In 2009, the Russian legislator amended Russia’s law “On Protection of Competition” No. 135-FZ (the new Law). In parallel with the adoption of the new Law, the government of Russia issued Resolution No. 583 “On Permissible Agreements Between Undertakings” (the Resolution No. 583) on the application of part 2 of Article 11 of the new Law (part 2 of Article 11 of the new Law prohibits agreements by undertakings and/or concerted practices other than those falling under part 1 of Article 11 and except for vertical agreements exempt under Article 12 that have as their object or effect the prevention, restriction or distortion of competition) to categories of vertical agreements and research and development agreements. The Resolution, which has a five-year sunset provision, went into effect on 31 July 2009.
According to the new Law, prohibitions provided in part 1 of Article 11 have been revoked with regard to vertical agreements. Part 1 of Article 11 prohibits agreements by undertakings and concerted practices that may lead to:
- Fixing prices and other trading conditions, e.g. rebates or price increases;
- Sharing out of product or geographic market or customers;
- Refusing transactions with certain suppliers or customers, without commercial or technological grounds (i.e. applying dissimilar conditions to equivalent transactions);
- Making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or commercial usage, have no connection with the subject of such contract;
- Fixing different prices for one and the same product;
- Limiting or ceasing commercially profitable production of commodities, for which there is demand on a market;
- Restriction of market access to competitors; or
- Collusion on terms of memberships or participation in associations if it has an anti-competitive object or effect.
Now, as these prohibitions have been lifted with respect to vertical agreements by virtue of part 1.1 of Article 11 of the new Law, the following rules apply with respect to vertical agreements in Russia.
According to Article 12 of the new Law the following vertical agreements (except for agreements between financial organisations) are considered to be permissible: (i) franchising agreements or agreements granting a commercial concession concluded in written form, and (ii) vertical agreements between undertakings, whose individual market share on the relevant market does not exceed 20 percent.
Instead of the prohibitions revoked by virtue of part 1.1 of Article 11, under the new Law part 1.2 of Article 11 prohibits vertical agreement (except for agreements exempt under Article 12), if
- Such agreement lead or are likely to lead to fixing prices of the subsequent resale of the goods; and/or
- The agreement restricts the buyer’s ability to sell the goods of competing suppliers, except when the buyer sells the goods under a trademark or proprietary name of the supplier or manufacturer of the goods.
Part 1 of Article 13 of the new Law provides that the prohibition under part 2 of Article 11, which applies also with respect to vertical agreements (except for the agreements exempt under Article 12), may be declared inapplicable where the agreements or concerted practices do not afford the undertakings the possibility of eliminating competition in the related market, do not impose restrictions that are not pertinent to the attainment of the undertakings’ objectives and that have, or are likely to have, as their effect:
- Improvement of the production, or distribution of goods, or promotion of the technical or economic progress, or improvement of the competitiveness of Russian products in the world markets; and
- Allowing consumers a fair share of the resulting benefits proportionate or adequate to benefits obtained by the undertakings.
The block exemption adopted by Russia’s government (Resolution No. 583) provides further guidance on the application of part 2 of Article 11 of the new Law and specifies what categories of vertical agreements (and also research and developments agreements, which are not touched upon in this article) should generally not fall within the prohibition of part 2 of Article 11.
Accordingly, paragraph 1 of the general exemptions applicable to certain categories of vertical agreements and adopted by Resolution No. 583 provides that vertical agreements are permissible if all of the following conditions are met:
(i) the supplier sells the product to two or more buyers and the share of the supplier on the market concerned is less than 35 percent, or the supplier sells the product to one buyer whose market share is less than 35 percent;
(ii) the supplier and the buyer do not compete or compete on a market where the buyer purchases the goods for further resale; and
(iii) the buyer does not manufacture goodsinterchangeable or competing with the goods purchased from the supplier.
Paragraph 2 of the general exemptions applicable to certain categories of vertical agreements adopted by Resolution No. 583 provides a list of restrictions or clauses that must not be contained in the vertical agreements (unless such agreement is exempt under Article 12 of the new Law). There is also a three-year maximum period for the non-compete obligation and a three-year maximum period of the minimum purchasing requirement, as specified below. Accordingly, the legislator explicitly prohibits the following clauses contained in vertical agreements:
- Clauses restricting the buyer’s ability to determine its sale price, including clauses whereby the supplier imposes a minimum price or fixed price.
- Clauses restricting the buyer’s ability to sell the goods within certain territory or to certain category of customers, except for the restriction of the buyer’s (except for the retailers) ability to sell into the exclusive territory allocated by the supplier to another buyer or except for the restriction of sales into the exclusive territory reserved to the supplier.
- Clauses restricting the supplier’s ability to sell spare parts and components, assembled or incorporated by the buyer, to end-users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods.
- Clauses restricting the buyer’s ability to manufacture, purchase and/or sell goods that are interchangeable, and that compete with, the goods purchased from the supplier (non-compete obligation), except when the non-compete obligation entered into force before the entry into force of the Resolution (in which case the restriction shall be valid, but for a period not exceeding three years from the date of the Resolution), or except when the buyer (except for the retailers) accepted the non-compete obligation for the first time and for a period not exceeding three years, or except when the buyer operates from land or premises leased or otherwise transferred by the supplier to the buyer.
- Clauses whereby the supplier forces the buyer to accept a minimum purchasing requirement of at least 50 percent of the buyer’s annual turnover (in value) of goods (including interchangeable goods), except when such minimum purchasing obligation entered into force before the entry into force of the Resolution (in which case the obligation shall be valid, but for a period not exceeding three years from the date of the Resolution), or except when the buyer (except for the retailers) accepted the obligation of the said minimum purchasing requirement for the first time and for a period not exceeding three years, or except when the buyer operates from land or premises leased or otherwise transferred by the supplier to the buyer.
- Clauses obligating the buyer to include in its agreement with its customers restrictions on the customers’ ability to resell the goods.
The Resolution specifies that if the supplier agrees to allocate an exclusive territory to the buyer, such agreement should also contain the restriction of the buyer’s ability to purchase from other suppliers interchangeable goods for resale in the same or partially overlapping territory.
Finally, the Resolution No. 583 provides for the following rule for the purposes of applying the market share threshold provided in paragraph 1 of the block exemption applicable to certain categories of vertical agreements: if the market share is initially not more than 35 percent, but subsequently rises above 35 percent, the exemption provided for in paragraph 1 shall continue to apply for six months following the year in which the level of 35 percent was fist exceeded.
The newly adopted block exemption and the set of amendments to the new Law applicable to vertical agreements as described above are likely to warrant revision of existing distribution agreements in Russia.