff violations are disclosed during the consideration of the dispute, the antimonopoly authority may take into account all the violations revealed in making its decision.

According to Deputy Head of FAS Russia, Sergei Puzyrevsky, these new procedures will improve the quality of federal control of tariffs.

JUDICIAL AND ADMINISTRATIVE PRACTICE

BAYER-MONSANTО TRANSACTION APPROVED

On April 20, 2018, FAS Russia announced the approval of the purchase of the American agricultural technology company Monsanto by Bayer AG of Germany. One of the conditions for the approval of the transaction, formulated by FAS Russia, was the requirement to transfer to the Russian operations certain agricultural technologies, including genetic lines, germplasm, and other related technologies.

Senior Vice-President of Bayer AG, Hartmut Van Lengerich, announced that according to the regulations, Bayer should also provide access to digital farming technologies, including digital applications and digital platforms. Bayer also plans to establish a scientific and training center for biotechnology, which will conduct educational programs for Russian specialists. The Technology Transfer Center, organized by the Higher School of Economics, will coordinate the transfer of these technologies. including the selection of the recipients and transfer processes.

FAS Russia considers that these requirements will support competition in the Russian market for seeds and pesticides. As noted by the agro-industrial complex chief of FAS Russia, Anna Mirochinenko, this approach will be applied to all similar transactions. Thus, the Bayer-Monsanto deal created a precedent in the Russian antimonopoly practice.

ARBITRATION COURT UPHOLDS FAS RUSSIA FINDING OF A 30-COMPANY BREATHING APPARATUS CARTEL

On April 26, 2018, the Arbitration Court of the Moscow District upheld the decision by FAS Russia that an agreement by suppliers of respiratory equipment to maintain prices at auctions and divide the market among themselves violated Article 11 of the Competition Protection Law.

Between 2013 and 2016 the cartel participants concluded more than 1,300 transactions at auctions for a total amount of more than 500 million rubles. Coordination of the activities of the participants in the cartel agreement was carried out by the open joint-stock company “Tambovgalvanotekhnika,” named by S.I. Livshits. The markets for breathing apparatus were pre-divided among the suppliers on a territorial basis, and transactions with customers were “booked” by the companies only at the time they were concluded.

INTERNATIONAL EXPERIENCE

DEVELOPMENTS IN EEU ANTIMONOPOLY LAW

On May 17, 2018, the Agreement on the Eurasian Economic Union (EEU), previously signed in Astana on May 29, 2014, was amended by the Board of the EEU Commission to introduce warning tools for antimonopoly regulations. The amendments empower the Commission to issue antimonopoly warnings to business entities and officials without first conducting an investigation. These mechanisms will allow the EEU Commission to respond promptly to possible violations and to allow potential violators a chance to eliminate them promptly, without penalties.

There also is a new format for better business collaboration in the EEU. The Public Reception was established under the Joint Action Plan with the national antimonopoly authorities to advocate competition in the EEU in 2018-2020. It is an effective mechanism for consultation with representatives from business communities about competition issues and responses to potential antimonopoly violations in the Union's cross-border markets.

THE EUROPEAN COMMISSION DISMISSED THE GAZPROM CASE

On May 24, 2018, the European Commission entrusted PJSC Gazprom with the obligation to provide unrestricted gas supplies at competitive prices to Central and Eastern Europe, in order to resolve the problems associated with ensuring competition in the gas markets. This decision is binding on Gazprom under Article 9 of the EU's antitrust Regulation 1/2003, On the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. In case of violations, the European Commission has the right to impose a fine on the company at the rate of 10% of its total turnover; and there is no obligation to prove a violation of antimonopoly law in such circumstances.

These restrictions from the European Union are not new for Gazprom. In April 2015, the European Commission warned the gas holding company about violations of the antimonopoly legislation. According to opinion of the European Commission, the strategy of dividing gas markets along the national borders among the eight European states can create financial barriers that impede the free movement of gas. This strategy, presumably, allowed PJSC Gazprom to set higher gas prices in five European countries (Bulgaria, Estonia, Latvia, Lithuania, and Poland). However, after the European Commission's decision of May 24, 2018, these violations must be eliminated.

PROPOSED REGULATORY AND LEGAL ACTS

DRAFT AMENDMENTS TO THE FEDERAL COMPETITION PROTECTION LAW

The draft law proposes amendments to Article 13 of the Competition Protection Law, by providing that certain agreements and concerted actions currently prohibited by Article 16 of the law could be recognized as permissible.

Currently the law is unclear about how to address agreements and concerted actions in the governmental sphere, when they lead or can lead to the prevention, restriction, or elimination of competition. Examples include agreements and concerted actions among federal executive bodies, state authorities of the constituent entities of the Russian Federation, local authorities, other bodies or organizations that perform the similar functions of these bodies. Other examples include agreements among state extra-budgetary funds, the Central Bank of the Russian Federation, and similar economic entities.

Under the proposed amendments, the Government of the Russian Federation would be able to evaluate and decide whether such agreements violate Article 13 of the Competition Protection Law by reference to the conditions and general exceptions specified in Paragraph 1 and 2 of Part 1, Article 13 of the act.

DRAFT PROCEDURAL AMENDMENTS TO THE REVIEW OF ANTIMONOPOLY CASES

A draft law would amend the Competition Protection Law with respect to several procedural areas affecting the review of alleged violations.

The amendments would provide would recognize the right of an employee of the competition authority to: review an alleged violation of the antimonopoly legislation independently; direct the procedural course of consideration of applications and case materials; and decide on the conduct of actions exercising control over compliance with the antimonopoly legislation. Exceptions would exclude cases in which the decision-making and related actions are directly assigned to the head of the antimonopoly authority or to a commission for review of the case.

The draft law also would establish that, if the antimonopoly body's order is appealed to an arbitration court, the antimonopoly authority's enforcement order shall suspended until the effective date of the arbitration court’s decision. This rule would not apply to a ruling by the antimonopoly authority issued to the state or to a local government. This exception is aimed at achieving one of the key provisions of the National Development Plan of Competition in the Russian Federation for 2018-2020, approved by Presidential Decree No. 618 of December 21, 2017, which is to reduce the number of violations of antimonopoly legislation by state authorities and local self-government bodies by 2020 at least twice as much as in 2017.