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Russian Competition Law on abuse of dominant position: basic provisions and application experience

number 1 volume 2 Spring 1996 

competition policy 

NEWSLETTER 

EC COMPETITION POLICY NEWSLETTER 

 

ISSN: 1025-2266 

Published quarterly by the Competition Directorate-General of the European Commission 

 

 

 

 

 

Russian Competition Law on abuse of dominant position: basic provisions and application experience

 

by Iouri V. KOKOVIKHINE, State Committee of the Russian Federation for Anti-monopoly Policy and Promotion of New Economic Structures

 

published in the EC Competition Policy Newsletter vol 2 No 1 (spring 1996)

 

The Russian Law on Competition and Limitation of Monopolistic Activity on Commodity Markets determines the organizational and legal foundations for prevention, limitation and suppression of monopolistic activities and unfair competition. the law is directed towards ensuring the condition for the establishment and effective functioning of commodity markets.

 

The present law extends to relations having an impact on competition in the commodity markets of the Russian Federation involving Russian and foreign juridical persons as well as natural persons.

 

State policy for promoting the development of commodity markets and encouraging competition, and for preventing, limiting and suppressing monopolistic activities and unfair competition, is conducted by a Federal Anti-monopoly Authority: the State Committee of the Russian Federation for Anti-monopoly Policy and Promotion of New Economic Structures.

 

MAIN POWERS OF THE AUTHORITY

 

The Russian Federal Anti-monopoly Authority has the right to issue to economic entities (undertakings) binding instructions (orders):

 

- on the termination of infringements of anti-monopoly legislation and/or on the elimination of their consequences,

 

- on the restoration of the initial position,

 

- on their compulsory division or on separation of structural divisions from their setup,

 

- on the dissolution or change of contracts (agreements) which are contrary to antimonopoly legislation,

 

- on the conclusion of a contract (agreement) with another economic entity (undertaking),

 

- on the transfer to the Federal budget of profits made because of infringement of anti-monopoly legislation;

 

The Authority also has the right to take decisions concerning the imposition of fines and penalties on commercial and non-profit organisations and their managers, including individual entrepreneurs for infringements of anti-monopoly legislation except in the cases of violation of the procedures for price-fixing in conformity with legislation on natural monopolies.

 

Finally the Authority can establish the fact of a dominant position of economic entities (undertakings) and can exercise other powers stipulated by the relevant legislation of the Russian Federation.

 

BASIC CONCEPTS OF THE RUSSIAN LAW

 

Article 4 of the Russian law contains the following definitions:

 

Commodity: a product or activity (including work, services) intended for sale or exchange.

 

Commodity market: a sphere of circulation of commodities having no substitutes, or interchangeable commodities, on the territory of the Russian Federation or in its part, determined preceding from the economic capacity of the buyer to acquire a particular commodity or article of merchandise or manufacture on a given territory or the absence of such capacity outside territory.

 

Dominant position: the exclusive position of an economic entity, or several economic entities, on a relevant market handling a commodity that has no substitute(s), or interchangeable commodities affording it (them) the possibility of exerting a decisive influence on the general conditions of circulation of a particular commodity on a given market or of making access to the market difficult for other economic entities. The position of an economic entity should be deemed to be dominant if its share on the market of a particular commodity makes up 65% of the total and more, except instances in which the economic entity can prove that, despite exceeding the said proportion, its position on the market is not dominant. The position of an economic entity should also be deemed to be dominant, though its share on the market of a particular commodity is less than 65%, should this be established by the Antimonopoly Authority from stability of the share of the said economic entity, the relative shares on the market held by competitors, and possibilities for new competitors to gain access to that relevant market or other criteria characterizing the commodity market. The position of an economic entity whose share on the market of a particular commodity does not exceed 35% should not be deemed to be dominant.

 

Monopolist activity: actions (or failure to act) of economic entities that are contrary to anti-monopoly legislation and are directed towards prevention, restriction or elimination of competition.

 

Monopolistically high price: the price of a commodity fixed by an economic entity occupying the dominant position on a particular commodity market, with the object of making good unwarranted losses caused by under-utilization of production capacity and/or of making extra profits by lowering product quality.

 

Monopolistically low price: the price of a commodity fixed by an economic entity occupying the dominant position on the market, as a buyer, with the object of making extra profits and/or making good unwarranted losses at the expense of the seller; or the price of a commodity deliberately fixed by an economic entity at some level causing losses from the sale of a particular commodity. Its fixing causes or can cause a limitation of competition through displacing a competitor from the market.

 

ABUSE OF DOMINANCE

 

In accordance with Article 5 of the Russian Competition Law actions by an economic entity (group of persons) occupying a dominant position which have or might have as their result a limitation of competition and/or impingement on the interests of other economic entities or natural persons are prohibited, including such actions as:

 

- the withdrawal of goods from circulation for the purpose of, or resulting on, creation and maintenance of a deficit on the market or an increase of prices;

 

- consent to conclude a contract only on condition of placing conditions therein concerning goods in which the contracting party (or a consumer) is not interested;

 

- posing obstacles to access to the market (or withdrawal from the market) for other economic entities;

 

- infringement of the procedure for price-formation established by normative acts;

 

- tying up a contracting party through the conditions of a contract which are not advantageous to it or do not relate to the subject of the contract (unjustified demands for the transfer of financial assets, property, proprietary rights, the contracting party's labour, etc.);

 

- incorporation into a contract of discriminatory conditions which place the contracting party in an unequal position compared with other economic entities";

 

- fixing monopolistically high (low) prices;

 

- reduction in, or discontinuation of, the production of commodities which enjoy a demand and draw orders from consumers (users) provided there are possibilities for their break-even production;

 

- an unjustified refusal to conclude a contract with separate buyers (customers) while there are capabilities for producing and delivering a specific commodity.

 

In exceptional instances, the actions of an economic entity specified above may be deemed to be lawful if the economic entity proves that the positive effect of its actions, including that in the socially economic sphere, will exceed the negative consequences for the commodity market under consideration.

 

THE RECENT CASE OF ABUSIVE BEHAVIOUR ON THE MARKET : SINGER

 

Concentration

 

On November 1994 the Russian Anti-monopoly Committee examined the application from the Semi-Tech Company Limited (Hong Kong) on acquisition of 70% of stocks of ownership capital of Joint Stock Company PODOLSK (Russia).

 

Semi-Tech Company Limited is an investment company established in 1982. Semi-Tech owns and operates the worldwide SINGER business. In March 1993 Semi-Tech reached a conditional agreement to purchase up to a 51% share interest in G.M PFFAF AG of Germany. SINGER and PFFAF are the leading producers of consumer sewing machines. This international business group (SINGER and PFFAF) in 1993 possessed 37% of the consumer sewing machines world market.

 

PODOLSK is the single producer of consumer sewing machines in Russia. Its share of the relevant Russian market in 1994 was more than 73%. The Russian Anti-monopoly Committee deemed that PODOLSK held a dominant position in consumer sewing machines market.

 

The Anti-monopoly Committee, took into account that information, supposed that the said transaction could lead to the strengthening of dominance of PODOLSK. Thereby the Committee had the right to reject Semi-Tech's application pursuant to Article 18(4) of Russian Competition Law but the parties to the transaction proved that the positive effect of their activities, including that in the socially economic sphere, would be more than their negative consequences for the relevant market. For instance PODOLSK's president in his official letter to the Anti-monopoly Committee wrote that the transaction should let them an efficient use of investment and should do home-made products more competitive in the world markets. Also he noted that they planned to produce consumer sewing machines in total amount of 350.000 units per year. Based on these facts the Anti-monopoly Committee gave the consent to the Semi-Tech's acquisition of 70% of stocks in ownership capital of PODOLSK but at the same time the Committee informed PODOLSK that it should be under observation and control by the Committee in order to prevent the monopolist activity; in December 1994 the Joint Stock Company PODOLSK was named Joint Stock Company SINGER.

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