Информационный обзор практики Антимонопольного регулирования (Июнь, 2013)

Events

IX annual Developing Competition business forum

On 26 June 2013, the IX Annual Business Forum Developing Competition (“Stavim na konkurentsiyu”), organised by Business Russia under the auspices of the Russian Federation Government, took place. Participating in the forum were officials from the business community, directors of ministries and departments, State Duma deputies, and officials from regional and municipal governments. Prime Minister Dmitry Medvedev spoke during the plenary session of the meeting.

The main topic of the forum was the road map “Developing competition and improving competition policies”, as well as mechanisms for businesses to cooperate with regional and municipal authorities in order to realise these goals. The director of the World Bank for Russia, Mikhail Rudkovsky, noted that Russian companies are not competitive in the current market because of the low level of competition on the domestic market. The domination of state companies that use administrative resources in the leading economic industries results in barriers and limits to more efficient companies’ having access to the market. According to Alexander Galushky, co-chairman of Business Russia, administrative resources are the main obstacle to developing the competitiveness of Russian companies under the conditions of state capitalism.

Important issues on developing competition legislation and several aspects on the work of the anti-monopoly authorities were discussed during the special session of the “Developing a competitive strategy in order to increase competitiveness”, which was attended by FAS specialists and officials from the scientific and legal communities. The participants noted that the FAS is overworked because of the large number of cases. Upon completion of the session, the moderator, Sergey Gabestro, general director of the National Association of Procuring Institutes, presented a number of proposals on improving the FAS’ work, such as invalidating the legislation on being able to pursue infringements of counter party interests; being required to report on deals concerning economic concentration; and increasing the amount of a company’s assets from 250 million to 1 billion that the FAS must check during an acquisition. Experts suggest reviewing the so-called “counting sticks system” when assessing the work of the FAS’ employees, as well as paying attention to improved qualifications, given that more than 40% of the FAS experts’ decisions are challenged in court, with 38% of these cases involving small- and mid-sized businesses. In general, the deputy director of the FAS, Andrey Tsyganov, agreed with the complaints against the FAS.

During the forum, two large non-governmental organisations, Business Russia and the Engineering Workers Guild of Russia, signed a cooperation agreement on improving competitiveness and develop Russian engineering companies and related businesses in the current market. According to Vladimir Gutenev, first vice-president of the Engineering Workers Guild and first deputy chairman of the State Duma for Industry, these two organisations have already been working together successfully for a number of years, so the signing of the agreement was only a formality. The co-chairman of Business Russia and the chairman of the board of directors of CJSC R-Farm, Alexey Relik, stated that the main areas of cooperation will be to assist companies that are ready to be internationally competitive and to enter the world market rather than assist the raw materials industry.

The forum’s key moment was the appearance of Prime Minister Medvedev, who assessed the level of competition in the country as low and very weak. According to Medvedev, not only must the FAS and Economic Development Ministry help improve competitiveness, but so must all ministries and departments in all areas. He also noted the initiative to introduce an institute of class action suits that will allow citizens to file complaints with the judicial instances in respect of the action or inaction of monopolies and responsible state authorities, given that up-to-date and efficient instruments are needed to protect consumer rights. The country must introduce the mechanism of class action suits used in other countries to allow companies and citizens to file complaints against those in violation competition law and to recover significant losses from them.

Medvedev also noted that the road map adopted by the Government in 2012 outlines on-going steps to develop competition overall, including in such important areas as developing the infrastructure industry; decreasing the state’s share in the economy (which, honestly, is proving rather difficult); creating standards in the regions; and introducing best practices. Particular attention should be given to those industries that affect the vast majority of citizens’ living conditions, specifically where increased competition would result in lower prices and better service, such a housing services and utilities, transport, communications and access to safe medicines and quality medical services. The federal government has demonstrated its sincerity by having Gazprom adjust prices for gas annually for domestic consumers based on profits generated from exports. According to experts, another positive key was the decision by the FAS to support Rosneft’s purchase of 100% of the shares in CJSC Iteri, which Igor Artyomev, director of the FAS, believes will have a positive effect on the market, given that Gazprom will now have a competitor in this sphere.

Prime Minister Medvedev also spoke about the participation of small- and mid-sized businesses in fulfilling state procurement orders, which is currently at 2% of the overall amount even though state orders are one fifth of GDP. In line with the road map, by 2018, small- and mid-sized businesses should service around a quarter of procurements by state-involved companies. During the plenary session on developing competition for procurements of the state and state companies, the moderator announced measures to improve legislation and the work of federal officials in state procurement. The business community believes that a single department must be created to manage this sphere, and also that legislation must be passed to permit public discussion of state procurement, for example, by placing orders in electronic form and introducing best practices in placing state orders. To this end, President Putin has ordered that a portal be created by 1 September, and the portal must publish investment programmes and information on the profits of monopolists in order to maintain public oversight of them.

 

Competition

On 25 July, during the IX Annual Business Forum Developing Competition, the People’s Front for Russia, Business Russia legal experts, within the Institute of Socio-Economic and Political Research foundation, held an event titled the All-Russia People’s Front (the “APF”) as a People’s Competition Front: Taking the First Steps, with the participants discussing issues of promoting competition, protecting consumer rights and taking on monopolies.

Dmitry Magonya, Managing Partner at ART DE LEX and a member of the International Association of Procedural Law, and Yaroslav Kulik, Head of Competition at ART DE LEX, took part in the round-table discussion whose central theme was the introduction in Russia of class actions filed by public organisations in the interests of an unspecified number its members in order to defend them against violations on the part of monopolies and large companies. The country’s so-called Road Map envisages the creation of class actions and the development of competition, while President Vladimir Putin also stated these goals during the St. Petersburg Economic Forum on 21 June of this year.

The deputy chairman of the State Duma Committee for Economic Policy, Innovative Development and Entrepreneurship, Viktor Klimov, noted that class actions would allow citizens and public organisations to take their cases directly to the courts, without having to involve administrative officials; and he also emphasised that are is a sufficient number of oversight bodies whose job it is to protect consumer rights. However, according to Mr. Klimov, the state often operates ineffectively, given that oversight officials oftentimes pursue entirely different goals to those that would benefit society. According to the experts, the area is rather broad in which to create such an institution. Indeed, financial investors, telecoms and utilities service consumers, environmentalists and many others in various situations may seek to form a class action in the event of legislative violations. Diana Sork, a member of the management board of the International Confederation of Consumer Societies, believes that the issues concerning class actions, as well as recovering losses and/or damages, concerns every citizen whose consumer and other rights are infringed.

According to Alexander Galushko, co-chairman of the APF, citizens and organisations whose rights have been infringed may file class actions today; however, this would be more effective under the “umbrella of a public organisation”; adding that this transformation’s main goal is to eliminate the disproportion of large manufacturers and disparate consumer market whose rights are not equally represented in the courts. Compensation for damages must be changed so that violators remit payment in a short period and/or in the same amount of damage caused to the parties in a class action.

Experts believe that it is necessary to include all the court costs of lawyers and fees in the so-called “success fees” when a class action is successful in order to support class actions. The deputy director of the FAS, Andrey Tsyganov, noted the positive effect that class actions would have in alleviating the heavy caseloads on judicial instances, and he believes that class actions will decrease the number of small and typical suits and will make the recovery of losses more efficient. Mr. Tsyganov outlined a number of basic problems to implementing class actions in respect of those authorised to file class actions, issues on gathering evidence and recovering losses of the losing party. He also believes that the role of the FAS is also worth discussing, such as whether the FAS should have a pre-trial review of a case, or does an applicant have the right to file a suit directly with the courts.

Legal experts also believe that international legal and legislative best practices should be considered in order to develop the best model under Russia’s current conditions. Dmitry Magonya, Managing Partner of ART DE LEX, highlighted several international approaches to class actions, for example, the strict American model that awards three-fold compensation for damages, which, in turn, covers all legal and court costs. On the other hand, the Canadian and Australian variants do not award multiple compensations. England and Wales were also discussed, where class actions are not applied, but there is a possibility of individuals filing suits with the courts. The Italian system, according to Mr. Magonya, is only beneficial in alleviating the caseload of the courts, while the Dutch legal system allows for resolving class actions via power of attorney in extrajudicial procedures.

In the closing section of the event, Yaroslav Kulik, Head of Competition at ART DE LEX, listed the necessary amendments to legislation in order to implement an efficient institution of class actions, such as, by November of this year, having the arbitration courts be exclusively responsible for class actions in respect of violations of competition legislation; and determining group of public organisations that have the right to file class actions. Furthermore, Mr. Kulik believes that it is necessary (i) to create a universal model of joining a class action; (ii) to prescribe the means of resolving disputes of several class actions; and (iii) legalise “success fees”.

Federal Anti-monopoly Service amends law on protecting competition

The FAS is currently drafting amendments to draft law No. 19585-6 “On Amending Federal Law No. 135-FZ ‘On the Protection of Competition’ of 26 July 2006”. Important amendments were made to legislation on the rights of retailers and the responsibilities of the state officials.

The draft law amends the understanding of a “vertical” agreement to exclude an agency agreement (article 4, paragraph 19), given that an agreement is considered to be “agency” when applying the law on protecting competition in respect of the actual rights and obligations of the parties under such an agreement. Because non-state funds are not business entities, associations or partnerships under the Civil Code of the Russian Federation, the draft amendments specifies the characteristic features by which a group of parties is formed (article 9, paragraphs 2 and 4). The draft law also contains a number of amendments on the responsibilities of state bodies to regulate competition, for example, the FAS is authorised to inform indicated parties of statements and rules for trade (article 19, section 4). There is a ban on public authorities and local government issuing acts to limit competition, actions (inaction) and agreements that could lead to preventing, restricting and/or eliminating competition by violating the established regulations on pricing and setting tariffs, with the exception of instances stipulated in Russian legislation on state defence orders (articles 15 and 16). The draft law limits the possibility of the Russian government, Russia’s constituent entities, local governments and state non-budgetary funds to demand a specific rating from a Russian or international rating agency in instances when a financial organisation is not in compliance with the requirements of financial solvency.

In order to optimise the FAS’ work, a presidium will be established (article 23) to issues explanations and clarifications on matters concerning (i) the application of specialised legislation; and (ii) the review territorial competition authorities’ decisions if the consistency of interpreting and apply competition legislation; or violate the rights and legal interests of an unspecified number of persons or other public interests.

According to ART DE LEX’ Competition lawyers, the amendments will simplify the procedure to dispute FAS decisions; and constructively and, most importantly, efficiently resolve issues and disputes that arise when applying the provisions of the Law on the Protection of Competition. Currently, disputing a FAS decision could take from several weeks to several months as a result of a company’s being responsible for additional expenses.

It is believed that the proposed mechanism to review several disputes internally within the FAS will reduce the time to resolve such disputes; and also systemise and create a uniform practice on matters in respect of competition violations. The draft law (i) limits the timeframe of parties with a market share in excess of 35% and a dominant position of a specific good from being in the list of business entities if other federal laws stipulate applying them in instances of recognising the dominant position of business entities in respect of such a market; and (ii) obliges business entities to present information to the FAS on the main indicators of business activity within six months from the end of the timeframe of having been in the list. The draft law envisages extending the group of parties to whom warnings may be sent on inadmissible violations of competition law (article 257), including the competent federal authorities, state constituent entities, local governing bodies, and organisations that take part in rendering state and municipal services, participate in extra-budgetary funds and the Russian Central Bank. 

FAS to amend legislation to protect businesses from unfair competition

Disseminating information that could cause losses to a company or damage its business reputation is considered to be an unfair business practice. According to the FAS, disseminating false information on a company’s being on the verge of bankruptcy or that an employee is about to be dismissed should also be considered an unfair business practice. Accordingly, the FAS has a number of amendments in the pipeline in respect of expanding the understanding “unfair business practice in order to add extra protections for companies against the unfair actions of competitors, and the FAS also envisages regulating the movement of employees to competing companies, which could lead to informational leaks that could cause significant losses for a company.

The amendments envisage reinforcing limits in employee agreements on seeking employment with competing companies for several years after resigning, with violations of such limits also being considered unfair. ART DE LEX’ Competition lawyers believe that the FAS’ actions are too strict and do not meet international principles; and that they do not adhere to constitutional rights on freedom to take advantage of one’s ability to work and independently choose one’s profession.

The FAS intends to establish responsibility for attempting to attract a competitor’s employees via unfair means, such as posting information on the personal qualities of employees or the quality of their work or on the insolvency of an organisation; however, offering an employee more money will not be considered unfair competition. The amendments will also concern the unfair poaching of counter parties of companies; and enticing partners to transfer by setting unfair conditions will be considered unfair competition, including offering substantial discounts and special conditions of cooperation for ending a relationship with a competitor. The FAS also intends to prohibit unfair competition during tenders, with the amendments envisaging liability for obstructing participation in tenders, as well as disseminating information on competitors that affects holding tenders or fulfilling contracts.

FAS, EU to coordinate efforts to review competition violations in trans-border markets

The deputy director of the FAS, Andrey Tsyganov, has noted that the regulator and the European Union should coordinate their actions in order to provide equal conditions of competition within the economic zones of Russia and the EU by creating a common understanding of a “legal framework” for Russian and European entrepreneurs. This coordination is the result of foreign entrepreneurs’ needing to protect their rights and interests in the event that monopolies misuse their dominant positions; there is a lack of access to state procurements; there is unfair competition; and intellectual property is illegally used.  

The FAS is currently implementing a number of projects of the Technical Assistance and Information Exchange Instrument of the European Commission (the “TAIEX”) in respect of battling cartels, etc.; and it is also developing cooperation through the Technical Aid to the Commonwealth of Independent States (the “CIS”) – (the “TACIS”) under a project titled “Competition: Analysis and Practice of Law Enforcement”. As part of the Interstate Council for Anti-monopoly Policy (“ICAP”), the FAS is attracting experts from the Directorate General for Competition and conducting joint market analysis as part of cooperating with the EC. For example, when analysing air transport within the CIS member countries, the EU’s experience was thoroughly studied in this area as part of cooperating with the Directorate General for Competition.

Previously, the FAS has successfully implemented a number of other projects to develop competition in Russia’s financial sector. The EU Director General for Competition regulated transnational market in the EU over a large area, using more comprehensive experience of competition enforcement, which confirms the necessity of cooperating in this area.

Draft law on amending law on circulating medicines still being discussed

In May, the draft law “On Amending Federal Law No. 61-FZ of 12 April 2010 ‘On Circulating Pharmaceuticals’” was sent to the Government; however, the FAS has significant issues with it. Specifically, under the initiative of the FAS, a number of the draft law’s provisions that complicate free competition have been removed, for example, the provision in respect of pharmaceutical samples, against which all market participants had objected. A list has been set of documents to be presented for state registration, and a rule has been adopted on obligatory patient insurance for those taking part in clinical studies of new medicines. In addition, the draft regulates issues on a “transitional period” following amendments to a registration dossier, which could provide for uninterrupted delivery and access to medicines.   

The draft law also stipulates the possibility of appealing a decision of the competent authorities and expert conclusion, etc.; however, the FAS is still not in agreement with the Russian Healthcare Ministry in respect of defining inter-changeability. The draft law introduces the understanding of “biosimilars”, which is under discussion. Specifically, the concept of “similars” is based on regulating matters of circulating and registering this group of medicines in leading international systems, and a decision on inter-changeability is not an easy one, even for the world’s leading regulatory systems.

When reviewing matters of substituting a medicine in countries with strict standards, there is thorough monitoring of patients, control of medicines and their side effects, transparency of clinical data, etc.; however, Russia has still not introduced strict international standards. Specifically which medicines the state will purchase by using budgetary fund depends on how this matter of substituting is decided, such as buying expensive imported brands or inexpensive domestic biosimilars. However, the Healthcare Ministry’s position remains steadfast in favour of foreign experience, meaning that only 14 biosimilars have been registered in Europe over the past 12 years, while none have been registered in the USA. Therefore, the state will not be able to economise on the budget, as there is no possibility of purchasing less expensive biological preparations.

Procedure on obtaining permission for joint cooperation among companies not permitted to compete under regulation

The FAS has prepared draft amendments to Federal Law No. 135-FZ of 26 July 2006 “On Protection of Competition” and sent them to the Russian Government. Companies that take decisions on joint activities and mergers often sign agreements with “non-competitive” conditions, and such deals could result in limiting competition under the law. Non-competitive conditions are an important and necessary section of many agreements, and they are widely used by international companies.

Currently, the FAS must approve mergers or acquisitions of companies, and it also intends to implement this procedure for “non-competitive” agreements in the area of economic concentration, with the limit set at RUB 7 billion. When exceeding this amount companies will be obliged to receive preliminary approval from the FAS, while this will be voluntary for all others. At this time, there is a voluntary procedure of obtaining agreement on joint activities from the FAS.

The FAS has posted on its site explanations of the voluntary approval, which assists companies in avoiding the risk of being accused of price fixing and criminal proceedings, thereby confirming that an agreement is in adherence with the law on competition. Companies found guilty of price fixing face fines of 1% -15% of turnover, while directors of such companies could face imprisonment of up to three years and/or fines of RUB 500,000. In order to receive approval, a company must prove that the agreement has a positive social and economic impact, such as contributing to production growth, technical advancement and is beneficial to consumers.

Amendments approved to federal law No. 94-FZ “On Placing Orders to Deliver Goods, Complete Works and Render Services for State and Municipal Needs” to permit clients to cancel contracts

The amendments to the law “On Placing Orders to Deliver Goods, Complete Works and Render Services for State and Municipal Needs” (the “Law”) allow a client unilaterally to refuse to perform the conditions of an agreement. In addition, a client is permitted to decline unilaterally if a supplier has violated the conditions of the agreement, as confirmed by formal review. A client is also permitted to refuse unilaterally to fulfil the conditions of an agreement if a tender participant presents false information.

The decision of a client to annul a contract comes into force ten days after it has informed the supplier of its decision. If, during this period, the supplier has remedied such contractual violations that have rendered a deal invalid, and the supplier has compensated the client for expenses to conduct the formal review, then the upcoming decision should be reversed. This rule is not applicable should the supplier once again violate the conditions of the contract. Once a supplier has violated the conditions of a contract, such violations could end up in the FAS’ register of unscrupulous suppliers; and said company is not permitted to participate in tenders for two years in the event of ending up in such a register.

Consequently, the above-stated amendments will allow orders to be fulfilled more easily; however, there are still unregulated matters with clients that oftentimes abuse the conditions of placing an order. Such abuses occur when orders are place for once participant and are implemented by distorting the information on procurement.

Draft regulatory acts for June 2013

• Order of the Russian FAS and Energy Ministry “On Confirming the Minimum Increase in Oil Products Sold on the Market and Requirements of Stock Trading when Oil Product Transactions are Signed with Business Entities that Have a Dominant Position on the Respective Commodities Markets” http://www.fas.gov.ru/legislative-acts/ legislative-acts_51170.html.
• Order No. 335/13 of the FAS of 14 May 2013 “On Recognising Order No. 184 of the FAS of 25 June 2007 ‘On Confirming the Form of Informing on an Agreement of a Financial Organisation’ and Order No. 65 of the FAS of 4 February 2009 ‘On Amending Order No. 184 ‘On Confirming the Form of Informing on an Agreement of a Financial Organisation as Being Invalid” http://www. fas.gov.ru/legislative-acts/legislative-acts_51168.html.
• Draft decree of the Government of the Russian Federation “On Providing Non-discriminatory Access to the Gas Distribution Grid of the Russian Federation” http://www.fas. gov.ru/legislative-acts/legislative-acts_51167.html
• Order of the FAS “On Amending Appendix No. 2 to Order No. 262 of the FAS of 14 November 2005 ‘On Confirming the Provision on the Expert Council for Railway Transport under the FAS’” http://www.fas.gov.ru/ legislative-acts/legislative-acts_51166.html.

Judicial Practice 

SAC refuses FAS request to review rulings of lower courts in Tartarstan

The Supreme Arbitration Court of Russia (the “SAC”) has refused the request of the FAS for the Tartarstan Republic (the “FAS-TR”) to review the rulings of the lower instances on retail chains allegedly violating Federal Law No. 135-FZ of 26 July 2006 “On Protection of Competition” (the “Law”). Specifically, on 3 July 2013, the SAC issued ruling No. 6588/13 in which it refused to transfer the decree of the Moscow Region Arbitration Court to the Presidium for review, thereby upholding the decisions of the courts of the first and appeals instances on the illegality of the decision of the FAS-TR on the competition violations of the Eldorado, Media-Markt-Saturn, Auchan and Bearing Straight Delta retail chains.

According to the FAS-TR, the violations dealt with overvaluing the production cost of electronics, specifically that agreements signed by the above-stated retail chains contain conditions on paying all manners of incentives: reaching turnover, entry bonuses, deferred payments, suppliers’ credit, discounts on goods delivered, providing the best conditions, marketing bonuses, and so on, which were the result of coordinated action that resulted in the above-stated overvaluing of retail prices on said goods to the detriment of consumers (FAS-TR estimates a 20% – 70% mark-up). Therefore, the FAS-TR rendered the respective decision and ruling on violating the competition law.

The decision of the Tartarstan Republic Arbitration Court on 6 September 2012 upheld the case of the retail chains to recognise the decision and ruling of FAS-TR as not being in line with the law. In upholding the request, the court ruled that the FAS-TR had not proved the above-stated coordinated action; and this decision has been upheld by the decrees of the courts of appeal and cassation instances, while the complaints of the FAS-TR have not been satisfied. The cassation court has indicated that the FAS-TR has not analysed the prices on the electronics market.

SAC upholds invalidity of FAS ruling on subsidiaries’ transferring accounts to Foreign Ministry

The SAC on 19 June 2013 ruled (No. VAC-7776/13) to deny the FAS a review of the procedure to review judicial acts; thereby overturning the FAS’ decision on the Russian Defence Ministry’s violation of the federal competition law (No. 135-FZ, 26 July 2006). Specifically, Sberbank Russia had sent copies of letters to the FAS that OJSC Remvooruzhenie, OJSC Spetsremont and OJSC Voentorg had sent to their respective subsidiaries, in which the said military companies had requested that their subsidiaries start using VTB bank’s services, and close settlement accounts, credit lines and salary payments in other banks. The text of the letters indicated that this request had come from the Defence Ministry on 29 August 2011, and the FAS ruled this action as limiting competition, thereby issuing the respective decree and ruling. In upholding the complaint of the Defence Ministry, the Moscow Arbitration Court overruled the FAS’ decision to cite the Ministry as being in violation of the federal competition law in respect of OJSC Krasnoyarsk Engineering Plant, FSUE State Cosmic Scientific and Production Centre (M.V. Khrunichev) and OJSC State Engineering and Design Centre (Raduga, A.Ya. Bereznyak). The courts of the appeals and cassation upheld the decision of the first instance.

During the court session, the chairman of the Defence Ministry referred to the exclusively non-regulatory nature of the letters that did not oblige the organisations to start using the banking services of VTB. The FSA officials indicated that the Defence Ministry is a government agency; therefore, the letters did in fact oblige the organisations to fulfil the request. In upholding the position of the Defence Ministry, the court ruled that the letters were not obligatory in nature; therefore, in turn, they could not limit competition in the banking industry.

SAC Presidium adopts new judicial act on dispute between Sberbank and Irkutsk FAS

On 20 June 2013, the Presidium of the SAC overturned the judicial acts of the lower courts and took a new decision on the case, thereby denying Sberbank’s request to recognise the decision of the FAS for the Irkutsk Region (the “FAS-IR”) as invalid. The SAC ruled that by setting commission fees at 300%, Sberbank had exceeded its civil rights with disproportionate and unfair limits on counterparties, and set unsubstantiated conditions on counterparties. 

The FAS-IR previously had established that Sberbank had abused its dominant position, ruling that the Bank’s minimum commission of RUB 30 for non-tax payments of individuals to the budget was a violation of the federal competition law (article 10, section 1). The FAS-IR indicated that this infringed the economic interests of other parties, for example, when paying charges of RUB 10 to own and bear sporting firearms, a party must remit a commission fee of RUB 30, which is a 300% payment to the budget.

Consequently, the Presidium of the SAC, citing the Decree of the SAC of 30 June 2008, indicated that the list of violations of competition legislation indicated in article 10, section 1 of the federal competition law is exhaustive.

Court rules subsidising municipal projects without holding a tender contradicts law  

On 4 June 2013, the Arbitration Court of St. Petersburg and the Leningrad Region rejected the appeal of the Administration of Kingiseppsk Village to recognise the decision of the FAS for the Leningrad Region (the “FAS-LR”) as invalid. The Court confirmed that the municipal officials had violated article 15, section 1 of the federal competition law, particularly in giving preference to state or municipal parties, which contravenes the law.

The Court established that the Administration of Kingiseppsk Village provided RUB 1 million is subsidies to MUE Kommunalno-bytovoe Company in order to repair the intra-city roads. However, under Federal Law No. 94-FZ of 21 July 2005 “On Placing Orders to Deliver Goods, Complete Works and Render Services for State and Municipal Needs”; therefore, a tender must be held to complete such works.

The FAS-LR has repeatedly cited violations of competition legislation when subsidising unitary enterprises without holding a tender – a practice that is common in the other constituent entities of Russia.   

Courts rule price fixing illegal by tender participants

The Federal Arbitration Court of the Moscow Region has upheld (Decree NF05-6202/2013 of 25 June 2013) the decisions of the Moscow Arbitration Court and the 9^th Appeals Court in respect of the agreement among the individual entrepreneur N.Yu. Eske, CJSC Sirius and CJSC Blitz in terms of tenders. The cassation court upheld the action of the FAS in exposing the cartel agreements, which is a clear indication that the participants of a tender are engaged in similar impermissible actions.

Specifically, on 6 April 2012, the FAS recognised the actions of the above-stated companies as being in violation of the federal competition law (article 11, part 1, paragraph 2) in respect of concluding and participating in an agreement to maintain prices during open electronic tenders. According to the paragraph of the law, competitors in business are recognised as being a cartel when they agree to fix prices (increase, decrease, maintain) for the sale of goods on a single market.

The cartel agreement was committed during eight open e-tenders to buy foodstuffs for state needs. The courts established that two of the participants alternately lowered the price in a short period of time, which, in turn, confused the other participants, who refused to bid; then, during the closing second, a third party bid just a bit lower than the price bid by the conscientious participants, thereby winning the tender. This illegal scheme has become known as “ramming”.

 Foreign Practice

Investigation draws to close on chocolate cartel in Canada

As part of a long-time investigation into price fixing in the Canadian confectionary market, Hershey Canada (a subsidiary of Hershey) has admitted to one-time price fixing. The cartel included the Canadian subsidiaries of such large confectioners as Nestle, Mars and Hershey, while the subjects of the case have been a Canadian wholesale chain and three individuals: the former head of Hershey Canada, Robert Leonidas; the former director of Hershey Canada confectionary, Sandra Martinez; and the head of the above-stated wholesale chain, David Glenn Stephens. According to John Peckham, acting director of the wholesale chain, this was a serious violation that has affected competition and Canadian consumers alike.

The investigation revealed that during meetings held in restaurants and cafes and during conferences, the directors of Mars Canada, Nestle Canada and Hershey Canada exchanged information on production volumes and agreed to fix prices. Consequently, retail prices on such famous brands as Kit Kat, Twix, Snickers, Bounty and M&Ms increased unjustifiably.

Following the court session on 21 June, Hershey Canada was fined only USD 4 million, because it had admitted its guilt; however, Nestle Canada and Mars Canada deny their guilt and are ready to go to court over the matter. Consequently, the other parties face more serious fines (up to USD 25 million) and jail time (up to 14 years), given that the investigation has lasted five years, and a more serious law could be adopted.

EC ends investigation of European Payment Council

The investigation of the European Payment Council (the “EPC”) has concluded. Specifically, the investigation was initiated by the EC in September 2011 in respect of the EPC’s standardised Framework online payment, which the EC had suspected of possibly limiting new players from entering the market. In turn, the EPC sensibly and immediately responded to the EC, thereby ceasing development of the e-payment system and work on other standardised systems. In response, the plaintiff, Sofort AG, a financial services provider, rescinded its complaint, while the EC concluded its investigation.

E-payments play a very important role in both the growth of e-commerce and the regular functioning of the EC market, particularly taking into account the quick growth of e-money turnover. Having reviewed these circumstances, the EC and other national competition departments are continuing to keep a close eye on this market.

In line with a special document that was adopted on 11 January 2012, the EC has taken up the matter in respect of implementing objective and non-discriminatory rules for internet payment participants. The goal of these rules would be to be to provide consumers with safe payment systems, while also allowing new entrants the possibility of entering the market relatively simply.

EC investigates Google agreement on dumping

The EC has once again taken an interest in the activity of the US’ largest IT Company. Specifically, the EC intends to look into how Google has come to exclusive agreements with smartphone producers that use the Android operating system, and how the OP has been blocking the applications of other servers. Google competitors Microsoft and Nokia filed a complaint, claiming that Google has been unduly pressuring producers in order to postpone the release of new smartphones that use the software and services which compete with Google’s software and services.

Google offers its operating system to providers at a considerably lower price, but, at the same time, demands priority release of Android smartphones. In addition, the above-stated companies are complaining that Google offers licences to smartphone manufacturers to use Android at prime cost, which allows Google to use its dominant position to take unfair advantage of the online advertising market. In response, Google stated that Android is an open platform that promotes competition; therefore, the Company considers the allegations of abusing its dominant position to be unfounded.

We remind our readers that not long ago the EC concluded an investigation, after which it demanded that Google cease violations in respect of the use of its search engine that could intentionally distort the search results in favour of Google. Consequently, the EC gave Google several weeks to resolve the matter; otherwise, Google would face fines of several billion euro.

At this time, the EC should decide the nature of the above-stated exclusive agreements, and it has already begun questioning smartphone manufacturers and European mobile companies. Similar investigations could have the same drawn out proceedings. If the EC finds that Google is in violation of competition legislation, Google could face a fine of up to 10% of its annual turnover. (Last year’s turnover was USD 50.2 billion.)