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What is the legal framework in your jurisdiction covering the behaviour of dominant firms?
The behaviour of dominant firms is covered by:
- Federal Law No. 135-FZ on Protection of Competition dated 26 July 2006 (the Competition Law);
- Federal Law No. 147-FZ on Natural Monopolies dated 17 August 1995;
- sector-specific federal laws (eg, Federal Law No. 35-FZ on Electricity Energy dated 26 March 2003);
- governmental decrees on non-discriminative access to certain markets or goods or both; and
- regulations and guidelines of the Federal Antimonopoly Service (FAS) (in particular, Presidium FAS Guidelines No. 8 on Application of Article 10 of the Competition Law dated 7 June 2017 and Presidium FAS Guidelines No. 15 on Liability for Collective Dominance dated 24 October 2018) and the Central Bank of Russia (CBR).
Definition of dominance
How is dominance defined in the legislation and case law? What elements are taken into account when assessing dominance?
Article 5 of the Competition Law defines dominance as the ability of a business entity or a group of business entities to exercise decisive influence on the general conditions of circulation of goods on a respective market or to remove other business entities from the respective market or to create obstacles for entry of other business entities to the respective market.
The main element that is taken into account when assessing dominance is market share of a business entity:
- a business entity with a market share exceeding 50 per cent is considered dominant, unless FAS determines that the business entity is not dominant on the respective market regardless of its market share;
- a business entity with a market share not exceeding 50 per cent is not considered dominant per se. To establish its dominance, FAS needs to prove additional circumstances (eg, stability of its market share, its relation to the market shares of its competitors, possibility for new competitors to enter the market); and
- if the market share of a business entity does not exceed 35 per cent, it cannot be found dominant, unless it is found collectively dominant (see question 7) or unless otherwise prescribed by the law.
Purpose of legislation
Is the purpose of the legislation and the underlying dominance standard strictly economic, or does it protect other interests?
The purpose of the legislation and the dominance standard is economic. Its main objective is to prevent dominant undertakings from limiting or eliminating competition, violating business interests of other enterprises or interests of an unrestricted range of customers.
Sector-specific dominance rules
Are there sector-specific dominance rules, distinct from the generally applicable dominance provisions?
There are sector-specific dominance rules, for example, for river and sea ports, electrical energy, communications and financial institutions. For example, a business entity is considered dominant on the electrical energy market if either of the following conditions apply:
- the share of capacity of its generating equipment or share of electrical energy generated with use of this equipment within the boundaries of the zone of free flow exceeds 20 per cent; or
- a business entity purchases or consumes more than 20 per cent of electrical energy or capacity, or both, within the boundaries of the respective zone of free flow.
However, an entity that satisfies these criteria may nonetheless be found non-dominant.
A credit institution may be found dominant if both of the following conditions are met:
- the share of a credit institution on one market in the Russian Federation exceeds 10 per cent or its share on the market of goods that circulate on other markets in the Russian Federation exceeds 20 per cent; and
- the share of a credit institution during a lengthy term (generally, for more than a year) increases or permanently exceeds 10 per cent on one market in the Russian Federation or 20 per cent on the market of goods that circulate on other markets in the Russian Federation.
Exemptions from the dominance rules
To whom do the dominance rules apply? Are any entities exempt?
The dominance rules apply to business entities. A business entity is a commercial organisation, a non-commercial organisation performing entrepreneurial activities, an individual entrepreneur or an individual rendering professional activities on the basis of state registration or licence or membership in a self-regulating organisation from which he or she earns income. Persons that are not business entities are exempt from dominance rules.
Transition from non-dominant to dominant
Does the legislation only provide for the behaviour of firms that are already dominant?
Russian legislation generally prohibits anticompetitive behaviour of all business entities, including conclusion of anticompetitive agreements (which may lead to its participants becoming dominant on the market) and unfair competition. However, Russian legislation specifically prohibits abuse of dominance by dominant firms.
Is collective dominance covered by the legislation? How is it defined in the legislation and case law?
Collective dominance is covered by Russian legislation. Business entities may be deemed collectively dominant if they satisfy all of the following conditions:
- aggregate market share of not more than three business entities with biggest market shares exceeds 50 per cent, or aggregate market share of not more than five business entities with biggest market shares exceeds 70 per cent provided that market share of each of respective business entities exceeds 8 per cent;
- during a lengthy time period (generally, more than a year) market shares of the business entities remain permanent or subject to non-material changes and access to respective market of new competitors is hindered; and
- goods sold or purchased by the business entities cannot be substituted by other goods, an increase of prices for goods does not lead to a related decrease of demand for such goods, the information on price and terms of sale or purchase of such goods is available to indefinite range of persons.
Collective dominance provisions do not apply to financial institutions.
Does the legislation apply to dominant purchasers? Are there any differences compared with the application of the law to dominant suppliers?
While Russian legislation generally applies equally to dominant purchasers and dominant suppliers, certain aspects of dominance (eg, abuse of dominance by unjustified reduction or termination of production of goods or unjustified refusal to contract with certain customers) apply only to dominant suppliers.
Market definition and share-based dominance thresholds
How are relevant product and geographic markets defined? Are there market-share at which a company will be presumed to be dominant or not dominant?
Relevant product and geographic markets are defined in the same way as for merger control cases. FAS determines a product market on the basis of consumer or seller polls on interchangeability of goods falling within one product group. The determination of a geographic market is based on information on the region where a business entity is operating, pricing on the market and differences in price levels for these goods in the Russian Federation and on the structure of the flow of goods. During this process, FAS takes into account requirements of transportation and related costs, specifics of territories, business customs, etc, and results of consumer or seller polls.
For market share thresholds, see questions 2 and 7.
Abuse of dominance
Definition of abuse of dominance
How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?
Abuse of dominance is defined as acts (or omissions) of a dominant entity that result or may result in the prevention, elimination or restriction of competition or infringement of rights of other business entities in the sphere of their entrepreneurial activities or unrestricted range of consumers. Russian legislation on abuse of dominance follows an effects-based approach, as it requires a negative effect on competition or third parties to determine the existence of a violation.
The list of acts (omissions) qualified as abuse of dominance is not exhaustive, but it names certain violations that are per se considered as abuse of dominance. Such acts include, in particular:
- fixing of monopoly high or monopoly low prices;
- withdrawal of goods from circulation if it results in an increase of prices for such goods;
- imposition of contractual conditions unprofitable for a counterparty or not related to the subject matter of an agreement;
- economically or technologically unjustified reduction or termination of the production of goods;
- economically or technologically unjustified refusal to deal with certain customers;
- economically, technologically or otherwise unjustified setting of different prices for the same goods;
- fixing of unreasonably high or low prices for a financial service;
- creating barriers for the access to a market or withdrawal from a market for other business entities;
- breach of regulatory prescribed pricing rules; and
- manipulation of prices on wholesale or retail markets of electrical energy (capacity).
Exploitative and exclusionary practices
Does the concept of abuse cover both exploitative and exclusionary practices?
The concept of abuse covers both exploitative and exclusionary practices.
Link between dominance and abuse
What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?
When deciding an abuse of dominance case, FAS shall prove that a business entity is dominant on the market and committed actions qualified as abuse of dominance. Dominance per se is not qualified as an antitrust violation.
A conduct of a business entity may be qualified as abuse of dominance if it occurred on the dominated market. However, FAS assesses negative impact of a dominant entity’s conduct on both dominated and adjacent markets.
What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?
A business entity may raise the following defences to allegations of abuse of dominance:
- a business entity is not dominant on the market: FAS determined the product and geographic market wrongfully or made a mistake in calculation of a business entity’s market share;
- a business entity’s acts (omissions) were economically and technically justified and cannot be qualified as abuse of dominance; and
- a business entity’s acts (omissions) are permissible if they collectively meet the following conditions:
- they do not give an opportunity to a dominant entity to eliminate competition on the market;
- they do not impose restrictions on third parties that are not consistent with purposes of such acts (omissions); and
- they result in an improvement of production, sale of goods and promotion of technical or economic progress or increase of competitive abilities of Russian goods on the world market and in receipt of comparable benefits by customers.
However, this defence cannot be used for certain types of abuse of dominance, including price fixing, withdrawal of goods from circulation, imposition of unprofitable contract terms on a counterparty, unjustified refusal to contract with certain counterparties, setting different prices for the same goods, price fixing for financial services; breach of regulatory prescribed pricing.
Defences are an option for both exclusionary and exploitative intent.
Specific forms of abuse
Types of conduct Types of conduct
Use of rebate schemes (both retroactive and incremental rebates) is not prohibited per se. However, such schemes may fall under the prohibition of setting different prices for the same goods and the prohibition of discrimination. This may be the case if:
- conditions for granting a rebate are not transparent (eg, a business entity does not have a policy listing such conditions available for its counterparties);
- granting of a rebate is not based on objective criteria (eg, on the purchase volume, payment conditions, duration of cooperation); or
- criteria for granting a rebate are not formulated precisely.
Tying and bundling
Tying and bundling are qualified as abuse of dominance under Russian law and are prohibited. These practices include, among others:
- imposition of economically or technologically unjustified contractual terms or terms that are not provided by statutes or regulations;
- requirements to transfer monetary funds or other property (including proprietary rights); and
- bundling of execution of agreements with the acquisition of other goods in which a counterparty is not interested (eg, bundling purchase of compulsory insurance policy with one voluntary insurance policy).
Exclusive dealing is not prohibited by Russian law per se. However, it may qualify as abuse of dominance if such practice leads to an economically and technologically unjustified refusal to contract with other potential partners. See question 19 for more details.
Fixing monopoly low prices is qualified as an abuse of dominance. A monopoly low price is defined as a price lower than the expenses and income required for the production and sale of goods and lower than the price on a comparable competitive market in Russia or abroad. A monopoly low price is determined on the basis of the following benchmarks:
- expenses required for the production and sale of goods;
- range of sellers and purchasers on the market; and
- terms of circulation of goods on the market, including taxation and tariff regulation.
Recoupment is a necessary element in the qualification of prices as monopoly low.
Price or margin squeezes
Price or margin squeezes may be qualified as the creation of hurdles to access the market or exit the market or as fixing a monopoly low price. See question 17 for more details.
Refusals to deal and denied access to essential facilities
Refusal to deal may be qualified as an abuse of dominance if it is economically and technologically unjustified. FAS has clarified that dominant entities are recommended to publish commercial policies on their websites describing the criteria for the selection of business partners and the selection process. The criteria of counterparty selection should be exhaustive and non-arbitrary and may, inter alia, include anti-corruption requirements. The selection process should be transparent for distributors, provide for particular terms for each step of the process and comprehensive documentation.
Denied access to essential facilities is one of the aspects of refusal to deal. It is specifically regulated for natural monopolies and for dominant entities with market share exceeding 70 per cent.
Natural monopolies are obliged to grant access to their services and facilities on a non-discriminatory basis. To ensure this, the government adopts respective rules of non-discriminatory access, which, in particular, determine customers that should be satisfied in the first line and the conditions of access to the facilities (including technical requirements) as well as material conditions of agreements with customers or standard forms of such agreements. For example, such rules exist for electric energy, electro-communication networks, oil pipelines, ports, airports, etc.
If a dominant entity with a market share exceeding 70 per cent abuses dominance, the government or FAS (subject to approval of the CBR) are entitled to adopt similar rules of non-discriminatory access. However, neither of them has exercised this authority yet.
Predatory product design or a failure to disclose new technology
Prohibitions on abuse of dominance do not apply to the exercise of intellectual property rights. Thus, predatory product design and failure to disclose new technology will not qualify as abuse of dominance.
On price discrimination see question 14. In addition, FAS specifically stressed that setting different prices for the same goods for subsidiaries and independent entities is unjustified and qualifies as an abuse of dominance.
Price discrimination is also covered by specific industrial regulations. For example, business entities selling food through retail chains or supplying food to retail chains are prohibited from discrimination of their counterparties (including in price terms), irrespective of their dominant position according to article 13 of Federal Law No. 381-FZ on Basics of State Regulation of Trade in the Russian Federation dated 28 December 2009. Discrimination is determined in the same way as for dominant entities.
Prevention of price discrimination is also achieved by direct price regulation of sale of certain goods or provision of services (eg, for certain services of natural monopolies).
Exploitative prices or terms of supply
Exploitative prices or terms of supply may be qualified as abuse of dominance by imposition of unprofitable terms on a counterparty. Examples of such practices, as clarified by FAS, include the requirement for distributors to provide detailed supply estimates, the right of a dominant entity to terminate cooperation with a distributor based on mere suspicions regarding potential contractual violations, the absence of fixed terms for the payment of distributors’ bills, the obligation to pass an audit on compliance with the laws of foreign jurisdictions, etc.
Besides, abuse of dominance by setting exploitative prices is covered by the prohibition to set monopoly high and monopoly low prices. For monopoly low prices please refer to question 17. Monopoly high prices are defined on the basis of the same benchmarks.
Abuse of administrative or government process
Abuse of administrative or government process generally is not qualified as abuse of dominance. However, these practices may qualify as an abuse of rights and may lead to the refusal of law enforcement authorities to apply remedies sought by dominant entities and to possible claims of other market players to compensate their damages.
Mergers and acquisitions as exclusionary practices
Mergers and acquisitions are not subject to the abuse of dominance regulation. However, their effect on competition will be evaluated by FAS if a transaction is subject to antitrust clearance. If a merger or acquisition leads or may lead to restriction of competition (including strengthening of a dominant position), FAS may deny clearance of the transaction.
Other abuses covered by Russian legislation include:
- withdrawal of goods from circulation if it results in an increase of prices for such goods;
- economically or technologically unjustified reduction or termination of the production of goods;
- breach of regulatory prescribed pricing rules; and
- manipulation of prices on wholesale or retail markets of electricity energy (capacity) or both.
Which authorities are responsible for enforcement of the dominance rules and what powers of investigation do they have?
FAS is responsible for the enforcement of the dominance rules. It is authorised to:
- commence and consider antitrust violation cases;
- issue warning and compliance orders to dominance entities;
- impose administrative penalties on dominant entities and their officers; and
- carry out scheduled and extraordinary inspections of dominant entities.
In the framework of these authorities, FAS may request documents from legal entities, public bodies and individuals, access and view premises, review documents and objects, question persons who may have information relevant for the case being considered, attract experts and order expert reviews.
Sanctions and remedies
What sanctions and remedies may the authorities impose? May individuals be fined or sanctioned?
- issue compliance orders to dominant entities requiring them to stop abusive practices or to conclude, amend or terminate contractual arrangements to eliminate an antitrust violation;
- issue a compliance order to dominant entities requiring that they transfer all income received as a result of the abuse of dominance to the public budget;
- apply to court for an order to split up a dominant entity if it is systematically engaged in monopolistic activities;
- apply to court for the invalidation of a transaction that violates antitrust legislation; and
- impose fixed fines up to 1 million roubles or turnover fines up to 15 per cent of an enterprise’s revenue on the respective market.
Officers of a business entity may be fined for up to 50,000 roubles or may be suspended for up to three years.
The highest fine imposed in the Russian Federation for an abuse of dominance reached 4,675,983,472 roubles. It was imposed on a leading oil company for withdrawal of goods from circulation and discrimination.
Can the competition enforcers impose sanctions directly or must they petition a court or other authority?
FAS may impose most sanctions directly (including issuance of compliance orders and imposition of administrative fines, including turnover-based fines). However, it must petition a court in order to split up a dominant entity, suspend company officers, or invalidate a transaction violating antitrust legislation.
What is the recent enforcement record in your jurisdiction?
The rules on abuse of dominance are enforced quite often in the Russian Federation (for example, in 2017, it commenced 847 abuse of dominance cases). The most commonly prosecuted forms of abuse include breach of pricing regulations, unjustified refusal to deal, unjustified reduction or termination of production and imposition of unprofitable contractual terms on a counterparty. Among the industries that are affected the most are heat and electricity supply, and housing and utility infrastructure.
The average length of abuse of dominance proceedings is five months. In certain cases, this term may be extended, and the overall proceedings may take up to approximately 14 months.
The most recent high-profile abuse of dominance case was the case against Google considered and decided by FAS and courts in 2015-2016. Google was found dominant on the market for application stores for Android OS. It abused dominance by prohibiting manufacturers of Android OS smartphones from pre-installing applications competing with applications from the Google Mobile Services (GMS) package. Google’s abusive practices included tying Google Play application stores with other applications of the GMS package, compulsory pre-installation of Google search as the default search, preferential placement of Google applications on the home page and prohibition of pre-installation of competing software on smartphones. As a result, Google was fined 438.1 million roubles and required to, inter alia, introduce the necessary amendments to its agreements with smartphone manufacturers.
Where a clause in a contract involving a dominant company is inconsistent with the legislation, is the clause (or the entire contract) invalidated?
If a clause in a contract involving a dominant company is inconsistent with the legislation, FAS may first issue a warning order to a business entity suggesting it should remove said clause from the agreement or bring it into compliance with the legislation or, as a result of consideration of an antitrust case, issue the same compliance order. Alternatively, FAS may apply to court to invalidate the respective clause.
To what extent is private enforcement possible? Does the legislation provide a basis for a court or other authority to order a dominant firm to grant access, supply goods or services, conclude a contract or invalidate a provision or contract?
Private enforcement is possible in the Russian Federation. A private party may apply to court to order a dominant firm to grant access to infrastructure (in particular, if a dominant firm enjoys a natural monopoly), to supply goods or services, or to conclude an agreement if a dominant firm is required to do so (eg, it enjoys a natural monopoly). In other cases, it is preferable to apply to FAS first, so that FAS could establish dominance and issue a compliance order with the same effect.
A private party may apply to court to invalidate a provision of a contract or a contract as a whole, but generally only if it is its party. If it is not the case, it is preferable to apply to FAS first.
Do companies harmed by abusive practices have a claim for damages? Who adjudicates claims and how are damages calculated or assessed?
Companies harmed by abusive practices have a claim for damages. These cases are adjudicated by courts.
The damages include: actual damages - expenses that were incurred or will be incurred to reinstate the violated right or damaged property; and lost profit - profit that would have been derived in the ordinary course of business if the right had not been violated. The amount of lost profit cannot be less than the benefit earned by the dominant entity through its violation. Damages are often difficult to calculate. Therefore, the amount of damages is calculated with a reasonable degree of credibility, but recovery cannot be declined based on the fact that it is impossible to assess their exact amount.
By way of example, the Supreme Court of the Russian Federation in Case No. 305-ES15-4533 dated 7 December 2015 ruled that a pharmaceutical producer dominant in the market for a single drug must pay 408.3 million roubles in damages to its distributor, with which it unreasonably refused to conclude a supply contract. The damages were fully comprised of lost profit of the distributor - 16.5 per cent of the price of the supply contract that the distributor could have received if the producer had not refused to contract with it.
To what court may authority decisions finding an abuse be appealed?
FAS decisions on abuse of dominance cases may be appealed either to FAS Presidium (if the decision was adopted by regional FAS offices and it breaches uniformity of antitrust law application by FAS) within one month of adoption of the decision or to an arbitrazh court within three months of adoption of the decision (one month after adoption of the decision of FAS Presidium if the case was reviewed by it). FAS Presidium will review only matters of the law. The arbitrazh court will review both the facts and the law.
Unilateral conduct by non-dominant firms
Are there any rules applying to the unilateral conduct of non-dominant firms?
Unilateral conduct of non-dominant firms may be subject to unfair competition regulation under Russian legislation.
Update and trends
Are changes expected to the legislation or other measures that will have an impact on this area in the near future? Are there shifts of emphasis in the enforcement practice – for example, that enforcement is expected to focus on a particular business sector in the time to come, or that, more generally, economic considerations are given greater weight than in the past?
35 Are changes expected to the legislation or other measures that will have an impact on this area in the near future? Are there shifts of emphasis in the enforcement practice?
FAS is working on amendments to the Competition Law that will apply abuse of dominance prohibitions to IP-related actions, which are currently excluded from its scope. If adopted, actions of a patent holder that determine terms of circulation of goods produced under the patent may be qualified as abuse of dominance.