Client Alert | Antitrust/Competition "4th Antitrust Set" of amendments December 2015 Authors: Igor Ostapets, Ksenia Tyunik, Ekaterina Tulaeva On 5 October 2015 the President of the Russian Federation signed the Federal Law No. 275-FZ "On Amending the Federal Law "On Protection of Competition" and Other Legal Acts of the Russian Federation", so-called the "4th Antitrust Set" of amendments. In particular, the changes were introduced to the Federal Law "On Protection of Competition", as well as the Federal Law "On Natural Monopolies" and the Code of Administrative Offences. The 4th Antitrust Set of amendments was prepared to further improve antitrust regulation and promote competition. The Set was based on the action plan (the "roadmap") "Development of Competition and Improvement of Antitrust Policy" with certain other revisions also included in the Set. This Set of amendments is the most extensive and widely discussed of all others adopted since 2006 when the Competition Law came into force. The majority of amendments come into force on 5 January 2016. This special alert will concentrate on the main reforms introduced by the 4th Antitrust Set to the abovementioned regulatory acts. Control over economic concentration Prior approval of joint venture agreements One of the main novelties introduced by the 4th Antitrust Set is the new requirement to obtain a prior approval of a joint venture agreement (the "JVA") from the Federal Antimonopoly Service (the "FAS"). Such approval will be required if a JVA is proposed between legal entities competing on the Russian territory given that the following thresholds are met: • the aggregate asset value of the parties to a JVA and their groups exceeds RUB 7 bln according to their balance sheets for the year preceding the JVA, or • the aggregate sales revenue of the parties to a JVA and their groups for the calendar year preceding the JVA exceeds RUB 10 bln. This change was introduced as part of the general FAS efforts to create a separate regulatory regime for JVAs1 (earlier the FAS published Clarifications on the Procedure and Methods of Analysis of JVAs , which included, inter alia, non-compete provisions). 1 http://www.fas.gov.ru/clarifications/clarifications_30419.html Client Alert White & Case 2 It is worth noting that JVAs approved by the FAS within the framework of control over market concentration are not subject to restrictions on anticompetitive agreements set out in Article 11 of the Competition Law. In particular, to qualify for exemption from the application of the said restriction parties may apply to the FAS for approval of the respective JVA even if the thresholds discussed above are not met. These amendments obviously have a positive effect as they harmonise and clarify the existing JVA regulations. Nevertheless it will take some time for the FAS to develop its position and practice of application of these new provisions, including application of the regulation to agreements, which do not provide for creation of a joint venture, as well as interpretation of such notions as "designation of a JVA to the Russian territory" and "whether the parties to a JVA are competitors (actual or potential)". Change of criteria for approval of transactions and actions The amendments abolished the Register of legal entities with a market share in excess of 35% on a market for a certain product (the "Register"). Therefore, it is no longer required to obtain a prior FAS approval of a transaction solely on the basis that the acquirer, the target or any entity of their groups is in the Register. This amendment will significantly reduce the number of transactions subject to the FAS approval, which, in turn, will lower the administrative barriers for business activities (prior to this amendment a lot of transactions were subject to approval under this criterion), and the workload of the FAS. Submission of applications and notifications to the FAS: technical issues First, entities submitting applications and notifications to the FAS are now entitled to send an advance notice of the planned transaction to the FAS and to present information and documents (including explanations), as well as to propose the commitments aimed, in the view of the parties, at preserving competition. The FAS will have to take into account such materials when considering the respective application or notification. This reform expands opportunities for communication with the FAS during the stage of transaction review, and enhances transparency of such communications. Undoubtedly, this creates additional opportunities for the parties to large and complex transactions when explanations and other materials submitted by the parties are an important additional source of information for the FAS during assessment of a transaction. Furthermore, the amendments introduced an option to submit applications and notifications to the FAS electronically, which will significantly facilitate the process of liaising with the FAS. The respective legal acts of the FAS, which will regulate the procedure of electronic submission, are yet to be developed. Another development is an obligation on the part of the FAS to publish information concerning the received application on its official web-site. The interested parties will be able to inform the FAS about the impact of this particular transaction on the state of competition. While this novelty is aimed at enhancing transparency of the FAS activities and increasing co-operation between legal entities and the FAS in course of transactions review, it raises a number of questions, in particular concerning the practical possibility to submit a confidential application. Anticompetitive agreements and other types of monopolistic activities Anticompetitive agreements The definition of cartel in the Competition Law was supplemented by a provision that a cartel can exist not only between competitors that sell goods on the same market, but also between entities that buy goods on the same market, i.e. agreements between buyers. This will allow preventing anticompetitive practices of buyers in the markets where byers hold the prevailing market power. Amendments clarified the criteria for admissible vertical agreements set out in the Competition Law. Now admissible vertical agreements are agreements between legal entities, whereby the market share of each party to the agreement does not exceed 20% on the market for a product, which is the subject matter of the vertical agreement. Previously, the said exception referred to the share on any market for goods, which gave rise to many uncertainties (including whether it meant "any market for goods" affected by the relevant Client Alert White & Case 3 agreement, or generally any market for goods, in which the parties to the agreement operate), which, essentially limited the scope of application of this exception. The amendments removed this uncertainty. Additionally, the changes abolished Part 1.1 in Article 13 of the Competition Law. Article 13 sets out general admissibility criteria for agreements, transactions and other practices, and the abolished Part contained separate criteria for JVAs. Now general admissibility criteria set out in Part 1 of Article 13 are applicable to JVAs. Thus, the existing admissibility criteria have essentially been unified, as both Parts 1 and 1.1 had a similar wording. Dominant position Amendments to Article 5 of the Competition Law, which sets out criteria for dominance, remove the possibility to recognise an entity as dominant if its share on a market for a certain product does not exceed 35%, except for the instances of collective dominance, as well as situations specified in the federal laws. In fact the amendments abolished a dead provision. As for the prohibitions on abuse of dominant position, the amendments specify that these prohibitions will apply, inter alia, to situations when the interests of legal entities in the sphere of trading or the interests of an unspecified class of consumers were affected. By doing so the FAS realised its intention to remove from the scope of application of the Competition Law situations when the interests of individual consumers were affected. The FAS intended such situations to be resolved by the Federal Service for Supervision of Consumer Rights Protection and Human Welfare). Another important change concerns the Rules of Non-Discriminatory Access in respect of the goods produced and sold by a dominant entity or a natural monopolist. Such rules can be imposed by an act of the Government if: (a) the market share of such entity in the market for the relevant goods exceeds 70%, and (b) the FAS rendered a legally binding decision that such entity abused its dominant position. The Competition Law contains an exhaustive list of provisions, which can be included in the Rules. The purpose of this reform is to enhance transparency of activities of dominant companies and to prevent such companies from imposing discriminatory conditions in the markets where they enjoy a stable market share, which allows them to determine the general terms of turnover unilaterally. Unfair competition Significant changes were introduced to the regulation of unfair competition. In place of Article 14 the 4th Antitrust Set introduced Chapter 2.1 (Unfair Competition) to the Competition Law, containing a detailed list of prohibitions and regulations of the different forms of unfair competition. Pursuant to the amendments, the following forms of unfair competition are prohibited: (i) by discrediting, (ii) by misrepresentation, (iii) by incorrect comparison, (iv) involving acquisition and use of an exclusive right to the means of individualisation of a company, goods, works or services; (v) involving IP; (vi) involving amalgamation, and (vii) by unlawful acquisition, use and disclosure of information which constitutes a commercial or other secret protected by the law. The list provided in the Competition Law is not exhaustive: all other forms of unfair competition are also prohibited by the Law. Transactions with natural monopolists The Law on Natural Monopolies was reformed dramatically in the area of FAS control over transactions with natural monopolists and in respect of such entities. In particular, an additional qualifying criterion for natural monopolists was introduced; if present, such criterion will trigger the requirement to obtain a prior FAS approval of their transactions (investments). Transactions (investments) of only those natural monopolists, whose revenue from natural monopoly activities exceeds 1% of the total revenue, will be subject to the FAS control. Client Alert White & Case 4 A similar qualifying criterion will apply to transactions with fixed assets of natural monopolists. Once the amendments come into force the requirement of prior FAS approval will apply only to those acquisitions, as a result of which the acquirer's revenue from natural monopoly activities will exceed 1% of the total revenue. Furthermore, the amendments abolished the requirement to give notice to the FAS of acquisitions of more than 10% of the total number of voting shares (participation interest) in a natural monopolist (and of each subsequent change in the declared number of voting shares (participation interest)), and of similar acquisitions performed by natural monopolists themselves. These novelties will allow reducing significantly the number of transactions subject to the FAS control in the area of natural monopolies activities. Examination of antitrust cases Procedure of examination of antitrust cases Important changes were made to the procedure of examining cases of antitrust violations. First of all, FAS will be required to prepare a new document, called “Determination of the circumstances of the case”, which will be issued by the commission examining the case (the "commission") during the stage of establishing in the actions (omissions) of the defendant antitrust violations in antitrust cases. The amendments regulate the content of such determination in the detail. A determination must be prepared before the end of case examination and, in essence, it summarises factual and other case background as established by the commission, as well as evidence on the basis of which the commission made its conclusions and the conclusion itself on whether antitrust violations occurred. The determination must be sent to the case participants so that they could review it and submit their explanations or objections to the commission before the end of case examination. In the event a determination of the circumstances of the case is issued, examination of the respective case shall be adjourned. This change is very important and progressive and it adopts some of the best international procedural standards, including the EU practice. Prior to the implementation of such provision, case participants had no consolidated information on the facts of the case and evidence, as well as the conclusions of the commission as to whether antitrust violation occurred, before the decision on the case was rendered. Additionally, the amendments regulate in detail the content of a number of procedural documents, which are adopted in course of the case review. Above all, this concerns decision on the case, which shall consist of introduction, description, reasoning and resolution parts. Changes also apply to a decision to commence antitrust proceedings. The amendments set a procedure concerning access of the case participants to the case materials that contain commercial secrets. Pursuant to the amendments, information (documents) containing commercial secrets submitted to the FAS at its requests and attached to the case materials can be provided to the case participants against acknowledgement upon consent of the owner of such information (documents). Furthermore, amendments were made to provisions regulating such important aspects of the proceedings as challenge of the commission members; engagement and selection of experts and their participation in the case examination; whether a case is to be heard in open or in closed session or via video conference; as well as admission of evidence and the procedure of proving a case. Appealing decisions issued by territorial FAS bodies in the collective body of the central office of the FAS One of the reforms introduced by the 4th Antitrust Set is a possibility for the case participants to submit an appeal to the central office of the FAS against decisions and (or) resolutions issued by territorial FAS bodies, if, in the opinion of the appellant, such acts are inconsistent with the application of the antitrust provisions by the competition authorities. The complaint will be reviewed by the collective body established specially for this purpose in the central office of the FAS. Client Alert White & Case 5 An appeal against a decision and (or) resolution of a territorial FAS body must be submitted to the FAS within one month after the decision being challenged, and (or) resolution was adopted. The decision on the appeal must be made within two months following submission of the appeal. This term can be extended for a period not exceeding one month. The amendments supplemented the procedure with detailed rules regulating the appeal process (including participation of those who submitted an antitrust complaint in the first place and the representatives of territorial FAS bodies), and listed the types of decisions, which can be issued by the collective body on appeal. Liability for antitrust violations The doctrine of warnings to discontinue anticompetitive actions (omissions) The 4th Antitrust Set significantly expanded the scope of application of the doctrine of warnings to discontinue actions (omissions), which have indications of antitrust violations. Once the amendments come into force, warnings will have to be issued not only in respect of the prohibitions on abuse of dominant position (the list of such prohibitions was expanded), but also in respect of certain unfair practices, as well as anticompetitive agreements and actions of the state authorities. If a warning is issued, antitrust proceedings may be initiated only if the respective warning was not complied with within the set deadline. The amendments also codified the principle that an entity cannot be held liable twice for the same antitrust violation. For instance, the amendments clarified that an entity that was ordered to transfer revenue from monopolistic activities to the budget, may not be held liable for the same actions under the Code of Administrative Offences. Exemption from administrative liability The 4th Antitrust Set introduced important changes to the provisions of the Code of Administrative Offences. A new clause was added to the Explanatory Notes to Article 14.32 of the Code of Administrative Offences, which provides for liability for entering into agreement aimed at restricting competition, carrying out concerted actions aimed at restricting competition, and coordination of economic activities. Pursuant to the amendment, the second and the third entity (in turn) to voluntarily report to the FAS or its territorial body that a prohibited agreement (cartel) was entered into may face a minimum fine, provided that they collectively satisfied the conditions in the said Article. This provision will not apply if the entity was behind the prohibited agreement (cartel). This novelty expands the scope of exemption from liability, which currently covers only the first entity to report a prohibited agreement or prohibited concerted actions (such entity is fully exempt from administrative liability). However, the FAS still has to provide a detailed regulation of practical aspects of this regime of full or partial exemption from liability, including the procedure of determining and recording the "first", "second" and "third" entity, and assessing whether the entities satisfied the conditions set out in the Code of Administrative Offences, as well as procedural guarantees for those entities. Other amendments to the Competition Law The amendments introduced a prohibition to execute agreements between organisers of a tender and (or) clients and participants in a tender, if such agreements are aimed at (result / may result in) restriction of competition and (or) creation of preferential conditions for some participants. To harmonise the Law with the Agreement on Unified Principles and Rules of Competition dated 9 December 2010 at the level of distribution of powers between the Eurasian Economic Commission (the "EEC") and the FAS in the sphere of antitrust regulation, the Competition Law was supplemented with a provision, which states that the Competition Law does not apply to control over compliance with the unified competition rules on cross-border markets, which is performed by the EEC. Client Alert White & Case 6 White & Case LLC 4 Romanov Pereulok 125009 Moscow Russia T +7 495 787 3000 In this publication, White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities. This publication is prepared for the general information of our clients and other interested persons. 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