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On 05 October 2015, the Russian President signed Federal Law No. 275-FZ “On Amendments to the Federal Law – On Protection of Competition and Certain Legislative Acts of the Russian Federation”, also known as the “fourth antimonopoly package”.[1] For several years, the fourth antimonopoly package was the focus of lively debate and subjected to numerous changes and adjustments. Its final version was the result of a compromise reached between the Federal Antimonopoly Service of the Russian Federation and the business community. Such a compromise in the fourth antimonopoly package largely explains the fact that, in some aspects, the antimonopoly regulations have been liberalized, while in others, they have been toughened. In this review, we will briefly analyse the key changes that were made to these regulations.

Non-discriminatory access rules

Prior to the adoption of the fourth package, antimonopoly non-discriminatory access rules (NDAR) could be applied only to natural monopoly markets, and goods produced or sold by the natural monopolies. The fourth antimonopoly package allows for the assertion of NDAR also in respect of goods produced and (or) implemented by economic entities with a dominant position in the market.

NDAR can be established by an act of the Government of the Russian Federation in respect of an economic entity if:

• it holds a dominant position on the relevant market and the size of its share exceeds 70%; and

• it has allowed the abuse of its dominant position, which is confirmed by an enforceable decision of the antimonopoly authority.

The NDAR will have to include, in particular, a list of information that an economic entity must disclose, and the order of this disclosure, essential conditions of contracts on the access to goods and (or) the relevant standard contracts and the procedure for determining the consumers that must be provided with these services. In addition, the NDAR may contain a provision on the mandatory sale of goods through tenders.

Thus, the application of NDAR entails a dual effect. On the one hand, it limits the freedom of economic activity for an economic entity occupying a dominant position it the market, in respect of which the NDAR were adapted. On the other hand, the use of the NDAR provides for transparency and equal access to goods produced and (or) being sold by such an economic entity. How reasonable and feasible the introduction of the NDAR is going to be, will depend on the extent to which the Government of the Russian Federation, in each individual case, shall be able to ensure a balance between the interests of the entity being in a dominant position and the interests of the consumers of its products.

Approval of agreements on joint activity

The fourth antimonopoly package introduces the obligation, in terms of monitoring of economic concentration, by having to obtain from the antimonopoly authority approval for the conclusion of agreements on joint activity between competing entities if:

• the total value of assets of the groups of entities, according to the latest balance sheets, exceeds 7 billion roubles; or

• the total revenues, received by the groups of entities from the sale of goods for the calendar year preceding the year of the agreement, exceeded 10 billion roubles.

Approval is mandatory only with respect to those agreements that relate to joint activities of the economic entities on the territory of the Russian Federation.

At the same time, entities that intend to conclude an agreement on joint activities, but are not obliged to do so by law, may, on their own initiative, send a request to the antimonopoly authority seeking approval for the conclusion of such an agreement. Taking such a step, in a number of cases, may be appropriate, as agreements on joint activities, approved by the antimonopoly authority, cannot later be considered as limiting competition in accordance with Article 11 of the Law on Protection of Competition.

We should note that there have been made changes to the procedure for recognizing as admissible agreements on joint activities that violate antimonopoly laws. Thus, earlier, an agreement on joint activity that met the cartel designation, could be considered admissible in accordance with Paragraph 1.1 of Article 13 of the Law on Protection of Competition under certain conditions (it did not create the possibility for eliminating competition in the product market, its effect was the improvement of production, etc.). Now, however, an agreement meeting these requirements may be deemed as admissible only if it contains elements of agreements prohibited by Section 2-4 of Article 11 of the Law on Protection of Competition, but not a cartel agreement.

Accordingly, the only possibility to completely eliminate the risk of having an agreement on joint activities considered as a cartel, after the adoption of the fourth antimonopoly package, is by obtaining prior approval of the agreement from the antimonopoly authority.

Changes in the regulation of agreements restricting competition

The fourth antimonopoly package provides a number of significant novel amendments in the legal regulation of agreements restricting competition.

Cartels. The concept of a cartel has been widened: now recognized as such, can be an agreement between economic entities engaged in the purchase of goods on a product market (cartel of buyers). Such a change could lead to a significant increase in cartel cases initiated by the antimonopoly authorities, the number of which already significantly exceeds the number of similar cases in developed legal systems.

Vertical agreements. The provision, introduced by the third antimonopoly package, under which an agency agreement was not considered as being a vertical agreement, has been cancelled. This change does not mean that now an agency agreement shall be considered as a vertical agreement, since by its nature, it is not (its parties do not buy anything from each other and do not sell anything to one another). The amendment aims to ensure that an agency agreement be evaluated based on the actual rights and obligations of the parties set out in such an agreement, without predetermining its qualification by antimonopoly legislation.

The fourth antimonopoly package made a positive clarification in regard to admissibility of vertical agreements. Thus, earlier, in accordance with Paragraph 2 of Article 12 of the Law on Protection of Competition, it was not possible to recognize an agreement as admissible, if the share of one of the parties in any product market exceeded 20%. Now, in accordance with the introduced revisions, a vertical agreement is admissible, if the share of each participant in the product market of the product, which is the subject of such an agreement, does not exceed 20%.

Agreement between organizers and participants of tenders. This bridges the gap, which had left these types of agreements beyond the scope of antimonopoly regulations. According to Paragraph 1 of Section 1 of Article 17 of the Law on Protection of Competition, the wording of the fourth antimonopoly package prohibits agreements between organizers of tenders and (or) customers with the participants of the tender, if such agreements have as their intent, or lead, or may lead to a restriction of competition and (or) the creation of preferential conditions for any of the participants of the tender. At the same time, attention should be drawn to the fact that this ban only applies to tenders and, accordingly, does not apply when requesting quotations and other forms of procurement, which are not considered as tenders.

Abuse of dominant position

The fourth antimonopoly package has introduced a number of changes that should reduce the number of prosecutions started for abuse of dominant position.

The possibility of recognizing a position of an economic entity as being dominant has been significantly limited, if its share does not exceed 35%. It remains only for cases of a collective dominance and cases expressly specified by law. Thus, the position of an entity, which may have a decisive influence on the general conditions of circulation of goods on the market, but whose share is less than 35%, as a rule, can no longer be regarded as a dominant one.

One of the key specific features in the Russian concept of abuse of a dominant position – is that such abuse may be recognized as actions that do not influence the state of competition, but infringe upon the interests of individual entities. This situation is not fully consistent with the objectives of antimonopoly regulations and has been subjected to constant criticism, because it allows the assignment of substantial turnover-based penalties for violations, which in no way influence the state of the competition. In this regard, changes have been introduced to the definition of abuse of a dominant position, which should eliminate the possibility of starting prosecution for violation of the interests of individual consumers. For example, in Section 1 of Article 10 of the Law on Protection of Competition it states that the abuse of a dominant position can now be recognized as actions entailing infringement of the interests of other parties in the field of business or an indefinite number of consumers.

In addition, the fourth antimonopoly package cancels the need to maintain a register of economic entities having a market share of certain goods of more than 35%, or a dominant position on the market for a particular product. In practice, most of the companies included in the said register, were representatives of small and medium-sized businesses. At the same time, a number of major companies, with a significant share of a particular market, did not appear in the register. As a result, the main practical result of the operation of this registry was just imposing on its members the obligation to send to the antimonopoly authority applications for approval of transactions, in order to control any economic concentration and, accordingly, there was observed a significant increase in the number of such applications. The cancellation of this registry will contribute to a significant reduction in the administrative burden, and the release of the antimonopoly authorities from a substantial amount of technical work.

Expanding the scope of warnings issuance

A positive novel amendment contained in the fourth antimonopoly package is a significant expansion of the range of legal offenses, leading to administrative responsibility, which cannot be prosecuted without a prior warning being issued.

Among such violations, in addition to the abuse of dominant position, are now considered the imposition of contractual terms (Paragraph 3 of Section 1 of Article 10 of the Law on Protection of Competition) and the refusal to/avoidance of concluding a contract (Paragraph 5 of Section 1 of Article 10 of the Law on Protection of Competition), and include:

• abuse of dominant position in the form of economically, technologically and otherwise unjustified fixing of different prices for the same goods (Paragraph 6 of Section 1 of Article 10 of the Law on Protection of Competition);

• abuse of dominant position in the form of setting discriminatory conditions (Paragraph 8 of Section 1 of Article 10 of the Law on Protection of Competition);

• unfair competition by defamation (Article 14.1 of the Law on Protection of Competition);

• unfair competition by deception (Article 14.2 of the Law on Protection of Competition);

• unfair competition by incorrect comparison (Article 14.3 of the Law on Protection of Competition);

• unfair competition related to illegal acquisition and use of information constituting commercial and other secrets protected by law (Article 14.7 of the Law on Protection of Competition);

• other forms of unfair competition other than those provided by the law (Article 14.8 of the Law on Protection of Competition);

• competition restricting acts and actions of the federal executive bodies, bodies of state power of subjects of the Russian Federation and other bodies vested with governmental authority (Article 15 of the Law on Protection of Competition).

Without issuing a warning and before the end of its execution period, the antimonopoly authority is not allowed to initiate a case founded on the above-mentioned violations of antimonopoly laws. If the entity that has been issued a warning, fulfils the demands contained in the warning, that entity shall not be held liable for such violations.

Creation of collegial bodies in the FAS

The fourth antimonopoly package provides for the establishment of collegial bodies in the FAS of Russia, the competence of which will include:

• provision of clarifications on the application of antimonopoly laws;

• reviewing the decisions and orders of regional antimonopoly authorities (UFAS), if they violate uniformity in the application by antimonopoly authorities of antimonopoly legislation.

Thus, the fourth antimonopoly package creates the possibility of an administrative review of decisions made by UFAS. A complaint against the decision of UFAS may be filed, by an entity involved in the case, within one month after the date of such decision. The term of consideration of such a complaint is two months. Following the review, the collegial body has the right to cancel or modify the decision of UFAS, if it is found that there has been a violation of the uniform application of antimonopoly legislation, or dismiss the complaint.

The appearance of collegial bodies and the possibility of an administrative review of decisions of UFAS should help ensure uniformity of practice in the application of antimonopoly laws, and provide legal certainty and predictability in law enforcement.

Other important changes

Unfair competition. The fourth antimonopoly package has introduced a separate chapter on unfair competition. The concept of unfair competition has not undergone significant changes; however, each part of it is now described in detail, which should contribute to ensuring uniformity in enforcement.

Conclusion on the circumstances of the case. Before ending its review of a case, in establishing the actions of the entity violating the antimonopoly legislation, the commission of the antimonopoly authority is obliged to provide a conclusion on the circumstances of the case. This document should contain information about the established factual circumstances, and the evidence supporting them. The conclusion on the circumstances of the case is sent to the entities participating in the case, which are entitled to present explanations and evidence in regard to the circumstances contained in the conclusion. These entities are entitled to submit to the commission their arguments and explanations of the circumstances contained in the conclusion, before the review process is completed. Thus, the conclusion should improve the quality of the decision-making by the antimonopoly authorities, and will contribute to the full realization of the rights of participants in a case, and help protect their interests.

Procedure for the submission of applications/notifications for the approval of transactions. It is possible to submit applications/notifications in electronic format, which should significantly reduce the time and costs of filing an application/notification. The procedure for filing applications/notices in electronic format must be approved by the Federal Antimonopoly Service of Russia.

Excluding double responsibility for an antimonopoly offense. The fourth antimonopoly package expressly prohibits the simultaneous issuance of orders to transfer to the state budget of income received from monopolistic activity or unfair competition, and bringing to administrative responsibility of an entity for violation of the antimonopoly laws, if such an order was already fulfilled.

The above analysis shows that the amendments made by the fourth antimonopoly package, to a greater extent, will lead to the liberalization of antimonopoly regulations and are intended to focus the work of antimonopoly authorities on violations that are really affecting the state of competition. In addition, it is aimed at ensuring uniformity in the actual practice of antimonopoly authorities and providing legal certainty. This result was largely the result of taking into account the positions of the business community in the discussion and adoption of the fourth antimonopoly package.

[1] Most of the provisions of the fourth antimonopoly package enter into force 90 days after the date of its official publication.