Russian competition law was first introduced in 1991 and has significantly evolved since then. The current legal framework is based on the 2006 Federal Law No. 135-FZ On Protection of Competition. Generally, Russian competition law tends to follow European competition regulations, but there are still considerable differences.
The Russian competition authority, the Federal Antimonopoly Service of the Russian Federation (FAS), has broad executive powers, including reviewing merger control; investigating the observation of competition law; and regulating public procurement, unfair competition, advertisements, and natural monopolies’ tariffs.
In recent years, FAS has been increasingly active in the digital markets sector, with its senior executives repeatedly emphasizing the importance of considering digital economy markets and elaborating on the application of traditional competition law tools to regulate them.
FAS has paid particular attention to competition law violations resulting from the use of artificial intelligence, big data, online platforms, aggregators and pricing algorithms. On March 18, 2019, FAS published recommendations on using pricing algorithms (see our legal update for more information).
Merger control regime
The Russian merger control regime broadly resembles that of other major jurisdictions. Subject to financial thresholds being met, merger transactions that trigger a merger filing include:
- statutory mergers;
- the acquisition of company shares;
- the acquisition of production or intangible assets;
- the acquisition of rights to determine the terms of business activities of a company; and
- the execution of a joint venture agreement between competitors.
The financial thresholds that trigger a merger filing are rather low. They are met if:
- the book value of assets of the acquiring company’s group and the target company’s group exceeds approximately US$100 million or the total annual turnover of the acquiring company’s group, and the target company’s group exceeds approximately US$150 million; and
- the target company’s group book value of assets exceeds approximately US$6 million.
Foreign-to-foreign transactions trigger merger filings in Russia if they involve foreign target companies with Russian subsidiaries (even if they are dormant) or foreign target companies with an annual turnover from sales to Russia over around US$15 million. Because of the low thresholds, the acquisition of a foreign target company with a Russian subsidiary will most likely require a merger filing in Russia.
In 2018, FAS reviewed 1,086 merger clearance applications. One recent high-profile cross-border case was the Bayer/ Monsanto transaction, which was cleared in 2018. In this matter, FAS tested new methods for analyzing the economic effects of the transaction on the market, and imposed particularly heavy behavioral remedies.
Despite the relatively low market shares of the parties in Russia, FAS argued that the Bayer/Monsanto transaction would result in a significant growth of market power and the restriction of competition, because of the use of big data, algorithms, and other digital technologies in the agricultural market in which the parties operate.
FAS conditionally cleared the transaction by imposing behavioral remedies. For the first time, these remedies included:
- an obligation to transfer techniques for the molecular selection of seeds to selected Russian organizations;
- an obligation to provide Russian companies with access to the digital platforms for precision agriculture; and
- the appointment of a monitoring trustee for ensuring compliance with the remedies.
The Bayer/Monsanto case shows that FAS closely reviews and regulates cross-border transactions involving digital markets.
Competition law investigations
FAS is active in enforcing competition law. In 2018, it investigated 685 abuse of dominance cases, and 437 cases on anticompetitive agreements and concerted actions, which included 332 cartel cases, 46 other anticompetitive agreements cases, and one vertical agreement case. The same year, authorities initiated 14 criminal cases against officials of organizations that committed cartel violations. Historically the majority – over 85% – of cartel cases in Russia relate to bid rigging cases.
Recent high-profile investigations include those against multinationals. For example, in 2018, FAS investigated why various consumer electronics retailers used the same resale prices for LG smartphones. It transpired that the authorized importer of LG smartphones to Russia published recommended resale prices on its website, and monitored and enforced the compliance of retailers with those prices. Managers of the authorized importer monitored the resale prices not only by regularly collecting price data from the resellers, but also by using special software containing a price analysis algorithm. The use of this algorithm differentiates the case from the 2019 resale price maintenance investigation regarding Samsung.
FAS sanctioned the authorized importer for violating Russian competition law. In its decision, FAS noted that the use of price algorithms is not a violation as such, but that they may be used as a means of violating competition law.
Amendment of Russian competition law
The most actively debated proposed amendments of Russian competition law are set out in a draft law named the Fifth Antimonopoly Package (which represents the fifth package of substantial amendments to the competition law).
The aim of the draft law is to regulate digital market by introducing a digital platform and network effects doctrine. It is proposed that the companies that have digital platforms with network effects could be considered dominant entities in the markets where they operate.
The draft law also proposes amending the merger control regime by introducing, among others, the following provisions:
- If FAS issues conditional clearance of the transaction, it may require a monitoring trustee to be appointed to review the process’ compliance with the conditional clearance.
- FAS could extend the merger-review period in relation to cross-border transactions by up to five years, subject to obtaining consent from the Russian government.
- If FAS considers that a transaction results, or may result, in the restriction of competition, FAS should issue a report containing its position on the merits of a transaction and invite an applicant and other relevant parties to discuss such concerns.
The draft law is expected to be enacted in 2020.
Another long-expected reform of competition law is the introduction of a system of antimonopoly compliance. Under the draft law for the measure, antimonopoly compliance is defined as a set of internal acts and organizational measures aimed at preventing antimonopoly violations. The draft law provides that if a company implements an effectively functioning antimonopoly compliance system, it may qualify for a reduced fine for an accidental violation of competition law. This amendment of the competition law could also be enacted in 2020.
Eurasian Economic Union
Russia is a member of the Eurasian Economic Union (EAEU), which has supranational competition law regulations. The member states of the EAEU are Armenia, Belarus, Kazakhstan and Kyrgyzstan. This means that companies doing business in Russia must comply with not only Russian competition law, but also – where applicable – the EAEU competition regulations.
EAEU competition law does not provide for a merger control regime. Certain vertical and horizontal cooperation may, however, be assessed under the provisions prohibiting the abuse of dominance and anticompetitive agreements. If the competition authority of the EAEU initiates a case, FAS would lose jurisdiction over the same matter.
The competition authority of the EAEU may investigate competition law violations and impose sanctions if the criteria for assuming EAEU jurisdiction are met. Under the general rule, the competition authority has jurisdiction over infringements on cross-border markets that adversely affect competition in two or more member states. A cross-border market is deemed to be a market whose geographic boundaries cover two or more member states (e.g. Russia and Belarus).
Some EAEU antimonopoly investigations have led to companies being held liable for the violation of EAEU competition law (e.g. the Caterpillar case and the NMLK case), and some of them are still ongoing (e.g. the Farmexpress case).
Historically, the EAEU competition authority has not been particularly active in enforcing EAEU competition rules. For example, in 2018, the competition authority of the EAEU conducted five investigations in total, and the same number of investigations in the first half of 2019. This may, however, change in future.