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Competition Law Bulletin (Issue 4, 2018)

EVENTS

RUSSIAN GOVERNMENT APPROVES METHODOLOGICAL RECOMMENDATIONS FOR ANTIMONOPOLY COMPLIANCE

In order to implement the National Plan, the Government of the Russian Federation approved, on 18 October 2018, the Methodological Recommendations for the creation and organization of an internal compliance system for federal executive bodies. These standards regulate the goals, objectives, and principles of compliance, and provide methods for identifying and assessing risks, such as a risk matrix and a risk map.

The Methodological Recommendations include the publication of antimonopoly compliance actions on the official website of an executive authority, as well as the creation of an authorized branch and a collegial body to oversee compliance and performance evaluations. They also propose recommendations to analyze detected violations, draft legal acts, and regularly monitor the application of antimonopoly legislation. The collegial body of FAS Russia would have the right to give official explanations about the typical violations committed by the federal executive bodies, based on its observations of general compliance practices.

PRESIDENT PUTIN SIGNS THE LAW UNIFYING THE STATE DUTY IN PRE-TRIAL CONSIDERATIONS OF TARIFF DISPUTES

On 12 November 2018, the President of the Russian Federation signed Federal Law No. 415-ФЗ, On Amendments to Article 333.33, Part Two of the Tax Code of the Russian Federation, which set a uniform amount of 120,000 rubles as the state duty for pre-trial resolution of disputes about regulated prices.

Previously, the size of the state duty, or fee, for making a decision in a pre-trial procedure in disputes related to the establishment and application of regulated prices (tariffs) was 160,000 rubles (in accordance with Russian legislation on natural monopolies and under sub-clause 123 of clause 1 of article 333 of the Russian Tax Code). However, another provision of the Tax Code (sub-clause 124) set a state fee of 80,000 rubles in tariff disputes between regulators and participants in the utilities sector. This inconsistency existed even though the scope of work and the results of FAS Russia actions are the same.

JUDICIAL AND ADMINISTRATIVE PRACTICE

SUPREME COURT SUPPORTS FAS RUSSIA IN THE NOVOROSSIYSK MARITIME TORGOVOY PORT AND PRIMORSKIY TORGOVYY PORT CASES

In 2016, the antimonopoly authority received an appeal from Rosneft PJSC, NK RussNeft PJSC, Russian Railways OJSC, and Tekhnotrans LLC about the economically and technologically unjustified cost of services in foreign currency for the transshipment of goods, which had been imposed by Novorossiysk Sea Trade Port PJSC (PJSC NCSP). In parallel, FAS Russia considered similar requests by Rosneft PJSC and NK RussNeft PJSC against Primorsky Trade Port LLC (PTP LLC).

During the examination of a cases initiated by the FAS Russia, it was established that PJSC NCSP and PTP LLC have a dominant position and had enjoyed an increase in the profitability of the provision of transshipment services of more than 250%. At the same time, the cost of services periodically increased by more than 60% due to the changes in the exchange rate. FAS Russia determined that the companies had abused a dominant position by setting and maintaining monopolistically high prices. Disagreeing with the decisions of the antimonopoly body, PJSC NCSP and PTP LLC appealed to the courts. The courts of three instances cancelled the decisions of FAS Russia, finding that the antimonopoly authority had incorrectly determined the boundaries of the commodity market, and that the analytical reports therefore lacked a proper study of comparable markets.

On 3 October 2018, the Supreme Court of Russia considered the appeals of the FAS Russia and Rosneft PJSC. It remanded the case of PJSC NCSP to the court of first instance for a new trial. In the case of PTP LLC, the decisions of the courts of lower instances were canceled; and the position of FAS Russia was recognized as legitimate and justified.

According to Supreme Court’s opinion, the conclusion by FAS Russia about the necessity to establish the borders of the ports of Novorossiysk and Primorsk as the geographical boundaries of the commodity markets are justified in view of the fact that information on PJSC NCSP and PTP LLC is contained in the register of natural monopolies, and because the companies are the only entities that provide services for oil transshipment in those ports. The fact that the state refused to regulate the price of companies for the provision of those port services does not mean that the market for these services is no longer a natural monopoly; nor does it indicate that the behavior of companies that have these natural monopolies are automatically exempt from compliance with the law if their pricing is removed from antitrust control.
PTP LLC and NCSP LLC have filed a supervisory appeal against the Supreme Court rulings.

SUPREME COURT INVALIDATES EXTENSION OF RENTS WITHOUT BIDDING

In 2000, the Property Survey Board of St. Petersburg rented the State Unitary Enterprise “Funeral Bureau of the Kolpinsky District” (the “Bureau”) for five years. The parties extended the lease agreement twice, in 2005 and in 2010. Funeral Service LLC did not agree with the last extension of the contract and challenged it in court; however, the court refused to satisfy the stated requirements for the reason that the lease agreement was concluded before the entry into force of the law requiring mandatory tendering for the conclusion of this category of contracts.

In 2016, the Specialized Funeral Service of St. Petersburg and the Leningrad Region LLC (the “Service”) appealed the extension of the lease agreement to the antimonopoly body and the court. According to the appeal, the Bureau illegally carried out activities in the above-mentioned premises without bidding, which is a violation of antitrust laws and creates discriminatory conditions in the funeral services market.
St. Petersburg OFAS Russia and the courts of three instances did not find any violation; and the Service filed appealed to the Supreme Court of the Russian Federation.

The Supreme Court canceled the lower courts’ rulings, and invalidated the decision of the antimonopoly authority. It confirmed that the rule of the Law on the Protection of Competition, which allowed an extension of a lease contract without bidding, had become invalid on 1 July 2013 with the adoption of the Federal Law of 2 July 2013 No. 144-ФЗ. Thus, the Bureau lost the right to extend the lease agreement without holding a bidding or auction for a new term.

INTERNATIONAL EXPERIENCE

15 MILLION EUROS PENALTY FOR APPLE AND SAMSUNG

In October 2018, the Italian Competition Authority assigned Apple and Samsung fines of ten and five million euros, respectively, for the planned obsolescence of their smartphones. Two comprehensive investigations by the Italian antimonopoly authority showed that firms use unfair commercial practices. According to the Italian antitrust authority, Apple and Samsung forced consumers to install software updates on smartphones that are not properly supported by the devices. Updates of the operating system caused serious failures and significantly reduced the performance of smartphones, thereby speeding up their replacement with new models. At the same time, neither company provided customers with any information about the impact of the new software, nor about the presence of any means of restoring the original functionality of the products.
The Italian antimonopoly authority began its investigation in January 2018 based on consumer complaints. At about the same time, similar cases were opened in France, the consideration of which has not yet been completed.

ANTIMONOPOLY AUTHORITY CONDITIONALLY APPROVES LINDE AND PRAXAIR MERGER

On 30 September 2018 the Chinese antitrust authority, the State Administration for Market Regulation (SAMR) approved without additional conditions the $82 million deal to merge Linde and Praxair, which are industrial gas producers in Germany and the United States.

On 22 October 2018, the United States Government approved the transaction, provided that the two companies would have to reduce assets in the United States in nine segments of the industrial gas market and sell two factories.
In August 2018, the conditional approval of the transaction was also received from the European Commission, which also indicated that companies would need to sell a number of assets in order to avoid price increases and the negative impact of the transaction on the state of competition in the industry.

Praxair should therefore sell its entire special gas business in the European Economic Area, as well as transfer its interest in the Italian joint venture to its partner company Flow Fin. Thus, Linde and Praxair are currently in the process of selling a significant portion of their assets.

PROPOSED REGULATORY AND LEGAL ACTS

FAS RUSSIA PREPARES NEW LEGISLATION ON THE ADMISSIBILITY OF PARALLEL IMPORTS

Pursuant to instructions by Prime Minister Dmitry Medvedev, FAS Russia has prepared a bill that would legalize the import of certain types of goods into the territory of the Russian Federation without the consent of the owners of trademarks. This project provides for the amendment of the Civil Code of the Russian Federation, which empowers the Government of the Russian Federation to authorize parallel imports of goods for up to five years from 2021, under the following circumstances:

  • The goods are not available, or their quantities are insufficient to meet demand in Russia;
  • Prices of the goods in Russia are too high; or
  • The goods substantially differ in quality from their counterparts sold in other countries.

An explanatory note to the drafting document mentions that at present the development of production and technologies in Russia does not fully satisfy the needs of people, at the expense of domestic resources. According to FAS Russia, the legalization of parallel imports can improve the state of competition and lead to lower prices.

In accordance with the Civil Code of the Russian Federation, only a holder of the trademark rights or an authorized dealer currently is allowed to import goods into Russia. At the same time, in February 2018, the Constitutional Court of the Russian Federation allowed the import of goods in the absence of the consent of the owner of the brand, if it resulted in setting high prices that were too high.