Competition Practice Newsletter (Issue 7, 2014)
Recent events in Russian competition law
Russian President approves amendments to foreign investments law
On 4 November 2014, Russian President Vladimir Putin approved Law 343-FZ which amended Federal Law 57 of 29 April 2008, About foreign investments in economic entities that have strategic significance for the national defense and security. The amendments went into effect on 6 December 2014.
The new legislation is intended to enhance the monitoring of foreign investments in Russian strategic business entities. The amendments further define the scope of regulations on foreign investments in strategic activities, fix the list of activities of strategic importance for the Russian national defense and State security, narrow the list of transactions that required provisional approval, and introduce other benefits for foreign investors.
Click here for more details about this legislation.
State Duma adopts fourth antitrust legislative package
On 23 October 2014 the Russian State Duma adopted, on the first reading, the fourth legislative package of amendments to the Federal Competition Support Law (Federal Law 135 of 26 July 2006, About competition support) and other related statutes of the Russian Federation.
The draft bill was worked out during three years by the Federal Antimonopoly Service, together with the representatives of the business community, non-governmental organizations, and legal experts.
The fourth antitrust package is intended to support competition, advance antitrust policy, limit the administrative interference with market operations, and decrease the administrative burden on businesses.
Click here for additional information and analysis from ART DE LEX.
FAS initiates antitrust proceedings against four oil companies
The Federal Antimonopoly Service has commenced a case against four major oil companies: ANK Bashneft JSC, Rosneft JSC, Lukoil JSC, and Lukoil-Reservneft Product LLC. The companies are accused of stock market manipulations, in violation of the Article 4 of the Competition Support Law.
The case arose from an FAS investigation of price increases for gasoline, as recorded in the electronic tenders system from January to September 2014. The FAS also noted a number of fast transactions on diesel made by ANK Bashneft JSC and bought by Rosneft JSC and Lukoil-Reservneft Product LLC.
Kirill Dozmarov, an associate in the ART DE LEX competition law practice, points out that these proceedings could pose a risk of significant administrative sanctions agains the companies and their management, as well as damage to their reputations.
Russian Railways complies with FAS recommendations on logistics control
In order to comply with FAS recommendations, Russian Railways JSC has ordered its subsidiaries to end restrictions on cargo shipments and rolling stock that are not authorized by legislation.
The FAS recommendations resulted from the claim by Ural Steel JCS against Russian Railways, which has the status of a "natural monopolist." Ural Steel had contracted with Russian Railways to transport its products. However, Russian Railways then refused to accept some of the cargo, citing its "logistics control" restrictions on cargo shipments from 15 railway stations. These restrictions specified the number of freight cars that could be accepted at each of the stations and limited the consignees for some addresses. For example, coal shipments from the stations of the West-Siberian Railway to the Lujskaya railway station could be accepted only for the Universal Handling Facility LLC at the Rosterminalugol address.
This resulted in Ural Steel having to pay compensation to the owners of the rolling stock for the detention of the shipments, as well as to Russian Railways for occupying the railway lines.
The FAS determined that this practice by Russian Railways JSC violated Articles 10.4 and 10.5 of Part 1 of the Competition Support Law.
Competition litigation and administrative disputes
Supreme Court decreases the turnover-based penalty 247 times
The Supreme Court of the Russian Federation has cut the RUB 2 million penalty, previously imposed by the Federal Antimonopoly Service on Russian Railways JSC, in 247 instances.
The decision was in compliance with the Decree 4-P the Constitutional Court of the Russian Federation, dated 25 February 2014. Businesses had complained that the turnover-based penalties, imposed by the Federal Antimonopoly Service in administrative enforcement procedures, were excessive. The Constitutional Court agreed, stating that the penalty for competition law violations should correlate to the administrative nature of the violation, the gravity of the case, the consequences of the violation, and the degree of culpability, while at the same time to taking into account the property and material position of the violator.
The Constitutional Court has upheld the principle that the rule of law applies to corporate legal entities as well as natural persons, and legal obligations imposed on legal entities must be in accordance with the Constitution of the Russian Federation. It has also supported the reduction of minimal administrative penalties, the consideration of less drastic alternative sanctions, and the differentiation of administrative penalties for different types of legal entitles.
The Russian Railways JSC relied on these principles in asking the Supreme Court to review FAS penalties, which Russian Railways claimed would have amounted to three times the total annual income of the company.
Appeals court upholds FAS decision in Aushan LLC discrimination case
In November 2014, the Ninth Arbitration Court confirmed a 2013 decision by the Federal Antimonopoly Service against Aushan LLC for violating Article 13.1, Part 1 of Federal Law 381-FZ, About the basic national trade regulations in the Russian Federation, dated 26 December 2009.
Aushan LLC conducted a policy of discrimination against the producers of milk and milk products, by imposing different charges for the same services to promote and increase sales of dairy products. In 2011, Aushan set its charges for these services according to turnover. Beginning in 2012, however, Aushan established a fee structure that was based on the identity of the customer. Aushan contended that this policy was protected by "the freedom of contract." The FAS disagreed.
Aushan LLC was accused of 85 cases of administrative legislation violation and, after 31 hearings, was penalized RUB 2 million for each case, for a total of RUB 62 million.
Moscow Arbitration Court dismisses a claim by SK Torgovlya LLC against Metro Cash & Carry LLC
On 28 November 2014, the Moscow Arbitration Court dismissed the claim of the producer of fish products, SK Torgovlya LLC, against Metro Cash & Carry LLC.
SK Torgovlya contended that Metro Cash & Carry had violated the antimonopoly laws by making different charges for the identical services, discriminating against SK Torgovlya's fish and fish products. Metro Cash & Carry allegedly enjoyed benefits of RUB 167 million, as well as use of the interest on RUB 39 million in profits.
The Arbitration Court decided that SK Torgovlya's claim was baseless, because Metro Cash & Carry provided the full services promised, by publishing advertising leaflets and magazines, as well as special advertising events. Moreover, SK Torgovlya LLC was not dissatisfied with the quality and amount of the services delivered by Metro Cash & Carry, but only the price.
Noteworthy foreign cases
Apple agrees to pay US$ 450 million to settle e-book price fixing case
Apple has agreed to pay US$ 450 million to settle a class action lawsuit that alleges that the company unlawfully agreed with five major publishing houses to set the price of electronic books. This allegedly resulted in a price increase of US$ 2 to US$ 3 per book, with approximately 23 million customers being forced to pay the inflated price.
On 21 November 2014, U.S. District Court Judge Denise Cole approved the settlement, which is conditioned on the outcome of Apple's pending appeal of the 2013 verdict in United States v. Apple, et. al., 12 Civ. 2826 (U.S. District Court, Southern District of New York), in which Judge Cole found that Apple and its co-defendants had unlawfully conspired to fix prices. That appeal is expected to be decided in by the U.S. Court of Appeals in 2015.
European internet providers penalized EUR 70 million for limiting competition
The European Commission has penalized Deutsche Telekom and its subsidiary Slovak Telekom in an amount of slightly more than EUR 70 million for blocking access to the internet market in Slovakia.
For five years, as a part of its business strategy, Slovak Telekom effectively blocked access to the market for internet services. The EU Commission found this conduct to be harmful to competition and to customers.
The fine included a punitive amount of approximately EUR 31 million levied specifically against Deutsche Telekom as a sanction against its repeated abusive behavior, as it had already been fined in 2003 for a margin squeeze in broadband markets in Germany.
Legislative projects
Amendments to the Federal Law 126-FZ dated July 7, 2003, About network
These amendments limit technological and technical discrimination in services and software applications. They also limit any discriminatory prioritization of services such as traffic limits, different security restrictions, and traffic management requirements.
Amendments to Article 37 of the Federal Law 135-FZ dated July 26, 200, About Competition Support
Under this legislation, a person whose rights and interests under Russian antimonopoly law were violated may choose, as an alternative to compensation determined by the Civil Code of the Russian Federation, a payment in an amount between 1% and 15% of the cost of the product that was illegally sold. This alternative compensation would specified by the court and would depend on the nature of the infringement.
Russian Federation Decree 1072, dated October 18, 2014, About financial organizations assets that are controlled by the Central Bank of the Russian Federation, in order to conduct antimonopoly control
The decree specifies the costs of assets and the total costs of financial organizations, to be included on balance sheets for the last reporting date preceding a request for FAS approval of certain transactions under Articles 27 and 29 of the Competition Support Law.
FAS Decrees
- FAS Decree 627/14 dated October 8, 2014, About the FAS plan of action on advancement of the existing system of providing financial aid to farmers, and aimed to support competitiveness for the 2014-2015 year
- FAS Departmental Decree About the order of applications and references processing in human resources departments that support preventive measures on corruption and other types of violations made by FAS officials
- FAS Departmental Decree About the order of processing of complaints on acts or failures to act by a customer in the purchase of goods, work or services