4. Antitrust & Competition

General

Anti-monopoly issues are primarily governed by the Competition Law, while liability for the violations of anti-monopoly regulations is mainly established (in addition to the Competition Law) by the Code on Administrative Offences and the Criminal Code.
The Federal Antimonopoly Service (“FAS”), a Russian executive authority, controls and enforces compliance with anti-monopoly legislation.

Scope of application of the Competition Law

The Competition Law applies to:
· Agreements/actions that may influence competition in Russia; and
· Agreements/actions which are related to:
· main production assets or intangible assets in Russia;
· shares or participatory interests in, or control over Russian legal entities; or
· control over foreign legal entities engaged in business activities in Russia.
The latter includes all foreign entities that supply goods/works/services to the Russian market in amount exceeding RUB 1bn during the previous calendar year.
The scope of application of the Competition Law is broader. It may cover almost any agreement and may apply to any company directly or indirectly connected with the Russian market or Russia in general.

Anti-competitive practices and restriction of competition

The Competition Law is aimed at countering:
· Abuse of a dominant position;
· Cartel agreements and concerted actions;
· Vertical agreements;
· Economic coordination; and
· Unfair competition.
The Competition Law also includes rules on transaction clearance.

Abuse of a dominant position

A company is dominant if it has a market share of over 50%.
But under some circumstances a dominance may be established even when a company has a market share of less than 50%, such as in case with collective dominance.
Small and medium-sized enterprises may generally not be dominant.
Dominance of a market is, in itself, not a violation. However, abuse of the dominant position may entail liability.
The actions of a dominant entity can qualify as abuse if they harm the interests of market players or unlimited number of consumers.
In addition to the prohibitions outlined below for cartels, dominant entities are prohibited from:
· Fixing or maintaining monopolistically high or low prices;
· Establishing different prices for the same commodity without technological or economic substantiation; and
· Establishing discriminatory conditions.

Cartel agreements and concerted actions

The following cartel arrangements are prohibited:
· Fixing or maintaining prices/tariffs, discounts, bonus payments or surcharges;
· Increasing, reducing or maintaining prices during auctions,
· dividing markets by territory, volume of sales or purchases, assortment of goods/works/services sold, or range of sellers or purchasers/ customers;
· Refusing to enter into contracts with certain sellers or purchasers; and
· Reducing or terminating the production of goods/works/services.

Vertical agreements

Vertical agreements must not contain any provisions that lead to a restriction of competition in general, In particular, they must not:
· Establish resale prices for goods/works/services, except for maximum resale prices; or
· Prohibit the purchaser from selling competing products.

Economic coordination

The Competition Law also prohibits any economic coordination exercised by one business entity over the activities of other business entities if such “‘coordinator”:
· Does not belong to the same group as the entities it coordinates;
· Is not active in the market where it coordinates the business of these other business entities; and
· The coordination results in forming a cartel.

General restriction of competition

Agreements in general must not lead to a restriction of competition in the market. In particular, they must not lead to:
· Different prices being set for the same product (work, service) without economic or technological substantiation;
· The imposition of unfavourable terms upon a contracting party;
· The obstruction of other business entities’ access to (or withdrawal from) a certain market; and
· The establishment of membership conditions in professional or other associations, if these conditions lead to or may lead to a restriction of competition.
As a general rule, above restrictions outlined for cartels, vertical agreements, economic coordination do not apply to agreements or actions between business entities that are part of one group of companies if they are controlled by the same person.

Unfair competition

Unfair competition is not permitted. Unfair competition includes:
· Distribution of false or incorrect information which may cause damage to company or its reputation;
· Provision of misleading information in respect of goods;
· Incorrect comparison of goods with those of competitors;
· Unfair acquisition and use of exclusive rights;
· The sale, exchange or other placement into circulation of goods in breach of IP rights;
· Creation of confusion with competitor’s business or products; and
· The unlawful receipt, use and disclosure of commercial secrets or other information protected by law.

Transaction clearance

The following transactions may require pre- approval from the FAS in case they reach thresholds described below:
· The establishment of a Russian company if (i) its charter capital is paid up by shares and/or tangible or intangible assets of another company; and (ii) the new company, as a result, acquires:
· more than 25% of voting shares in a Russian joint-stock company;
· more than 1/3 of the participatory interests in the charter capital of a Russian limited liability company; or
· more than 20% of the balance sheet value of the main production and intangible assets of the company which owns the assets (and whose assets are located in Russia);
· The reorganisation (in the form of a merger or accession);
· The conclusion of certain agreements between competitors on joint activities in the Russian Federation, including those on joint ventures;
· The acquisition of more than 25%, 50% or 75% of the voting shares in a Russian joint-stock company;
· The acquisition of more than 1/3, 50% or 2/3 of the participatory interests in the charter capital of a Russian limited liability company;
· The acquisition of control over a Russian company;
· The acquisition of more than 50% of the shares/participatory interests or control over a foreign “legal entity engaged in business activities in Russia”; and
· The acquisition of the right to own, use or possess the main production and intangible assets of a company if the book value of the acquired assets located in Russia exceeds the following percentages of the total book value of the seller’s main production and intangible assets:
· 20% for companies operating on commodity markets; or
· 10% for companies operating on financial markets.

Intragroup transactions

The Competition Law provides for a specific clearance procedure for intragroup transactions that would normally require pre-approval. This procedure allows applicants to make a prior disclosure of the group structure to the FAS and then notify the FAS of the transaction once completed (rather than going through the entire pre-approval procedure).

Thresholds

The thresholds set out below only apply to companies operating on the commodity markets. For those operating on financial markets, the requirements are different.

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Liability

Individuals and legal entities may be subject to administrative and criminal liability for non-compliance with anti-monopoly legislation.
Liability may include:
· Mandatory directions issued by the FAS to cease a violation and/or transfer to the state budget all revenue received as a result of the violation of anti-monopoly legislation (under the Competition Law);
· Fixed fines or fines calculated on the basis of revenue and/or disqualification of company officials (under the Code on Administrative Offences); and
· Fines and/or disqualification of company officials and, for the more serious anti-monopoly violations, up to seven years’ imprisonment for company officials (under the Criminal Code).

Prohibited agreements and leniency

As mentioned above, cartels and concerted actions which violate anti-monopoly regulations are strictly prohibited and may lead to severe sanctions being imposed.
However, the Code on Administrative Offences provides for a “leniency programme”, i.e. a limited opportunity for companies that have participated in illegal anti-competitive agreements or actions to avoid penalties.
To obtain total immunity under the Leniency Programme, a participant to an anti-competitive agreement (cartel) must: (i) be the first to inform the FAS of the anti-competitive agreement (cartel)’s existence; (ii) submit sufficient information and/or documents to the FAS to allow an administrative violation to be identified; and (iii) cease any involvement in the cartel or other infringement immediately. It is only possible to benefit from the Leniency Programme if the FAS is not aware of the reported infringement.
Collective applications for the Leniency Programme are not accepted.
It is also possible for the FAS to set the minimum amount of administrative fines against those who were the second or third to voluntarily report the conclusion of an anti-competitive agreement (cartel) to the competition authority.