Law Review

Competition has always been considered as a healthy characteristic of the macro-economy. Each country focuses on the creation of a culture of healthy competition, aiming to incentivize market participants to deliver quality products at prices better than other competitors. Recently, Russia has made a new step in enhancing anti-monopoly regulations by introducing amendments to the Federal Law of 26.07.2006 No. 135-FZ “On Protection of Competition” (hereinafter the “Law No. 135-FZ”)[1] – the so-called Fourth Antimonopoly Package which reformed, inter alia, an institute of unfair competition.

This current overview provides a brief analysis of unlawful anti-competitive practices in Russia under the new rules of the Law No. 135-FZ and may be useful for market participants that consider their presence in Russia.

FORMS OF UNFAIR COMPETITION

Art. 4(9) of the Law No. 135-FZ defines Unfair Competition as any actions of market players (or a group of entities) which fall within the following conditions:

• aimed at obtaining advantages in conducting business;

• violate Russian law, business practice, requirements of respectability, reasonableness and equity; and

• cause or likely to cause damages to other market players, or damage or likely to damage their reputation.

According to the definition, only active behavior may constitute a breach of unfair competition regulations. At the same time, the courts widely interpret this rule and consider that a failure to act may also violate competition (for example, non-compliance with statutory duties).[2]

The new chapter 2.1 of the Law No. 135-FZ[3] currently provides a non-exclusive list of actions as examples of unfair competition. Those examples are as follows:

Discrediting Behavior

Art. 14.1 of the Law No. 135-FZ forbids actions discrediting market participants through a distribution of false, inaccurate or distorted information on qualities of their goods, works, services (hereinafter the “Goods”), if such actions are likely to cause damages to such market players and (or) damage their reputation.

At the same time, not every distribution of false, inaccurate or distorted information violates anti-monopoly regulations, but only those that affect competition (i.e., provides benefits for the distributor as compared to other market participants).[4]

Misleading

Misleading others about the nature, mode and place of manufacture, consumer properties, quality and quantity of goods or about their manufacturers is prohibited under Art. 14.2 of the Law No. 135-FZ.

Unlike Art. 14.1 (see above), misleading is caused by the distribution of positive information related to the distributor of such information himself.[5] At the same time, in both situations, the distributed information must contradict the reality in order to constitute the act of unfair competition.

Inappropriate Comparison

Inappropriate comparison, prohibited under Art. 14.3 of the Law No. 135-FZ, may take different forms. Most commonly, it happens in a form of the alleged leadership of certain Goods as compared to others, with a lack of criteria for such comparison or appropriate explanation (evidences) of the alleged leadership.

For example, comparison with another market participant through the words “the best”, “No. 1”, "the only”, etc., most likely to cause attention of competent Russian state authorities. However, risks of being accused of inappropriate comparison may be kept to a minimum by providing documents that would support such statements.

Usage of Exclusive Rights for Means of Individualization

Art. 14.4 of the Law No. 135-FZ forbids unfair competition related to obtainment and usage of exclusive rights for means of individualization of a commercial entity and Goods.

Most significantly, this rule works against those market participants who register the brand only for purposes to claim for compensation from other market participants, but have no real intention to use the brand after its registration. In these circumstances, Rospatent may invalidate the legal protection of the brand based on the relevant decision of the Federal Antimonopoly Service of Russia (hereinafter the “FAS”).[6]

Usage of Intellectual Property

Art. 14.5 of the Law No. 135-FZ forbids unfair competition in a form of actions of bringing Goods to the market, associated with usage of intellectual property (with an exception for means of individualization) ( hereinafter the “IP”) owned by the market competitor.

IP usage is lawful only if the consent of the owner is obtained. In most cases, the law requires registration of a special agreement. For example, usage of a patent protected invention is considered to be valid only if competent authorities registered a relevant license agreement.[7]

Actions Resulting in Confusion of Goods

Market participants are prohibited to commit actions which may lead to confusion with other market competitors or Goods. Art. 14.6 of the Law No. 135-FZ provides a non-exclusive list of such actions, including:

• unlawful usage of signs that are likely to be confused with certain brands, trade names, etc. by placing these signs at goods, labels, packages;

• imitation of the product exterior, its package, label, color scheme, corporate design and other elements, defining the brand identity.

Unlawful Usage of Limited Access Information

Information with limited access contains commercial secrecy or any other secrecy protected by the law. Art. 14.7 of the Law No. 135-FZ provides a non-exhaustive list of actions that may be considered as unfair competition, including unsanctioned obtainment and usage of information owned by other competitors.

At the same time, as explained by the FAS, usage of confidential information without the owner’s consent will not be recognized as unfair competition if it is committed bona fide (for example, the information was obtained from the mass media).[8]

LIABILITY

The FAS is the Russian state authority in charge of control for compliance with the Law No. 135-FZ. The FAS has a widespread practice and powers to issue orders to cease the respective violation and impose on the infringer administrative liability for violations where applicable.

The liability for unfair competition is stipulated in the Russian Code on Administrative Offences. It imposes a penalty on an official from RUB 12 000 to RUB 20 000; on a legal entity from RUB 100 000 to RUB 500 000. Unfair competition, which constitutes sale of Goods with illegal use of IP and means of individualization, is subject to a penalty on an official of RUB 20 000 or a disqualification of up to 3 years; and on a legal entity 1-15 % of sales revenue, but not less than RUB 100 000.[9]

Cases considered by the FAS are publicly available. At the same time, approaches of the FAS territorial divisions in relation to similar actions of market players may differ. Therefore, it is important to consider the practice of the particular Russian region when doing business in its territory.

CONCLUSION

The legal definition of unfair competition experienced no significant changes. At the same time, the Fourth Antimonopoly Package has detailed elements of anti-monopoly offenses and introduced legal positions previously formed in the FAS's and the courts’ practice.

Introduction of the new detailed chapter 2.1 of the Law No. 135-FZ must become a valuable contribution to unification of anti-monopoly law enforcement. Therefore, we recommend carefully following the application of new rules to keep informed of the most recent developments and approaches.

[1] Federal’nyi Zakon RF o Zaschite Konkurentsii [Federal Law of the Russia Federation on Protection of Competition] (Consultant Plus through July 3, 2016).

[2] Opredelenie Visshego Arbitrazhnogo Suda Rossiiskoi Federatsii ot 9 fevralya 2012 g. No. VAS-319/12 [Ruling of the Supreme Arbitrazh Court of the Russia Federation of Feb. 9, 2012 No. VAS-319/12], https://kad.arbitr.ru/PdfDocument/20b30de6-56b2-47cb-acf9-a8cd274bb8cd/A58-2053-2011_20120209_Opredelenie.pdf; Postanovlenie Arbitrazhnogo Suda Volgo-Vyatskogo okruga ot 25 noyabria 2014 g. po delu No. A82-8106/2013 [Decision of the Arbitrazh Court of the Volgo-Vyatskyi District of Nov. 25, 2014 in case No. A82-8106/2013], http://kad.arbitr.ru/PdfDocument/6c2ff7c3-a24b-4767-a280-01e7120d2853/A82-8106-2013_20141125_Postanovlenie%20kassacionnoj%20instancii.pdf.

[3] Art. 14 of the Law No. 135-FZ (in the redaction preceding the Fourth Antimonopoly Package) contained only general provisions on unfair competition. The chapter 2.1 substituted Art. 14 and currently provides more detailed rules which consider positions of courts practice.

[4] Konstantin Aleshin, Igor Artemiev & Evgeny Bolshakov, Nauchno-prakticheskii kommentarii k Federalnomu Zakonu o Zaschite Konkurentsii (postateinii) [Science-Practical Comments to the Federal Law of the Russia Federation on Protection of Competition (by articles)], (Statut 2d Ed. 2016) (Consultant Plus through March 8, 2017).

[5] Pis’mo Federal’noi Antimonopol’noi Sluzhbi Rossiiskoi Federatsii ot 24 dekabria 2015 No. IA/74666/15 o Priminenii Chetvertogo Antimonopol’nogo Paketa [Letter of the Federal Antimonopoly Service of the Russia Federation of Dec. 24, 2015 No. IA/74666/15 On Application of the Fourth Antimonopoly Package], paragraph 9.2 (Consultant Plus through March 8, 2017).

[6] Art. 14.4(2) of the Law No. 135-FZ.

[7] Grazhdanskii Kodeks Rossiiskoi Federatsii [GK RF] [Russian Civil Code] art. 1368 (Consultant Plus through March 12, 2014).

[8] Pis’mo Federal’noi Antimonopol’noi Sluzhbi Rossiiskoi Federatsii ot 24 dekabria 2015 No. IA/74666/15 o Priminenii Chetvertogo Antimonopol’nogo Paketa [Letter of the Federal Antimonopoly Service of the Russia Federation of Dec. 24, 2015 No. IA/74666/15 On Application of the Fourth Antimonopoly Package], paragraph 9.2 (Consultant Plus through March 8, 2017).

[9]  Kodeks Rossiiskoi Federatsii ob Administrativhikh Pravonarusheniyah [KAP RF] [Russian Code on Administrative Offences] art. 14.33 (Consultant Plus through June 22, 2007).