Egorov Puginsky Afanasiev & Partners

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2. Preventing monopolistic activities and unfair competition

2.1 Grounds for liability

The antitrust laws prohibit the following actions:

  • abuse of a dominant position;
  • entering into anticompetitive agreements;
  • taking concerted actions;
  • engaging in unfair competition;
  • government and municipal authorities adopting regulations restricting competition;
  • entering into anticompetitive agreements and taking concerted actions with state and municipal authorities;
  • violating antitrust bidding requirements.

In addition, there are certain 'derivative’ antitrust offences (specifically, these include violation of a prescription issued by an antitrust authority, failure to provide data requested by the FAS, etc.).

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2.2. Concept of dominance. Abuse of dominance

Dominance is the position held by a competitor in a certain commodity market that allows it to have a decisive impact on the general circulation of a product in the respective market and/or eliminate from such market other competitors and/or hamper other competitors’ access to such commodity market.
The market share held by a competitor is a key criterion for establishing dominance.
Single firm dominance. A competitor is presumed to be dominant if its market share exceeds 50%. A competitor may provide evidence of the fact that its position is not dominant. If the market share of a competitor is within the 35-50% range, it may be found to be dominant by an antitrust authority. In exceptional cases, subject to compliance with additional conditions, listed in law, a competitor with a market share below 35% may be found to be dominant.

Collective dominance. If demand for a commodity is not price elastic, the product may not be substituted and the shares of competitors in a commodity market are stable, one or several competitors may be found to be dominant if the aggregate market share held by up to three competitors with the largest market shares is in excess of 50% or if the aggregate share of not more than five competitors with the largest market shares is in excess of 70% (this provision does not apply if the market share of at least one of the competitors is less than 8%).

The law provides for a non-exhaustive list of actions considered to be an abuse of a dominant position (including establishing and maintaining monopolistically high or low prices, product recalls, etc.). Such actions result or may result in the prevention, restriction or elimination of competition and/or cause damage to other parties.

According to amendments to the Federal Law No. 135-FZ, which entered into force in January 2012, the prohibition of an abuse of a dominant position is inapplicable to actions on exercising intellectual property rights.

There are special rules, determined by the RF Government, for establishing the dominance of financial institutions.

Abuse of dominance (except for certain violations) may be found to be acceptable if it is in line with the provisions of article 13 of the Law on the Protection of Competition, subject to the following conditions:

  • Such actions do not threaten to eliminate of competition;
  • Inadequate restrictions are not imposed on the market players;
  • Such actions result or may result in the improvement of operations/products sales or may stimulate progress, as well as promote adequate advantage (benefits) for buyers.
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2.3. Concept of agreements and concerted actions.

An agreement is either a written arrangement contained in a document or several documents or a verbal arrangement. The antitrust law provides for absolute (per se) prohibition of agreements between competitors, which actually lead or can lead to listed implications: market sharing; establishing or maintaining prices; raising, lowering or maintaining prices at tenders; product recall; refusal to deal. Such agreements are considered as cartels. Another category of prohibited agreements includes all other agreements, restricting  competition (actually or hypothetically).

The Law on Protection of Competition differentiates between 'vertical’ and ‘horizontal’ agreements. Vertical agreements are those between parties, one of which acquires goods and the other provides (sells) goods. There are special grounds for the invalidity of vertical agreements only, which include establishing resale prices and obligation of the buyer not to sell goods of the seller’s competitors. But as of January 2012 both horizontal and vertical agreements can be entered into by competing entities. Therefore vertical agreements between competitors are also subject to all prohibitions applicable to horizontal agreements. Such a position is expressed in the official clarification issued by the FAS.

As of January 2012 the notion of concerted action was changed. Thus, concerted actions are distinguished by the following criteria: the result of such actions is advantageous for all parties; such actions have become known in advance to each party due to public announcement made by one of the parties (even though the Law does not explain what a public announcement is); such actions are conditional on behavior of other parties, participating in concerted actions, and are not determined by objective circumstances.

Concerted actions are illegal only if they actually lead to listed implications or restrict competition. No liability incurs if there is only a threat of violation.

Subject to compliance with certain requirements (improvement of operations, benefits and advantages for buyers, etc.), it is possible to argue that formally anticompetitive agreements and concerted actions are acceptable. 'Vertical’ agreements are also found to be acceptable if they are franchising agreements or if the market share held by each party to such agreements does not exceed 20% on any commodity market. Concerted actions are acceptable in case the following conditions are met: (1) the aggregate market share of the parties does not exceed 20%; (2) the market share of each party does not exceed 8%.

Prohibitions concerning agreements that restrain competition do not apply to the intellectual property agreements

Moreover, the prohibitions do not apply to intragroup agreements and/or concerted actions if one member of the group controls another member (other members) of the group or if such members of the group are under control of another member of the group. For the purposes of this exception control is considered to be a possibility to determine decisions made by the entity through controlling over 50% of the total votes attributed to the voting stock of a company or acting as the chief executive officer.

Coordination of economic activity is also prohibited by antitrust law, provided (1) the coordinating party does not form a group and does not compete with the parties being coordinated; (2) such coordination is not exercised within the frame of a vertical agreement; (3) such coordination actually violates  per se prohibitions or restricts competition.

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2.4. Unfair competition

Unfair competition is a separate antitrust violation that consists of competitors’ wrongful actions intended to obtain advantages against their rivals in business operations, as well as to eliminate rivals in a particular commodity market (e.g., circulating false, inaccurate or distorted data, or by introducing products based on the unlawful use of intellectual property, etc.).

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2.5. Antitrust investigation (general examination procedure)

Antitrust cases are considered by the FAS commission within nine months of the date of the order scheduling a hearing in the case. Based on the case hearing results, a decision is delivered, and, in some cases, an order is issued prescribing a number of conditions to be met. The procedure for hearing a case is regulated by the Law on the Protection of Competition and the administrative regulations of the FAS. 

As of August 2009, antitrust cases are subject to a limitation period of three years from the date of the offence or the date of its detection or termination (for continued offences). A case may not be initiated after the expiration of this period, and an initiated case is subject to termination.

In order to prevent actions which restrict or can restrict competition an antimonopoly body can issue a written warning to a dominant entity provided the signs of a violation are revealed. Such a warning must contain (1) an obligation to stop anticompetitive behavior and (2) a list of actions to eliminate its grounds and consequences.  
A case of an abuse of dominance (in form of tying and bundling and refusal to deal) can’t be initiated without a warning.

To ensure compliance with the antitrust law an antimonopoly body can send an admonishment to an officer of an entity which publicly announces to act anti-competitively in case there are no grounds for initiating a case.

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2.6. Implications for a company found to be in breach of the antitrust laws (compliance notice, sanctions, criminal and civil liability)

Based on the results of a hearing in an antitrust case, an order may be issued to the respondent describing the prescribed conduct, as well as an order to surrender the proceeds derived from engaging in monopolistic activities to the federal government. Such orders shall take into account each respondent’s proportionate wrongdoing and indicate the amount of revenues to be surrendered to the government. Recovery of monopolistic proceeds is a compensatory sanction rather than a government-applied liability measure and, thus, it may be combined with an administrative fine.

A decision in an antitrust case also gives rise to administrative proceedings. The Administrative Offences Code provides for liability in the case of abuse of dominance, entering into and being party to anticompetition agreements and concerted actions, coordination of economic activities and unfair competition. The main sanction imposed on companies is a fine. Administrative fines are in general levied on the wrongdoer’s turnover (from 1% to 15% of the proceeds from sales in the commodity market where the offense was committed for the year preceding the discovery of the offence). Fixed fines of up to RUR 1,000,000 are provided for an abuse of a dominant position, if such abuse does not and cannot prevent, restrict or eliminate competition. Fines of up to RUR 50,000 and a disqualification are provided for the officers of such companies.

As of January 2012 maximum administrative fine for an abuser of dominance, whose market share does not exceed 35%, is RUR 1,000,000.

Moreover, the Code of Administrative offences provides an exhaustive list of mitigating and aggravating circumstances and formulas of a fine estimation depending on presence or absence of such circumstances.

Russia’s Criminal Code establishes criminal responsibility for individuals who enter into cartels, as well as repeated abuse of dominance in the form of establishing and/or maintaining a monopolistically high or low price, unmotivated refusal or failure to enter into a contract and restricting access to the market, if such actions caused substantial damage to individuals, entities or the government, or substantial profit was derived. Concerted actions and non-cartel agreements have recently been excluded from the list of crimes.

The statutory sanctions are fines,  imprisonment and compulsory workings.

An antimonopoly offence may result in civil liability, specifically, in connection with a claim for recovery of losses. Seeking a remedy from an antitrust agency does not prevent a person from bringing a lawsuit for the recovery of losses.

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