Competition Practice Newsletter (Issue 3, 2017)
NEWS AND EVENTS
9th ANNUAL CONFERENCE ON ANTITRUST REGULATION IN RUSSIA
On October 27, 2017, the Competition Experts Association and the newspaper Vedomosti, with the support of the Federal Antitrust Service of Russia (FAS Russia), held the 9th Annual Conference on Antitrust Regulation in Russia. The participants discussed timely issues such as: modern technological methods for the collection of evidence by the antitrust body; as well as new approaches in applying the institution of dominant subjects and in the investigation of anti-competitive agreements in cross-border markets. The participants summed up the major events and changes in antitrust regulations in 2017 and examined the prospects for further regulatory development in 2018.
Lawyers from the ART DE LEX antitrust practice, Yaroslav Kulik, Irina Akimova, and Kirill Dozmarov, were moderators for four of the conference sessions.
The Head of FAS Russia, Igor Artemyev, delivered the conference keynote speech. He paid special attention to the development of the regulatory mechanism governing damages caused by antitrust violators. These recoveries are based on private and collective claims and require a clear definition of the amount of damages suffered by the affected party. Mr. Artemyev noted that ensuring a synergy among antitrust control, private claims, and legal culture soon would become part of the antitrust authority's work strategy.
THE SUPREME COURT OF THE RUSSIAN FEDERATION ESTABLISHES A NEW APPROACH TO THE DETERMINATION OF THE LIMITS OF AUTHORITY OF THE ANTITRUST AUTHORITY OVER PURCHASING
On April 11, 2017 and on June 27, 2017, the Supreme Court of the Russian Federation (the Supreme Court), made decisions in case 304-КГ16-17592. In accordance with the decisions, the Judicial Collegium for Economic Disputes of the Supreme Court has created a new legal approach to determining the limits of the powers of the antitrust authority over purchases conducted in accordance with the Federal Law No. 223-FZ of July 18, 2011 On Procurement of Goods, Work, Services by Certain Types of Legal Entities (the Federal Procurement Law).
In particular, the Judicial Collegium noted that the antitrust body is authorized to receive and examine complaints only for those actions or omissions that are specified in Part 10 of Article 3 of the Federal Procurement Law. Thus, many of the actions of procurement customers are beyond the control of the antitrust authority.
In connection with the above decisions, on August 30, 2017, FAS Russia prepared and sent to the territorial authorities Information Letter No. IA / 59767/17, concerning the acceptance of complaints against the actions of subjects of procurement control under the Federal Procurement Law.
In this letter, FAS Russia drew attention to a changed approach for reviewing complaints. Complaints that allege a violation by the auction organizer of Part 10 of Article 3 of the Federal Procurement Law or of Article 17 of Federal Law No. 135-FZ of July 26, 2006, On Protection of Competition (the Federal Competition Protection Law), are still subject to review in the manner provided in Article 18.1 of the Federal Competition Protection Law.
Moreover, in this letter, the service drew the attention of territorial bodies to the provisions of Part 17 of Article 18.1 of the Federal Competition Protection Law, which allow the antitrust body to consider relevant matters beyond the arguments specified in a complaint.
In October, the Supreme Court considered several other cases related to the scope of authority of the antitrust authority when applying Article 18.1 of the Federal Competition Protection Law. For example, the Supreme Court established that the provisions of Article 18.1 the Federal Competition Protection Law, including Part 17, do not grant additional powers to the antitrust authority and cannot be regarded as expanding the list of grounds which the antitrust authority may consider in reviewing complaints. Instead, these provisions only allow for a decision on a procurement participant’s complaint, considering all violations against the principles of information transparency in procurement, as referenced in Section 3, Paragraph 10 of the Federal Procurement Law.
JUDICIAL AND ADMINISTRATIVE PRACTICE
FAS RUSSIA PRESIDIUM EXPLAINS APPROACHES TO THE CALCULATION OF LOSSES IN ANTITRUST VIOLATIONS
On October 11, 2017, the Presidium OF FAS Russia approved Explanation No. 11, On Determining the Amount of Losses Resulted from the Violation of the Antitrust Legislation (the Explanation), which was prepared jointly by the competition authority with the members of the Competition Experts Association.
The Explanation summarizes the existing methods for calculating losses, established in both Russian and foreign law enforcement practice, with regard to disputes involving the compensation for losses resulting from an antitrust violation. The main purpose of the Explanation was to build uniform approaches to the calculation of these losses.
Up to now there have been no specific methods for calculating losses. This is one of the main reasons why protection tools such as private claims were used so seldom. The Explanation will contribute to a more uniform and effective use of civil mechanisms to protect persons affected by antitrust violations.
THE COURT OF APPEAL OVERTURNS DECISIONS AND ORDERS OF FAS RUSSIA WITH RESPECT TO TWO STEVEDORE COMPANIES
In March and November 2016, FAS Russia considered two cases of possible violations by LLC Primorsk Oil Terminal (POT) and PJSC Novorossiysk Commercial Sea Port (NCSP) of Clause 1, Part 1, Article 10 of the Federal Competition Protection Law. FAS Russia found the companies guilty of antitrust violations, by establishing and maintaining prices for transshipment services. NCSP and POT appealed the FAS Russia decisions to the arbitration court to invalidate FAS Russia’s decisions and orders in the two cases.
The Court of First Instance granted both petitions and canceled the disputed decisions by FAS Russia. The antitrust authority then appealed to the Ninth Arbitration Court of Appeal, which, on September 28, 2017 and October 17, 2017, upheld the Court of First Instance’s decisions and dismissed the FAS Russia appeals.
Both courts noted that when FAS Russia examined the two antitrust cases, it incorrectly defined the geographic boundaries of commodity markets, incorrectly established the comparable markets, and made significant mistakes in the hypothetical monopolistic test.
NOTEWORTHY FOREIGN CASES
EUROPEAN COMMISSION FINED LITHUANIAN RAILWAYS
On October 02, 2017, the European Commission fined Lithuanian Railways (Lietuvos geležinkeliai) an amount of EUR 27,873,000 for hindering competition in the rail freight market, in breach of European Union’s antitrust rules, by removing a rail track connecting Lithuania and Latvia.
Lithuanian Railways is the state-owned rail company in Lithuania. The company is vertically integrated, meaning that it is responsible for both railway infrastructure and rail transport.
At the beginning of 2008, Orlen, a major commercial customer of Lithuanian Railways, considered redirecting its freight from Lithuania to Latvia by using the services of another rail operator. In October 2008, Lithuanian Railways dismantled a 19 km long section of track connecting Lithuania and Latvia, close to Orlen’s refinery. The removal of the track meant that Orlen would need to use a much longer route to reach Latvia.
The European Commission’s investigation found that these actions by Lithuanian Railways hindered competition on the rail freight market by preventing a customer from using the services of another rail operator. These actions are in breach of Article 102 of the Treaty on the Functioning of the European Union, which prohibits the abuse of a dominant market position.
In addition to imposing a fine, the Commission’s decision requires Lithuanian Railways to end the infringement and refrain from any measure that has the same or an equivalent object or effect.
EURASIAN ECONOMIC COMMISSION TAKES THE FIRST DECISION ON PROTECTION OF COMPETITION IN THE TRANSBOUNDARY MARKET OF THE EURASIAN ECONOMIC UNION
In its decision dated September 26, 2017 in Case No. 22-AS-01, the Board of the Eurasian Economic Commission (the “EEС”) found PJSC NLMK and LLC VIZ-Steel in breach of Subparagraph 6, Paragraph 1, Article 76 of the Treaty on the Eurasian Economic Union.
The EEC established that PJSC NLMK and LLC VIZ-Steel (who are part of the same group and operate in Russia, Belarus, and Kazakhstan) held a dominant position in the anisotropic electrical steel market with a market share of 99.9%. From January 1, 2015 to June 30, 2016, when selling certain steel grades in Belarus and Kazakhstan, PJSC NLMK and LLC VIZ–Steel established an additional macroeconomic risk factor that changed monthly and could reach 23% of the base price. The use of such an economically unreasonable additional condition in the sale of products increased the ultimate price of the goods. Thus, the companies abused their dominant position, creating discriminatory conditions for consumers in these republics.
By their actions, the monopolists could have caused Kazakh and Belarusian producers of transformer equipment, which uses anisotropic electrical steel, to exit the market, as the former knowingly put the latter at a disadvantage in comparison with the Russian producers of the similar product.
PJSC NLMK, LLC VIZ-Steel, and two officials, were fined a total of more than RUB 217 million. The companies have been also slapped with an order prohibiting them to establish discriminatory conditions against any customers registered in the Eurasian Economic Union countries.
LEGISLATIVE AND REGULATORY PROJECTS
DRAFT FEDERAL LAW TO IMPROVE REGULATION OF PROPERTY TRADES WITHIN THE FRAMEWORK OF THE PROCUREMENT LEGISLATION
A draft law would amend Federal Law No. 44-FZ, On the contract system in the sphere of procurement of goods, works, services to ensure state and municipal needs. The draft legislation would establish a single procedure for all forms of property auctions, which currently are regulated by two dozen different regulatory acts. The draft Federal law provides for the regulation of the procedure for property auctions and the alienation of non-core assets of legal entities.
The proposed amendments envision the introduction of a single list of requirements for bidders; bids for participation in tenders; grounds for refusing admission to participation; consideration of account industry specifics recognized in other regulatory legal acts; and the creation of a single register of unscrupulous participants in property auctions.
DRAFT FEDERAL LAW TO IMPROVE THE ADMINISTRATIVE RESPONSIBILITY IN THE SPHERE OF STATE DEFENSE ORDER
A draft Federal law would impose administrative responsibility on officials who place a state defense order from a single supplier (including a contractor or performer) if the selection of the supplier should be made through competitive procedures.
The draft Federal law would introduce the administrative liability provisions of Article 4.1 of the Code of Administrative Offenses of the Russian Federation into the procurement process, imposing liability on officials and legal entities who make changes in the terms of a state contract under the state defense order that are not authorized by Russian law.
This legislation is intended to discourage violations by state customers and chief executives in defense-related procurement.
DRAFT FEDERAL LAW TO IMPROVE THE PROCEDURE FOR BIDDING UNDER THE FEDERAL PROCUREMENT LAW
Currently the Federal Procurement Law does not explicitly prohibit the participation in public procurement by persons who are affiliated with the customer. The draft legislation is designed to solve this problem, which can lead to abuse.
It would establish specific indicators of the existence of a conflict of interest between the procurement participant and the customer. The proposed legislation also would require that the purchaser must inspect the procurement participants for compliance with these rules.