The Federal Law “On the Protection of Competition” and related legal acts will undergo significant changes in the near future, and most of these will come into force on 5 January 2016.
The so-called “fourth anti-monopoly package” was signed into law by the President of the Russian Federation on 5 October 2015. It marks the next stage in the evolution of Russian competition law, is of great practical significance and, to a large extent, aims to remove red tape and a number of administrative formalities. The widely discussed amendments (the “Amendments”) are meant to fill in certain loopholes in the current regime. They affect virtually all areas of antitrust regulation and result in, among other things, changes to the existing merger control rules.
Agreements on joint activities between competitors
One of the most important novelties that has an impact on business is the need for competitors to obtain the prior approval of the Federal Anti-monopoly Service of Russia (the “FAS”) for the conclusion of agreements on joint activities if certain thresholds are exceeded. The thresholds are the following: (i) if the aggregate value of assets of the groups involved exceeds seven billion roubles or (ii) if the aggregate revenue of such groups for the past year exceeds ten billion roubles. The concept of agreement on joint activities will, in particular, comprise the establishment of joint ventures.
Up until now there were no special rules in this field. Agreements on joint activities / joint ventures could be caught by the general rules on merger clearance, depending on the structure of the project (for example, share or asset deals). However, in many cases, the creation of a joint venture did not need to be cleared with the FAS. The changes constitute a logical and positive step in the overall development of the Russian anti-monopoly legislation, which is largely receptive to the experience of the European Union.
When competitors merge their business operations, this can in fact give birth to a new major player in the market and thus affect competition. In addition, merger control brings more clarity to the regulation of these relations and allows the competitors who are party to the project to have some confidence that their agreement to create a joint venture does not lead to a restriction of competition, which will be supported by the approval of the competition authority. Accordingly, the risk of being held liable in connection with the conclusion of such an agreement is significantly reduced.
Market players implementing such projects should take into account the Amendments in a timely manner and apply to the FAS for clearance. We anticipate that in view of these changes and the broad definition of the concept of “agreement on joint activities” the number of notifications for the FAS clearance of transactions will increase.
Anti-competitive agreements
The Amendments also impact on agreements restricting competition.
Cartels
The existing prohibition on the conclusion of cartel agreements between competing sellers is extended to competing customers.
Vertical agreements
One of the criteria for the admissibility of “vertical” agreements (between the seller and the buyer) has been clarified. They are allowed provided that the share of each party on the specific market which is the subject-matter of the vertical agreement does not exceed 20%. Previously, in the absence of this clarification the literal interpretation of the statutory provisions resulted in the situation where the above criterion could be applied if the market share of each of the parties did not exceed 20% in any market.
Unfair competition and dominance
The rules on unfair competition are now substantially more detailed and contain some new provisions (for instance, provisions on disparaging statements and creating confusion with a competitor’s business or products).
Other notable changes affect issues of dominance. As a general rule, an entity whose share in the relevant market is less than 35% can no longer be regarded as having a dominant position.
The register of economic entities with a market share exceeding 35% will no longer be maintained, and a specific ground for obtaining prior approval in relation to the transactions involving such entities will be abolished. Such transactions will require clearance with the FAS only if the established financial thresholds are met.
The Amendments provide that the Russian Government may adopt rules to regulate non-discriminatory access to the goods of dominant subjects that are not natural monopolies and whose market share is more than 70% (the fact of abuse should be established by a decision of the antimonopoly authority).
Procedural issues and administrative liability
When the Amendments come into force, a number of procedural changes will occur:
- the competition authority will more actively use warnings and cautions;
- a collegial body of the FAS will be set up to give clarifications on the application of competition law and review decisions of territorial authorities; and
- the procedure for the review of cases of infringements of competition law will be more detailed.
Changes to the Code on Administrative Offences make it possible for the competition authority to set the minimum amount of administrative fines against those who were the second or third to voluntarily report the conclusion of an anticompetitive agreement (cartel) to the competition authority. To date, it was only possible for a company or group of companies to be exempted from administrative liability – and benefit from the leniency programme – if it was the first to report the conclusion of a prohibited agreement.
Comment
Despite the undeniable importance of the Amendments to the enforcement practice, in most cases they will not require immediate action from the market players. In the meantime, competitors intending to enter into an agreement on joint activities (a joint venture) in 2016 should carefully consider the Amendments and plan the rollout of such projects with due regard to the possible need to obtain a prior approval of the FAS.
10/2015
The Federal Law “On the Protection of Competition” and related legal acts will undergo significant changes in the near future, and most of these will come into force on 5 January 2016.
The so-called “fourth anti-monopoly package” was signed into law by the President of the Russian Federation on 5 October 2015. It marks the next stage in the evolution of Russian competition law, is of great practical significance and, to a large extent, aims to remove red tape and a number of administrative formalities. The widely discussed amendments (the “Amendments”) are meant to fill in certain loopholes in the current regime. They affect virtually all areas of antitrust regulation and result in, among other things, changes to the existing merger control rules.
Agreements on joint activities between competitors
One of the most important novelties that has an impact on business is the need for competitors to obtain the prior approval of the Federal Anti-monopoly Service of Russia (the “FAS”) for the conclusion of agreements on joint activities if certain thresholds are exceeded. The thresholds are the following: (i) if the aggregate value of assets of the groups involved exceeds seven billion roubles or (ii) if the aggregate revenue of such groups for the past year exceeds ten billion roubles. The concept of agreement on joint activities will, in particular, comprise the establishment of joint ventures.
Up until now there were no special rules in this field. Agreements on joint activities / joint ventures could be caught by the general rules on merger clearance, depending on the structure of the project (for example, share or asset deals). However, in many cases, the creation of a joint venture did not need to be cleared with the FAS. The changes constitute a logical and positive step in the overall development of the Russian anti-monopoly legislation, which is largely receptive to the experience of the European Union.
When competitors merge their business operations, this can in fact give birth to a new major player in the market and thus affect competition. In addition, merger control brings more clarity to the regulation of these relations and allows the competitors who are party to the project to have some confidence that their agreement to create a joint venture does not lead to a restriction of competition, which will be supported by the approval of the competition authority. Accordingly, the risk of being held liable in connection with the conclusion of such an agreement is significantly reduced.
Market players implementing such projects should take into account the Amendments in a timely manner and apply to the FAS for clearance. We anticipate that in view of these changes and the broad definition of the concept of “agreement on joint activities” the number of notifications for the FAS clearance of transactions will increase.
Anti-competitive agreements
The Amendments also impact on agreements restricting competition.
Cartels
The existing prohibition on the conclusion of cartel agreements between competing sellers is extended to competing customers.
Vertical agreements
One of the criteria for the admissibility of “vertical” agreements (between the seller and the buyer) has been clarified. They are allowed provided that the share of each party on the specific market which is the subject-matter of the vertical agreement does not exceed 20%. Previously, in the absence of this clarification the literal interpretation of the statutory provisions resulted in the situation where the above criterion could be applied if the market share of each of the parties did not exceed 20% in any market.
Unfair competition and dominance
The rules on unfair competition are now substantially more detailed and contain some new provisions (for instance, provisions on disparaging statements and creating confusion with a competitor’s business or products).
Other notable changes affect issues of dominance. As a general rule, an entity whose share in the relevant market is less than 35% can no longer be regarded as having a dominant position.
The register of economic entities with a market share exceeding 35% will no longer be maintained, and a specific ground for obtaining prior approval in relation to the transactions involving such entities will be abolished. Such transactions will require clearance with the FAS only if the established financial thresholds are met.
The Amendments provide that the Russian Government may adopt rules to regulate non-discriminatory access to the goods of dominant subjects that are not natural monopolies and whose market share is more than 70% (the fact of abuse should be established by a decision of the antimonopoly authority).
Procedural issues and administrative liability
When the Amendments come into force, a number of procedural changes will occur:
Changes to the Code on Administrative Offences make it possible for the competition authority to set the minimum amount of administrative fines against those who were the second or third to voluntarily report the conclusion of an anticompetitive agreement (cartel) to the competition authority. To date, it was only possible for a company or group of companies to be exempted from administrative liability – and benefit from the leniency programme – if it was the first to report the conclusion of a prohibited agreement.
Comment
Despite the undeniable importance of the Amendments to the enforcement practice, in most cases they will not require immediate action from the market players. In the meantime, competitors intending to enter into an agreement on joint activities (a joint venture) in 2016 should carefully consider the Amendments and plan the rollout of such projects with due regard to the possible need to obtain a prior approval of the FAS.