An extract from The Dominance and Monopolies Review - 7th edition

Abuse

i Overview

Dominance of a market is, in itself, not an infringement. Under Article 10 of the Competition Law, abuse of dominance is defined through its consequences as acts or omissions of a dominant undertaking that result or may result in the prevention, restriction or elimination of competition; or the infringement of rights of other undertakings in a field of business activities or an unlimited number of consumers; or both (effects-based approach).

The Competition Law provides for a non-exhaustive list of types of unilateral conduct that amount to abuse of dominance and are prohibited per se (i.e., there is no need for the FAS to establish a conduct's adverse effect on competition as such):

  1. fixing or maintaining monopolistically high or low prices;
  2. withdrawal of products from circulation if this results in an increase in prices;
  3. imposing unfavourable contractual terms (or contractual terms unrelated to the subject matter of an agreement) on a counterparty;
  4. reducing or terminating the production of goods, works or services without an economic or technological justification;
  5. refusal to deal with certain customers without an economic or technological justification;
  6. establishing different prices for the same product without an economic or technological justification;
  7. fixing high or low prices for financial services without any substantiation (for financial institutions);
  8. establishing discriminatory conditions;
  9. creating barriers to market entry or exit for other undertakings;
  10. failure to comply with the regulatory requirements as to pricing; and
  11. manipulation of prices on the wholesale or retail markets, or both, for electrical energy (capacity).

The FAS is required to prove that an undertaking is a dominant entity and that it has been involved in abusive conduct caught by Article 10. As to the available defences, an undertaking may contest the assessment of its market position as dominant and, as occurs frequently, claim that its behaviour was part of an ordinary business strategy (i.e., competition on the merits), and can be substantiated by commercial and technological reasons. Still, in many cases, the success of these arguments is far from obvious.

More importantly, by statute, an undertaking may provide evidence suggesting that its conduct is admissible only in relation to certain types of abuse (reduction or termination of production, establishing discriminatory conditions and creating barriers to market entry). In particular, potentially abusive conduct may be admissible if it:

  1. does not eliminate competition on the market;
  2. does not impose limitations on third parties; or
  3. results in production improvement, technological progress or increased competitive performance of Russian products, or creates benefits for consumers.
ii Exclusionary abusesExclusionary pricing

Exclusionary pricing practices, such as predation, fall under the prohibition on establishing monopolistically low prices. There are two main criteria for a price to be qualified as monopolistically low: it is below the necessary production and distribution costs, as well as the profit; and it is below the price that was formed under competitive conditions in a market with a comparable composition of suppliers and customers and conditions of goods circulation. Margin squeeze is not specifically mentioned in the Competition Law, but this type of abusive behaviour can be viewed as creating barriers to market entry (and fixing monopolistically low prices, as in the case of predatory pricing).

Exclusive dealing

Exclusive dealing practices are caught by the prohibitions of Article 10 of the Competition Law if they result in market foreclosure by creating barriers to market entry or refusal to deal with other market players. Loyalty rebates are not prohibited per se, but should always be treated with caution by dominant undertakings, as rebates are usually viewed by the FAS as price components. Establishing such rebates may be considered as abuse of dominance in the form of discrimination or establishing different prices for the same products.

Leveraging

Leveraging practices, including tying and bundling, are prohibited under the Competition Law and are not uncommon in the FAS' practice. For example, the FAS has looked into such practices in relation to the electrical power industry and insurance. Tying and bundling essentially lead to the imposition of unfavourable terms (terms that are not relevant for the subject matter of the agreement) on a counterparty. There are no uniform criteria, so the FAS usually analyses the economic nature of the parties' arrangement to establish, among other things, whether the customer was duly informed and aware of its options.

Refusal to deal

Unjustified refusal to deal is among the most common types of abuse in the FAS' practice (in particular, in the pharmaceutical industry). Special rules apply to natural monopolists and dominant undertakings with a market share of more than 70 per cent to ensure access to certain products and infrastructure. Currently, refusal to license does not expressly fall foul of the Competition Law requirements. Owing to the IP-related exemption, the prohibitions of Article 10 as to abuse of dominance do not apply to the exercise of IP rights, but the relevant legal framework may change in the near future. The overall abolition of this exemption and the subsequent introduction of such mechanisms as compulsory licensing are being considered.

Dominant market players cannot refuse to enter into a contract with certain customers without a reasonable commercial or technological justification (should it be possible to manufacture or supply such products). The following shall be confirmed by the FAS to establish the violation:

  1. a customer contacted a dominant undertaking and sent a corresponding request;
  2. a dominant undertaking refused to deal or supply (such a refusal can take different forms; it can be indirect or implied (e.g., by delaying responses or ignoring negotiations));
  3. a dominant undertaking can (objectively) procure the production or supply of the products; and
  4. a dominant undertaking does not have any proper commercial or technological grounds to substantiate its refusal to deal.

When reviewing cases on abusive refusal to deal by a dominant undertaking, the FAS has also looked into the potential interplay between the antitrust and anticorruption concerns. According to the FAS, refusal to enter into an agreement with a potential distributor should be based on established facts and decisions of the competent bodies rather than any informal sources (mass media, online publications, phone calls, private investigators, etc.). The FAS is of the opinion that a Russian counterparty is supposed to act in compliance with Russian law, which does not provide for an obligation to undergo a compliance check essentially relating to foreign anticorruption laws (this requirement can also amount to exploitative abuse).

The ability to present evidence and build a well-grounded position is of the outmost importance in such cases. The FAS decides on a case-by-case basis whether there are valid reasons for a dominant undertaking not to deal with a particular distributor. In certain instances, the impracticality and unprofitability of cooperation for a dominant entity were found to be proper and sufficient grounds.

iii Discrimination

All forms of discrimination, including discriminatory pricing and other issues relating to interactions with counterparties, are prohibited for dominant entities. Thus, customers in the same position should be offered comparable deals, and customers not in the same position should be differentiated on an objective basis according to their divergent circumstances. FAS and court practice suggests that the same pricing policy shall be applied to all counterparties, whether they are part of the same group or not.

As suggested by the FAS' practice, the basic principle here is the following: while the 'freedom of contract' concept still applies, prices and rebates offered by a dominant undertaking shall be substantiated (i.e., based on transparent, objective, clear and well-grounded criteria), and at the same time shall not be discriminatory (e.g., they shall not be drastically different in comparable situations).

Additional rules preventing discrimination can be found in sector-specific legislation, such as Federal Law No. 381-FZ on Fundamentals of State Regulation of Trading Activities in the Russian Federation dated 28 December 2009, which governs relationships between retail food chains and their suppliers and specifically prohibits discrimination (and other forms of abuse).

iv Exploitative abuses

Prohibitions of Article 10 of the Competition Law apply to exploitative abuses. Excessive pricing is assessed in the same way as predatory pricing in terms of the Competition Law provisions preventing dominant undertakings from establishing monopolistically high and low prices. In most cases, other types of exploitative abuse are qualified as imposing unfavourable and excessive terms on counterparties.