1 March 2012
A new dawn for competition

Significant changes in Russia's antitrust regulation could create a more liberalised environment, says Evgeny Bolshakov

The State Duma of the Russian Federation passed a new package of amendments to the antitrust laws in the third reading on 22 November, 2011. The proposed Third Antitrust Package, which still has to be approved by the Council of Federation and then signed by the President, changes antitrust regulation significantly. In expectation of the innovations, the Federal Antitrust Service (FAS) has assured that the antitrust prohibitions will become more liberalised and the liability of companies will become softer. How realistic are these forecasts?

Agreements and Concerted Actions

The notion Agreements and Concerted Actions has been split. One more innovation concerns the list of prohibitions per se applicable to the agreements between companies. The list has been shortened. How well this change will perform in practice depends on how demanding the courts will be to the quality of evidence presented by the antitrust authority.

The bill sets a new notion of vertical agreement. According to the new wording, the absence of competition will no longer be a qualifying criterion of a vertical agreement. A vertical agreement is an agreement entered into between the companies, one of which acquires goods and the other provides (sells) goods. Thus, due to the systemic change of Article 11 of the Law, all per se prohibitions apply to agreements of competing entities regardless of its recognition as horizontal or vertical.

According to the new version of the law, an intergroup agreement will not be subject to prohibition if one of the group persons controls another person within this group. Meanwhile, an opinion previously existed in the legal community that group members are in principle not proper entities under Article 11 of the Law, notwithstanding the ground on which they form this group. Therefore, the approach to the agreements/concerted actions in a group legalised by the law-maker, in fact, extends the area of responsibility.

The Concerted Actions allocated to a separate article (Article 11.1) by the proposed amendments mean only those actions that are known to each party in advance through a public announcement of such actions (new version of Article 8.1 of the Law). At the same time it is not clear what is to be treated as a public announcement, who must make this announcement, and what powers the announcer needs to have. It appears that the FAS may face certain difficulties in proving a verbal agreement and subsequently protecting its position in court.

The bill unambiguously limits the applicability of prohibitions to agreements that restrain competition and concerted actions only of competing companies, that is, those that sell goods on the same product market. Previously, 'vertical'

concerted actions (ie, actions of non-competing companies) were rather senseless. However, this innovation is of course an example of liberalisation.

Initiatives of the Third Antitrust Package also limit the applicability of prohibitions to the concerted actions of companies with the total share in a product market of more than 20 percent and the share of each of them of not more than eight per cent. However, there is still the risk that actions of these companies may be qualified as 'coordination'.

Liability for concerted actions that violate prohibitions per se is technically eliminated if there is a threat of the competition restraint: the actions should effectively entail the implications listed in the respective article of the Law. In fact, the proposed loosening is leveled down, because the antitrust authority may qualify any per se prohibition according to the Article 11.3 by additionally referring to the restriction of competition.

An important innovation is that prohibitions entering agreements that restrain competition will no longer apply to intellectual property agreements (Article 11.9 of the Law in the new version).

Coordination

The bill limits the opportunity to qualify as coordination only those concerted actions of companies agreed by a third party, which does not operate on the same product market, in which the concerted actions take place, that is only non-competing companies can be coordinated.

In accordance with the Third Antitrust Package those actions which are carried out under 'vertical' agreements do not state coordination (Article 4.14 of the Law in the new version). Thus the bill has settled one of the most controversial issues in law enforcement practice.

Concept of warnings

The antitrust authority will have the right to send 'warnings' to officials of companies which publicly announce that they plan to act 'anti-competitively' in a product market, to ensure compliance with the antitrust laws.

Economic concentration

Financial figures will increase, which, if achieved, require approval when creating or reorganising a commercial company: the total asset value has increased from R3 billion to К 7 billion, and the total revenue went up from R6 billion to RIO billion.

Tenders

One of the innovations that the Third Antitrust Law proposes is to introduce how to deal with complaints for tender and contracting procedure and how to assess administrative fines based on the tender value. It was proposed to fix sanctions for agreements and concerted actions in a tender.

Additional amendments

The Third Antitrust Package also covers amendments to the regulations related to the liability for breaching the Competition Protection Law. Primarily, there will be no criminal liability for the concerted actions.

Significant amendments were also made to the administrative liability for offences set out in the Russian Code of Administrative Offences:

  • fixed fines for the abuse of dominance, which did not entail prevention, limitation or elimination of competition. At the same time, actions, which triggered these implications, will still be penalised by turnover fines;
  • new element of the administrative offence will be manipuiation of prices in
  • the wholesale and/or retail electricity (capacity) markets;
  • liability under Article 19.8 of the Russian Code of Administrative Offences not only for failure to disclose information to the antitrust authority, but also for the delay in doing so;
  • mitigating and aggravating circumstances that are taken into account when trying administrative cases in the area of competition. Specifically, the bill treats the following circumstances as mitigating: compliance with the instruction before proceedings come to an end, written acknowledgement of a breach and cessation of an offense, and cooperation with the antitrust authority during the investigation.

Each of the above circumstances reduces the administrative fine by eighth of the difference between maximum and minimum applicable administrative fine. In turn, the aggravating circumstances include: continuity of an offense, significant damage, organisation of agreement or concerted actions restricting competition by the offender, and etc.

The implications of the Third Antitrust Package are two-fold: a favourable trend can be seen in the issues related to the liability of companies and economic concentration. At the same time, in respect of legal regulation of agreements, these innovations may in practice be only of cosmetic nature. Only through practical implementation will the quality and applicability of the amendments become clear.

Evgeny Bolshakov is a senior associate at Russian law firm Egorov Puginsky Afanasiev & Partners.

Practices