Competition Practice Newsletter (Issue 5, 2014)

Supreme Arbitrazh Court of the Russian Federation voids FAS Russia guidelines on unscheduled inspections

On 24 June 2014 Supreme Arbitrazh Court, in the case of Argus-Spectr JSC, VAS 7907/2013, voided the guidelines for on-site inspections by the Federal Antimonopoly Service (FAS Russia) and its territorial agencies. These procedures were intended to apply to both scheduled and unscheduled inspections to monitor compliance with antimonopoly legislation. FAS Russia issued them to its territorial entities by FAS letter IA/48530, dated 26 November 2011. However, the Supreme Arbitrazh Court ruled that this was not a valid registration of the applicable legislation and therefore had no legal force.

The court reasoned that, in accordance with Paragraph 2 of the Interpretation of the Application of the Rules of Preparation of Statutory Acts of Federal Executive Authorities and their State Registration, approved by Ministry of Justice Order 88 of 4 May 2007, the publication of legal acts in the form of letters is not permitted. They are subject to state registration by the Russian Ministry of Justice, which maintains the State Register of statutory acts of federal executive bodies. FAS Russia argued that the guidelines are not mandatory, but only recommendations, and had been published in legal databases.

The Supreme Arbitrazh Court therefore ruled that FAS Russia acted beyond its authority in adopting the inspection guidelines, which contained new normative rules for the enforcement of Russian competition law. However, the judges did not address a fundamental question of the legality of conducting inspections before the commencement of an action for violation of antitrust laws, absent any other sanctions, nor the controls and scope of such inspections.

The Head of the Anti-Cartel Department of FAS Russia, Andrei Tenishev, has stated in an interview that the judgment of the court does not affect the unscheduled inspections of his agency, because during the inspections FAS Russia follows the federal law Оn Protection of Competition.

FAS Russia prepares draft law on compensation to victims of antitrust violations

At the end of June 2014, FAS Russia presented for public discussion a draft law that would allow victims of violations of antitrust laws to seek compensation of up to 15% of the value of goods or services involved in the violation, instead of the compensation now authorized by the Civil Code.

Current legislation does not provide effective mechanisms to calculate these damages. An analysis of these cases demonstrates that, in most instances, it is impossible to prove the actual amount of damages using the Civil Code. The draft law proposes to give a person whose rights and interests have been affected as a result of violation of antimonopoly legislation, the right to request compensation ranging from 1% to 15% of the value of goods or services provided in violation of the antitrust laws. This amount would be calculated by the court based on the character of the violation, rather than by reference to the damage calculation method under the Civil Code.

The draft law is linked to Paragraph 7 of the Roadmap for the Development of Competition and Improvement of Antitrust Policy, which provides a number of measures to improve the protection of consumers’ rights, including the establishment of multiple damages for violation of antitrust laws. The draft law is expected to be submitted for discussion to the Government of the Russian Federation in October 2014.

FAS Russia finalizes Civil Code amendments on legalization of parallel imports in Russia

In 2013, after discussion in the Russian Government of the provisions of the draft law on legalization of parallel imports, the participants decided to amend several provisions of the Civil Code in order to resolve the most controversial issues. The proposed amendments would change the current national principle of exhaustion of the exclusive rights to an international one. Under the national principle, the sale of branded products to other persons is permitted only under permission of the proprietor; under an international principle, the proprietor loses the exclusive rights to the product immediately after the initial sale.

Proponents of the amendments want to legalize parallel imports, deleting from Article 1487 of the Civil Code the provision that the use of a trademark inside Russia is not an infringement of the exclusive right; provided it happened after the product was put into distribution in Russia, or after someone obtained the right to use it directly from the trademark holder.

Currently a branded product can be used in the Russian Federation by the titleholder or with his or her permission. Otherwise, the product is considered by the law to be counterfeit. However, if the titleholder has distributed products with its trademark in Russia, or they were distributed by other business entities with the consent of the holder of the brand, the use of the trademark by other persons is not a violation of the Russian law.

Amendments prepared by FAS Russia propose to allow the use of trademarks on products regardless the place of original distribution of goods. Consequently, the use of products lawfully entered into distribution abroad also will not infringe the exclusive rights of the copyright holder. The draft law, however, still leaves the titleholder the ability to restrict or even ban the importation of goods into the territory of Russia, which the titleholder has distributed abroad, if the titleholder organizes the production of similar products in that country.

The drafters of the amendments mention that the economic needs of Russia are motivating a move to an international principle of exhaustion of rights, because the level of production and technological development are inadequate to satisfy consumer demands from domestic sources.

The discussion about the introduction of parallel imports in Russia has already been developing for a long time, and the issue still causes debate about the efficiency and feasibility of the legalization of parallel imports in our country. Some experts believe that the proposed consolidation of the international principle of exhaustion of rights might result in a loss of profits as the global restructuring of business models continues in Russia

FAS Russia considering Quick Look system to speed up government procurement cases

The 4th Saint Petersburg International Legal Forum, held in June 2014, presented many ideas to contribute to the development of antitrust regulation in Russia. FAS Russia offered one of the more interesting ones. The head of FAS Russia, Igor Artemyev, introduced a “Quick Look” mechanism for government procurement cases. The goal is to reduce the time required to review antitrust disputes in the Russian courts.

Quick Look would assume that if a decision of the higher court was made on a particular type of case, the court proceedings on other similar cases should not take longer than one month and should not provide the possibility for parties to appeal. The advocates of the Quick Look mechanism, which is used by some Western countries, believe that it primarily should affect the area of government procurement.

FAS Russia experts note that this system will increase the practical ability of economic entities to defend their rights and interests more cost-effectively against misjudgments by the antimonopoly authority in government procurement cases. As Mr. Artemyev notes, currently 95% of the FAS Russia decisions have not been appealed, as often there is no reasonable basis for appeal. However, when a case is appealed to court, it typically lasts about nine months. During this time the fiscal year ends, and budget money remains unspent.

The drafters of proposed legislation will consider the results of a detailed study of the American practice of using a similar mechanism, as well as the views of legal experts in this area and the judicial community. FAS Russia has tried before to simplify procedures for reviewing government procurement cases, but the judicial community did not agree with those proposals.

Meanwhile, the both the prescribed deadlines and actual time for consideration of regular case in Russian arbitrazh court are among the shortest. Western countries, in which proceedings can last for years, have already noted the relative effectiveness of the Russian judicial system to resolve commercial disputes, as measured by the number of cases that the appellate courts review. 

Suppliers of fish products file lawsuits against Metro Cash & Carry for compensation of damages

North Company JSC and Russian Fish Company JSC have gone to the Moscow Arbitrazh Court to claim RUB 211 million as compensation for damages caused by the Metro Cash & Carry hypermarket by imposing sham contracts for advertising and marketing services.

FAS Russia had recognized that Metro Cash & Carry violated Paragraph 1 Part 1 Article 13 of the Federal Law 381-FX (28 December 2009) On principles of State Regulation of Trade Activity in the Russian Federation. A commission of FAS Russia determined that Metro Cash & Carry created discriminatory conditions for suppliers, making the cost of services aimed to promote and increase sales of food products dependent on the turnover under the supply agreement.

Until now, Russian businesses that suffered damages from antitrust violations have not actively defended there interests. They feared losing stability in their relations with the monopolists and other entities that hold the market power under the circumstances. If the new Supreme Court of the Russian Federation leaves in force the judicial actions in the Metro Cash & Carry case, this will probably encourage other suppliers from other business sectors to assert their claims for compensation.