Proposed Amendments to the Russian Competition Law

Aidyn Bikebayev
Senior Partner
Sayat Zholshy & Partners

The first all-Russian Research and Practice Conference devoted to the pressing challenges of the Russian Competition Law in connection with the adoption of the Third Antitrust Package

Undoubtedly, the Russian Competition Law is used as a model in all post-Soviet states. Nevertheless, this area of law needs improvement. In my presentation I would like to focus on certain proposed amendments:

1. Differentiation between the legislative control over unfair competition and the classic antitrust regulation due to their different nature

The legislation concerning unfair competition recognizes the behaviour of a market participant unlawful by the fact of its business unfairness (doubtful ethics and moral turpitude). Hence, in such case we see not the protection of competition, per se, but rather the prevention and preclusion of impermissible business techniques. In opposition to this, the business activities deemed as monopolistic could be positive and meet the generally accepted moral and ethical criteria. The incorporation of such different tenets in one legislative act gives rise not only to theoretical problems but to application issues as well. For example, let’s consider the case when we have to qualify the offence in which one and the same action can be recognized both as unfair competition and as monopolistic activity. In such case the law provisions contradict. This situation is complicated by the fact that the penalty for unfair competition can be insignificant compared to the penalty for monopolistic activity.

2. The concept of objective legitimacy (necessity) shall be formalized in the law

Article 13 of the Competition Law provides the grounds for admissibility of actions on the part of market participants (the rule of reason). This rule was designed by EU legislators for evaluation of anti-competitive agreements and concerted practices, but not for evaluation of abusive behaviour.

In order to differentiate between abusive behaviour and justifiable business actions, the European Commission and the European Court of Justice widely use the concept of objective legitimacy (necessity) according to which a market participant is deemed as applying impermissible techniques in competitive activity (i.e. abusive behaviour) when his behaviour does not make any economic sense and does not improve his own efficiency, but rather restricts or stifles competition. Hence, when competition is restricted for good cause (e.g. granting a dominant position due to the lack of preference given to established customers), the effect does not form corpus delicti.

Article 13 of the Russian Competition Law prohibits abusive behaviour subject to the concept of objective legitimacy only in five instances. In all other instances of abusive behaviour the legislator has not provided for compulsory consideration of the concept of objective legitimacy. As a result, there is no clear distinction between harmful and socially dangerous behaviour, on one hand, and customer/market beneficial activity, on the other hand.

Apparently, the concept of objective legitimacy (necessity) should be applied to anti-competitive practices of public authorities.

3. The approach to legislative treatment of such definitions as “agreement”, “concerted practice” and “cartel” should be revised

The Russian Competition Law distinguishes between “agreement” and “concerted practice”. Such approach was borrowed from the EU Competition Law and considerably helps to prove collusions among business entities. Moreover, based on such distinction, the Russian legislator introduced a special treatment of cartels and determined that only agreements, but not concerted practices, can be recognized as cartels.

In our opinion, the aforementioned provisions give rise to the following problems:

1)  assumed distinction between oral agreements and implicative actions (also being oral agreements) regardless of the civil law theory and practice;

2)  assumed recognition of only agreements, but not concerted practices, as cartels regardless of the classic competition law theory and practice; and

3)  violation of the principle of sufficient evidence regardless of the procedural law theory and practice.

From the perspective of civil jurisprudence the terms “agreement” and “concerted practice”, by their legal nature, are identical, have the same meaning and relate to the definition of “contract”.

According to Article 420 of the Russian Civil Code, “contract” means an agreement between two or more parties regarding the establishment, modification or termination of certain civil rights and obligations. Besides, according to Article 154 of the Russian Civil Code, a contract may be executed only subject to the general consensus between two or more parties.

As you see, the general consensus between parties is the core of the “contract” definition.

Obviously, the word “concerted” assumes the consent of parties to certain actions. In other words, not any similar and parallel actions can be concerted, but only those actions which result from deliberate concurrence of intentions by two or more parties. Therefore, the term “concerted practice” is identical to the term “contract”.

The global antitrust regulation practice differentiates between “parallel actions” and “concerted practices”.

In principle, the above approach does not contradict the interpretation of the European Court of Justice which determined in the case Commission v. Anic that “agreement” and “concerted practice” are subjectively intended for collusion, have the same substance and differ only to the extent of their evidence and form.

As you can see, the emphasis is laid on the form. The extent of the parties’ will evidence depends on the form, either written (when the parties’ will is expressed explicitly) or oral, including implicative (when the evidence of the parties’ will concurrence is not enough).

Hence, the difference between “agreement” and “concerted practice” lies only in their form (either written or oral, including implicative).

As a result, such interpretation makes the differentiation between oral agreements and concerted practices, which are also oral agreements, superfluous. Besides, such interpretation fully annihilates the necessity to recognize only agreements, but not concerted practices, as cartels.

We believe that the recognition of concerted practices and the establishment by the competition law of a certain set of secondary evidence, and recognition thereof as sufficient, is rather superfluous and unjustly blurs the difference between lawful and unlawful behaviour.

It is obvious that in each particular case the sufficiency of evidence should be determined individually subject to the comprehensive analysis and assessment of all facts and the whole set of evidence.

4. The provision on remittance of any income gained from antitrust offence to the Federal Budget should be transferred to the Code of Administrative Offences

Apparently, the seizure of corporate property by the government is always unilateral and imperative (public) and may not be referred to civil law (private) relations arising between equal subjects. In this case, the public nature of relations should be formalized either in the Criminal Code or the Code of Administrative Offences.

Besides, it is necessary to solve the problem arising due to the fact that, on one hand, illegitimate income must be confiscated in favour of the budget and, on the other hand, it must be compensated to the customer because it is gained through the infringement of his interests. Logically, if the income is gained at the expense of customers the latter must be compensated, where the additional liability for monopolistic activity in the form of substantial penalties and confiscations in favour of the government must be secondary to the customers’ rights and interests.

5. The provision on forced split-up of a market participant or spin-off of one or several entities based on its structural units should be transferred to the Code of Administrative Offences

Obviously, the unilateral forced reorganisation of a market participant is a legal sanction imposed for a competition restricting offence. This type of liability cannot be recognized as a type of civil liability. Therefore, this sanction must be introduced in the Russian Code of Administrative Offences as a type of administrative sanctions imposed for administrative offences.

6. The Register of entities with a market share exceeding 35% in the relevant market or with a dominant position on a certain market should be abolished

In the international practice antitrust authorities do not maintain such type of static registers due to the following:

1) Economy is not static and continuously changes. A market participant exercising a substantial market power today can lose his exceptional position tomorrow because of competitors’ activities or for any other reasons. Therefore, a static register does not reflect a real market standing.

2) There are hundreds of thousands (if not millions) of unique commodity markets (and thousands of new commodities emerge every year). Antitrust authorities, in principle, are not able to perform a reliable and full analysis of all such markets.

3) As a result, all efforts and resources applied by antitrust authorities are vain.
Undoubtedly, the Soviet static techniques characterizing the market by a given and invariant number of producers and production volumes should be abolished because they unreasonably restrict entrepreneurial freedom and do not fit competitive environment.

7. Routine inspections should be abolished

In our opinion, the latest amendments to the Russian Competition Law with regard to routine inspections undertaken regardless of actual offences are unreasonable because routine inspections are unfair per se and violate the principle of fair business practices, thus creating serious hindrances to business activities. Therefore, this Soviet relic should be abolished. Antitrust authorities should initiate inspections only when they have reasons and grounds for institution of proceedings.

8. The terms “grounds for inspection” and “grounds for institution and investigation of an antitrust action by antitrust authorities” should be brought into compliance with the theory of procedure

According to the theory of procedure, an action may be instituted only on legal and sufficient grounds meaning the sources from which the instituting authority receives the information about a committed or imminent offence and sufficient data indicative of the offence.

9. Administrative jurisdiction provisions should be updated

The Russian Competition Law contains an enormous number of procedural provisions borrowed from the Russian Code of Administrative Offences. These procedural provisions do not fully meet the principle of comprehensive, complete and unbiased investigation of a case. Besides, many important procedural provisions have not been taken into account.

It is clear that simple borrowing of procedural provisions and institutions in relation to administrative offences entails legislative mess and clutter and unreasonably complicates the procedural legislation. Therefore, it is necessary to adopt, as soon as practicable, a separate administrative procedure code which would incorporate all administrative jurisdiction provisions.