Competition Practice Bulletin (Issue 4, 2019)

EVENTS

MOSCOW TO HOST THE SIXTH BRICS COMPETITION CONFERENCE

On 16-19 September 2019, Moscow will host the Sixth BRICS Competition Conference.

The approved Agenda of the Conference includes discussions over competition issues in food production, the automobile industry, and the digital and pharmaceutical markets of BRICS countries.

On top of that, the Conference will facilitate events on the issues of competition enforcement in state procurements and cross-border economic concentration transactions, as well as competition matters faced by natural monopolies and state corporations.

The core event of the conference is the 2nd Eurasian Cartels Forum (Forum) an event focused on issues of cartel enforcement on both national and international levels, with criminal liability and relevant applied issues of cross-border investigations among questions for the discussion.

Yaroslav Kulik (Partner, Advocate, and the Head of the ART DE LEX Competition Practice) will host a business event “Proceedings of Biddings and Cartel Enforcement Cases and the Use of Designated Software.” This will include a lively discussion among speakers and guests of the Cartels Forum.

Representatives of the foreign competition authorities and state bodies, representatives of industry, and legal consultancy and legal doctrine practitioners are due to take part along with representatives of Federal Antimonopoly Service of the Russian Federation (FAS of Russia).

EURASIAN ECONOMIC COMMISSION PRESENTS A REPORT ON THE REGULATION OF BLOCKCHAIN AND CRYPTOCURRENCY 

On 22 July 2019, Eurasian Economic Commission (EEC) presented a report, Cryptocurrencies and Blockchain as Attributes of the New Economy - Developing Regulatory Approaches: International Experience, Practice of the EAEU Member States, and Prospects for its Application in the Eurasian Economic Union.

The Report is the first official document presented by the EEC on the matters of blockchain and cryptocurrency stating official position of the international organization. The debates on it took two years from 2017 to 2019, with a series of talks between and among state bodies, businesses, and academia of the EAEU member states. It is now official and final.
Lack of a reliable climate for the commercial activity in these areas is due to what the Report describes as a negative information environment, an unsystematic sense in the decisions taken by the member states, and uncertainty in the enforcement of criminal laws on the matter.

The EEC suggests two alternative ways to deal with those problems:

1. Craft brand-new legislation to provide “umbrella” coverage these issues and which would consider the new economic realities of blockchain and cryptocurrency transactions.
2. Apply legislation already in effect to matters of blockchain and cryptocurrency.

The Report contains a United Glossary, a recommended document that introduces and defines the concepts of the theme and core principles of state regulation.

The EEC is determined to continue discussions with interested parties, concerning both the matter of the United Glossary’s terminology and the peculiarities of each state’s regulatory mechanisms.

With its publication, the EAEU has become the first integrational union that has enabled the creation of a harmonized international legal system for the use of cryptocurrencies and blockchain technologies.

AMENDMENTS TO THE LAW ON THE STATE REGULATION OF TARIFFS IN THE ELECTRIC ENERGY MARKET

On 2 August 2019, President Putin signed a Federal Law that amended Article 23.1 of the Electric Energy Law. The amendments eliminated the right of regional authorities to set electricity supply tariff levels outside the maximum or minimal levels set by the Federal Antimonopoly Service of Russia (FAS Russia). It is said that the new legislation was prompted by the fact that over 15% of decisions about electricity supply tariffs were outside the range set by FAS Russia.

The new law says that use of minimal tariff levels can be implemented if the regional authority fails to act or adopts tariff levels beyond the permitted range.
The new law further provides that, beginning on 1 January 2023, the electric energy supply will be set on a “longshot” basis, with a five-year term of supply as a starting, “take-off,” point.

LEGAL AND ADMINISTRATIVE PRACTICE

THE SUPREME COURT OF RUSSIA REJECTS FAS RUSSIA APPEAL IN A COUNTRY-OF-ORIGIN DISPUTE WITH A DEFENSE CONTRACTOR

On 20 March 2018, the Federal Antimonopoly Service of Russian Federation issued a Competition Enforcement Act, arising from its review of actions of Ural Radiostations JSC in a defense-related procurement. The company allegedly violated provisions of the Article 8(3) of the State Defense Contract Law. FAS Russia viewed the cornerstone of the violation as a disregard of the electronic bidding documentation requirements for the country-of-origin information about the goods.

The Ural Radiostations is a sole producer of the special communication equipment bearing the “Erica” trademark. It is the only entity capable of supplying the items that were the subject of the procurement that is the subject of the case. FAS Russia claims that the Ural Radiostations purchased several Chinese-origin radio transceivers, made by Hytera, and upgraded these products. After the upgrade, the transceivers were delivered to the end-user under the Erica brand. That said, in vision of the FAS components of the goods under the biddings are of non-Russian origin

During multi-stage litigation proceedings, the courts were unanimous that FAS Russia’s actions against Ural Radiostations were unsubstantiated, both on the basis of a formal legal analysis and on the face of the legally relevant facts in the case. Among other elaborations, courts declined FAS argument on the overall fact of the supply of foreign commodities. As a result of this hearings, it was declared that both a Decision and a Competition Enforcement Act are to be deemed null and void.

It was further noted, that if a bidding procedure contained a country-of-origin requirement for the goods to be supplied and a commodity of non-Russian origin was discovered in a bidding application, the contracting authority has but one option: to decline this bidding application, nothing more. Other statutory legal consequences shall not be applied.

On 2 July 2019, the Supreme Court Justice ruled over a cassation claim of FAS of Russia on a lower courts rulings and declined it. The Claim would not be heard before the Economic Dispute Collegium of the Supreme Court of the Russian Federation.

INTERNATIONAL INSIGHTS

THE EEC TAKES A SETTLEMENT-ORIENTED APPROACH WHILE RULING OVER A CROSS-BORDER TRADEMARK DISPUTE

In August 2018, the Eurasian Economic Commission received materials submitted by the Ministry for Antimonopoly Affairs of the Republic of Belarus.

Previously, a Russian company had submitted a complaint of unfair cross-border competition arising from actions of a Belarussian company. The Russian company planned to expand to Belarus, but it discovered that a local company registered and used a trademark that was confusingly similar to that of the Russian company. This circumstance made expansion into the Belarussian market difficult.

At the same time, both companies were legitimate in their title execution over the registered TMs. The key difference is the fact that the Russian company registered its TM way earlier than that of Belarus.

The EEC suggested, and the Companies agreed, to enter into an agreement for the transfer of the trademark rights and other license details. The agreement provided for the transmission of the title to the trademark in Belarus, followed by amendments to the State Register of Trademarks and Service Marks of the Republic of Belarus.

The EEC authorized these measures after consulting with two companies and the competition authorities in Russia and Belarus. The proceedings ended and the Russian company withdrew its complaint.

This is the first case of the EEC using the preliminary dispute settlement procedures authorized by the EEC Council Decision No. 39, On Amendments to the Procedures of Application and Submission Review in a Cross-Border Competition Enforcement Proceeding (18 April 2018). As stated in Paragraph 13.1 of the amended version of the Decision, the EEC now has an option of preliminary settlement, should the initial grounds for the offence be verified. Before it takes effect, any such preliminary settlement must be authorized by the parties and the authorized state bodies of the member states involved.

AB INBEV BEVERAGE COMPANY NOW FACING A 200.4 MILLION EURO FINE

The European Commission as imposed a 200.4 million euro fine against Anheuser-Busch InBev NV/SA (AB InBev) for violating EU competition laws.

AB InBev is one of the largest beverage producers in the world. The company’s most popular alcoholic beverage in Belgium is Jupiler beer, which has a 40% share of the market. Jupiler is distributed in other EU countries, such as the Netherlands and France. Because of the high levels of competition in the Dutch beer market, AB InBev is forced to supply Jupiler to the Netherlands at prices lower than those of Belgium.

The European Commission concluded that AB InBev abused its dominance in Belgium by depriving supermarkets and wholesalers from acquiring Jupiler beer in the Netherlands, at the lower prices, and then importing it into Belgium.

The company’s ban on imports to Belgium were enforced by the following measures: :

1. Packaging restrictions (design, size, no use of French on the packages or containers);
2. Limits on the amounts supplied to wholesale customers in the Netherlands;
3. Limits on the supply of Jupiler beer to the Dutch retailers conditioned on the retailers’ undertakings not to export it to Belgium; and
4. Ae endorsement of the advertisement campaign for clients in the Netherlands without any Belgian operations.

The EU Commissioner on Competition, Margareth Vestager, commented that the Belgian consumers were forced to pay more because of AB InBev’s malpractice by limiting the cross-border supply between Belgium and the Netherlands. Any attempts of the Entity in the Position of Dominance to overcharge its consumers are illegal.

UPCOMING DEVELOPMENTS

DRAFT GOVERNMENT RESOLUTION ON EMINENT DOMAIN OVER INTELLECTUAL PROPERTY AND COMPENSATION TO THE RIGHTS HOLDER

In Spring 2019, the Federal Antimonopoly Service of Russia introduced a Draft Government Resolution, On Proceedings over a Decision on the Introduction of Eminent Domain over the Rights Holder’s Intellectual Property and Compensation for it. The Resolution would allow eminent domain over privately-held intellectual property, using a compulsory license, as an option if issues of national security or public health are at stake.

In June 2019, the Ministry of Economic Development published its Regulatory Effect Opinion on the Draft and quashed the FAS Russia proposal. The pertinent documentation is published on Russia’s legal information hub www.regulation.gov.ru.  

The Ministry notes, that Article 1360 of Russia’s Civil Code has no grounds for the eminent domain licensing due to the public health concerns. On top of that, the Draft does not have an amount of compensation due to be paid to the right holder should the decision on enabling of IP Eminent Domain take place. Lack of legal certainty on the matter of factors that in its complexity may contribute to the start of procedure and lack of certainty on the matter of competitive selection procedure (one that would determine an entity in possession of a compulsory license) are of serious concern to the Ministry.

There also are flaws in the Draft beyond the issues pointed out in the Regulatory Effect Opinion. Therefore, FAS Russia will need to amend the Draft significantly if it is to advance.

DRAFT GOVERNMENT RESOLUTION TO EXTEND CERTAIN GENERAL EXCEPTIONS FOR ANOTHER TEN YEARS

Article 13(2) of the Competition Law authorizes the Government of Russia to determine what types of agreements between entities are allowed. These are known as general exceptions. This is a development arising from Article 11(2-4) and Article 16 of the Competition Law.

In 2009, the Russian Government adopted a Resolution that governs these general exceptions and sets a ten-year time limit for vertical agreements and agreements between entities that operate in a joint research and development sphere and jointly use scientific research results.

As the ten-year time limit comes to an end, the Government has introduced a draft of a Government Resolution to extend the limit for up to 2029, without any amendments to other provisions of the Resolution. No suggestions on the content of the Draft were submitted or presented by interested parties. The Draft is now facing an anticorruption expertise.