Competition Practice Newsletter (Issue 5, 2016)
NEWS AND EVENTS
FAS Russia for the first time may establish price regulation in the market of freight cars
On 15 July 2016, FAS Russia prepared a draft of “Methods for determining monopolistically high or low price on railway rolling stock”.
The Federal Antimonopoly Service (FAS Russia) proposes to apply these methods to operators of railway rolling stock who occupy a dominant position in cases when it necessary to analyze and evaluate the reasonable necessity of service cost on carriages. FAS Russia will calculate the profit using the comparative market analysis.
According to the draft, the object of analysis and determination monopolistically high or low service cost will be the effective rate of operating (a rate of providing carriages per day for transportation under the contract of operating), and main conditions, which the rate forms under, competitive rate (if exists) and standard rate of operating.
Analysis of monopolistically high/low rate of operating includes the following steps:
- to analyze the competitive situation (the state of competition) in the commodity market;
- to determine freight, type of rolling stock and directions of transportation;
- to compare rate of operating with competitive rate and (or) with amount of costs and profit (standard rate of operating);
- to prepare an analytical report; to monitor the dynamic of rate of operating and main conditions, which the rate forms under.
FAS Russia proposes to consider a service price as a monopolistically high/low price, in case ifthe service price is higher/lower that amount of cost for it, and if it is higher/lower than price, that formed within the competitive situation in the commodity market, comparable to the types of buyers or sellers of the goods, if there is such comparable market.
According to ART DE LEX head of group Competition practice Kirill Dozmarov, it is necessary to take into account that FAS Russia’s proposed methods are not de jure the regulation of pricing in the operating market. At the same time, de facto, proposed methods limit the margin of railway operators business through fixing the maximum standard of profitability. It is unclear how it relates with previous deregulation of rail transportation operating segment. And how it relates with the fact that under the Competition Protection Law operators still have the right to submit economic proved calculations of necessary profitability and of prices on freight cars.
“Anti-crisis” draft law went into effect
On 4 July 2016, Federal Law 264-FZ, On Amendments to the Federal Law “On Protection of Competition” and some legislative acts of the Russian Federation went into effect. These amendments allow to reduce administrative burden on small business, and also allow the Federal Antimonopoly Services to focus on significant cases, which have more significant influence on competition.
The changes include a reduction bases unscheduled inspections of small businesses. Yule inspection upon the request of legal entities and individuals will be conduct after consultation with prosecution office. The exception was the inspection of cartels, for them will preserve the existing order of "sudden" inspection. It will not concern the natural monopolies, financial institutions and companies with governmental participation.
These changes will essentially improve small business enterprises through reducing of excessive antimonopoly control.
JUDICIAL AND ADMINISTRATIVE PRACTICE
Court of Appeal upholds FAS Russia’s position in the Google case
On 17 August 2016, Ninth Arbitration Court of Appeal upheld FAS Russia’s decision in the case concerning the abusing by Google Inc. its dominant position in the market of applications store for Android.
The Antimonopoly Service and American company could not reach an amicable agreement. FAS Russia fined Google Inc. in amount of 438 million rubles that the company abused its dominant position in in the market of applications store for Android.
FAS Russia examined the request of Google Inc. and Google Ireland Limited on the prolongation of period to perform the order from 1 to 12 months (in different sections of the order) and rejected it.
For more information about Google case click here.
FAS Russia revealed one of the largest cartels in the territory of the Russian Federation
On 11 August 2016, FAS Russia made a decision in the case concerning cartel agreement in bidding on delivering the equipment to Ministry of Internal Affairs of Russia, Federal Security Service of Russia and Federal Custom Service of Russia.
The Antimonopoly Service revealed 18 auctions total amount more than 3,5 billion rubles. Participants of these auctions were in cahoots. Some of the cartel participants also controlled 3 – 4 legal entities and took part in auctions on their behalf in order to make it like there was competition in auction.
In spite of the fact that around 11 – 40 companies participated in auctions, only one company offered prices in most purchases. Other companies refused to compete in order to guarantee the win to certain participant and for maintaining prices on the auctions. Under the FAS Russia program on release of liability, in accordance with article 14.32 of Code of Administrative Offences of the Russian Federation, several respondents sent confession letters that confirmed the cartel agreement and participation.
The number of respondents in the case were 118 entities, and only 90 of them were found guilty.
According to ART DE LEX partner Yaroslav Kulik, even if there were plea of the guilty courts rejected decisions of FAS Russia. As it was in the case of fish cartel (concerning the delivery of Vietnamese pangasius), that FAS Russia lost at the beginning of 2016 year.
As Yaroslav Kulik said, “this case shows the increasing of voluntarily reports of respondents about four company cartel agreement. The fist who confessed will have full release from the fine, the second and the third have to pay the minimum amount of fine (10% of the contracts, but not more than 4% of annual revenue). However, if there is initiation of proceeding, they have to follow all rules, as the programs on release of liability in administrative and criminal proceedings are not fully synchronized. If you confessed to FAS Russia, it makes no sense to law enforcement organs. There is no clear position of respondents in the decision. However Fourth Antimonopoly Package put an obligation on Antimonopoly Service to prepare a conclusion on facts of the case (i.e. indictment), respondent has the right to comment it in details. There was such conclusion, but respondents did not fully replied. Likely, there are 5 – 10 main participants in such big cartels. If someone had explained to other participants negative consequences, they wouldn’t be involved in it”.
NOTEWORTHY FOREIGN CASES
European Commission may accuse Google Inc. again
European Commission may bring a new accusation against Google of providing the contextual advertisement service AdWords and AdSense for Search. The request to transfer the materials for investigation is already sent to Google.
In the fourth quarter of the year the revenue of Google was 19 billion dollars, that is almost 90% of full company revenue. If Google is found guilty, Commission may impose the fine (maximum 10% of company revenue for each product).
Commission fined truck producers for the highest sum
On 19 June 2016, in the result of 5 year investigation European Commission announced to impose the fine in the amount of 2,93 billion euro on the following companies: Iveco, DAF, Damler, Volvo and Renalt. That fine is twice bigger than the previous that was the highest for the cartel agreement. In 2012 the producers cathode-ray tubes for TVs and computer monitors paid 1,47 billion euros.
The violation contained the agreement between the largest producers of tracks to fix prices on their cars and jointly to prevent the implementation of polluting emission reduction technologies.
MAN, owned by Volkswagen, was freed from a fine in the amount of 1.2 billion Euros for the fact that it informed antimonopoly authorities about the violations.
LEGISLATIVE AND REGULATORY PROJECTS
Draft FAS Russia Order On Amendments to “Regulation of Federal Antimonopoly Service of Russia”
The purpose of the amendments is to establish authorities of FAS Russia to adopt instruction (methodology) for the calculation of maximum tariffs on solid municipal waste; to control the regulation of maximum tariffs on solid municipal waste, also to control compliance with disclosure standards concerning solid municipal waste. The new regulation concerns the market and competitive pricing for services on solid municipal waste.
Draft FAS Russia Order "On amendments to the Administrative Regulations of the FAS Russia on the implementation of the state function comply with the requirements of the Russian Federation antimonopoly legislation, approved by the FAS Russia Order on 25.05.2012"
The Draft Order proposes a new version of the Administrative Regulations of the FAS Russia on the implementation of the state function to inspect the compliance with the antimonopoly legislation.
Under the new provisions unscheduled site inspection of small businesses can be conduct after consultation with the prosecuting authorities at the place of the audited entity activity, as established by the Order of the Prosecution Office of the Russian Federation. Except that are unscheduled site inspections of natural monopolies and inspection on compliance with requirements, established in para 1 art 11 of the Law On protection of Competition.