Russia: Federal Antimonopoly Service

2015 became a significant year both for the Federal Antimonopoly Service of the Russian Federation (FAS) as a public authority and for antimonopoly policy of the Russian Federation.

In January 2016 amendments to Federal Law No. 135-FZ ‘On Protection of Competition’ of 26 July 2006 and other related legislation came into force. These amendments were called the ‘fourth antimonopoly package’. It was developed in close cooperation with respective representatives of business society and professional lawyers and economists specialised in competition law and policy.

Furthermore, the fourth antimonopoly package was a result of comprehensive and in-depth research of antimonopoly law enforcement. We made these amendments, taking into account the best international practices, global trends and recommendations issued by the OECD Competition Committee to the Russian Federation in June 2013.

Such improvements to the competition legislation were obvious and inevitable with the main aims of the FAS being to reduce administrative constraints for business and the simultaneous reduction of state involvement in the economy.

The removal from the Register of economic entities with over 35 per cent share on the markets of particular goods or that have a dominant position on the market of particular goods has reduced the pressure on business. Prior to this amendment every economic entity that was included in the Register was obliged to report to the FAS and obtain transaction approvals under economic concentration control regardless of their asset value and revenues.

Now the dominant position of economic entities shall be established on a case-by-case basis, when the dominant position determines the need to comply with the antimonopoly standards and prohibitions.

Moreover, modernisation of the competition law allows us to focus on meaningful and socially important cases on violation of antimonopoly legislation and use deeper economic analysis in case investigations.

In connection with this, another key point in economic concentration control should be noted. Preserving the current regulation of joint operation agreements, these additions bring certainty to the procedure of confirming whether agreements on joint operations comply with the antimonopoly law and make sure that joint operation agreements considered by the antimonopoly body cannot be recognised as anticompetitive.

From the standpoint of information technology expansion and simplification of information exchange the amended Law ‘On Protection of Competition’ establishes the possibility to file petitions and notifications in electronic form. Under the amended procedure information about the filed petitions regarding particular transactions and other actions must be published on the FAS’s official website (Russian version: http://fas.gov.ru/; English version: http://en.fas.gov.ru/).

FAS functions

In July 2015 the FAS was facing unprecedented institutional changes connected with obtaining functions of the public tariff regulation which previously were part of the responsibilities of the Federal Tariff Service before its liquidation.

The FAS is now able to implement a pro-competitive approach to make efficient tariff rulings. Now we use the method of ‘lower costs in exchange for indexation of tariffs’, as well as the principle of ‘costs minus’ which were transferred from our antirust practice. We believe that each of the natural monopolies have internal reserves, which could reduce operating costs, enhance procurement process and improve efficiency.

Moreover, in setting tariffs we use the method of ‘comparable markets’, which means that all decisions are made on the basis of the market analysis. We expect this will increase the effectiveness of  the tariff-setting process.

In 2015 the FAS, jointly with the Ministry of Defence of the Russian Federation, developed a legislative framework that established a strict control system over public defence procurement across the entire cooperation chain. We apply antimonopoly approaches and methods to this area.

In public defence procurement the FAS started to apply methods of comparable markets (‘benchmarking’), comparing prices in ‘closed’ and ‘open’ parts of trading. Frequently customer prices in the ‘closed’ part are 15 to 20 per cent higher than market prices.

One of the main tasks of the FAS in this regard is to create incentives for enterprises in the defence industry to decrease costs, to promote savings and technical modernisation. Single supplier status should be granted to the company in exchange for investment in infrastructure development.

Moreover, the FAS is planning to create a classified e-resource to transfer paper auctions into electronic form. This e-resource would contain data collected using the benchmarking method in accordance with which initial contract prices would be set.

Significant case

Google abusing dominance on the market of pre-installed app stores on Android operating system

In February 2015 the FAS initiated a case against Google Inc, Google Ireland Ltd and Google Ltd (together, ‘Google’) over alleged violation of the antimonopoly law after Yandex filed a complaint about anticompetitive actions.

After consideration of the case, in September 2015 the FAS determined that Google had violated part 1 article 10 of the Law on Protection of Competition by abusing their dominant position by requiring manufacturers of mobile devices to pre-install on mobile devices for circulation in the Russian Federation, and controlled by Android OS (mobile devices), the Google Play application store under terms and conditions that included mandatory pre-installment of Google applications and the Google search engine, and giving Google application icons preferential placement on the screen of the mobile devices.

Moreover, the FAS also opened a case against Google on an administrative violation. At the time of writing, a decision on the case has not yet been made. The company is facing a fine of between 1 and 15 per cent of its turnover on the market of pre-installed application stores in 2014.

On 14 March 2016, the Arbitration Court at the Chamber of Commerce and Industry in Moscow confirmed the decision of the FAS in the Google case.

As a result, application developers will be able to pre-install their own software on mobile devices, and users of the Android operating system will be informed about how to deactivate the pre-installed Google apps, changing the search engine, the possibility of installing other search engines and other apps similar to those included in the GMS package, as well as changing the icon position on the device screen by a notification that must be displayed on a mobile device screen.

Transparent agency

At present, the FAS faces the task of ensuring free competition in the Russian economy under the modern economic conditions.

As the President of the Russian Federation, Mr Vladimir Putin noted in his speech at the Plenary Session dedicated to the 25th Anniversary of the antimonopoly regulation in Russia (9 September 2015): ‘Healthy competition [and] free entrepreneurship are essential factors of national development, ensuring efficiency and stability of all our national economy. Competition should be open and observe understandable and transparent rules.’

Data of independent surveys show that the FAS is one of five the most transparent and open public authorities in the Russian Federation and we are committed to maintaining this trend.

The main priorities of the FAS in the near future are restraining the ‘appetites’ of natural monopolies, the fight against corruption and combating cartels. At the same time, we shall focus on consumers’ interests as well as providing a comfortable environment for the development of small and medium-sized businesses.

It is impossible to underestimate the positive impact of decisions to expand the FAS’s functions and increase its competences. We treat changes in the institution structure as an additional opportunity to effectively implement multi-functional economic regulation.

Combining the functions of antimonopoly and tariff regulation, control over public procurement and procurement of state-owned companies allows us to take a more nuanced approach to the analysis of commodity markets, to take into account the interests of all market participants, to make well-considered decisions and to implement effective legislative initiatives.

At the same time, the FAS is aware of the increased responsibility of preserving the independence and total objectivity of decisions, as well as balancing the interests of all market participants. All of this allows us to carry out the functions entrusted to the authority by the state more effectively. This, in its turn, will lead to the stabilisation of the business climate and increase the investment attractiveness of the Russian economy as a whole.