Applied Economics Department, Institute of Industrial and Market Studies Legal standards in the Russian competition enforcement: interplay between competition authorities, courts and companies Avdasheva Svetlana CRESSE, 13th Annual Conference, June 2018

Notion of legal standard Applied Economics Department, Institute of Industrial and Market Studies . Notion of legal standard Crossroad of legal and economic studies Legal standard = DECISION RULE under given substantive standard (What type of analysis is necessary to provide sufficient evidence of violation?) Substantive standard influences legal standard (Katsoulacos, 2017, 2018) However under given substantive standard legal standard might be lower or higher Interesting to track using the evidence of [relatively] young competition jurisdiction – on the example of Russia

Russian context Legislation, enforcement, judicial review Applied Economics Department, Institute of Industrial and Market Studies . Russian context Legislation, enforcement, judicial review European-style competition legislation Decentralized enforcement: regional subdivisions of the Federal Antitrust Service with independent enforcement powers Four-tier judicial review: first instance commercial courts; appellate commercial courts, cassation commercial courts and the Supreme Court (before 2014 – Supreme Commercial Court) About 3 thousand decisions annually About 30% submitted for judicial review Up to 40% decisions annulled Legal standards develop as an outcome of complex interaction Fruit flies =  fruit fly Drosophila melanogaster which is rapid breeder Fast births, fast deaths, fast change of generations Every process occur very quickly

who and how establishes legal standards? Applied Economics Department, Institute of Industrial and Market Studies . who and how establishes legal standards? Essays of last 10 years history: neither legislator nor authority nor higher court Two examples of the impact of Supreme Court’s decision on the lower courts Concerted practice Excessive/unfair pricing Influence of authority’s guidelines and legal procedures of enforcement Authority’s Guidelines and Clarification Notes Warnings, precautions, code of conducts and commercial (trade) policies The main question: comparative contribution of legal definition, legally important guidelines, efforts of companies, decisions of courts (especially Supreme Court)…

Concerted practice Legislator (Law 135-FZ, art. 8): Applied Economics Department, Institute of Industrial and Market Studies . Concerted practice Legislator (Law 135-FZ, art. 8): …actions of several undertakings in the market under absence of the agreement, which meet the following requirements … the result of such actions meets the interests of each of these economic entities only under the condition that their actions are known in advance to each of them; actions of each of these economic entities are caused by the actions of other economic entities and are not the result of circumstances equally affecting all economic entities on the relevant market… Supreme Commercial Court (June 2008): The conclusion… that each of the undertakings knew about committing such actions in advance – can be done based on the actual circumstances, including the fact that actions are made by different market participants relatively uniformly and synchronously in the absence of objective reasons Illegality of pure parallel pricing?

Concerted practice: Judicial reviews Applied Economics Department, Institute of Industrial and Market Studies . Concerted practice: Judicial reviews It looks like not Highest Court establishes the standards for first instance court but instead first instance courts convince the Highest Court that particular Clarification Note was not completely right X-axis: date of claim submission; Blue line (left Y- axis) – moving average number of days for judicial review; Green line (right Y- axis) – moving average share of annulled infringement decisions; Red line – date of Supreme Court Decision

Excessive pricing Legislator (Law 135-FZ, art. 5): Applied Economics Department, Institute of Industrial and Market Studies . Excessive pricing Legislator (Law 135-FZ, art. 5): Excessive is a price of dominant seller [that at the same time]: exceeding price in comparable competitive market exceeding the sum of cost and profit necessary for production Supreme Commercial Court (May 2010): If there is not comparable competitive market competition law allows to apply on 2nd criterion just comparing the increase of price with the increase of cost Back to price regulation? With very low legal standard?

Excessive pricing: Judicial reviews Applied Economics Department, Institute of Industrial and Market Studies . Excessive pricing: Judicial reviews 2/3 of infringement decisions against oil companies in the markets of motor fuel are annulled (2008-2016) X-axis: date of claim submission; Blue line (left Y- axis) – moving average number of days for judicial review; Green line (right Y- axis) – moving average share of annulled infringement decisions; Red line – date of Supreme Court Decision

SOMETHING IS MISSING IN THE GRAPHS… Applied Economics Department, Institute of Industrial and Market Studies . SOMETHING IS MISSING IN THE GRAPHS… Companies that claim to annul infringement decisions In both types of cases Russian oil companies were found infringing competition law… … and took efforts to convince the judges in commercial courts… Using all possible arguments on the likelihood of Type I errors in the respective types of cases depending on the fact what is exactly proven Competition authority should do something to convince the courts that it undertake every effort to avoid errors in particular cases

Actions that federal antitrust service takes Applied Economics Department, Institute of Industrial and Market Studies . Actions that federal antitrust service takes Adaptation towards court requirements (increase legal standards…), but not passive Participation of officers from FAS Central Office in every court hearing in cassation court (also for the annulment of the decisions of regional sub- divisions) Changes of the law (ex: concerted practice) Establishment of the internal appeal procedure for decisions of regional subdivisions (from 2016) Preparation of the Explanations (Clarification Notes) of the Presidium of FAS (from 2016)

Explanations (clarification Notes): 2016-2018 Applied Economics Department, Institute of Industrial and Market Studies . Explanations (clarification Notes): 2016-2018 ‘On the qualification of monopolistically high and monopolistically law price’ ‘On vertical agreements, including agreements with dealers’ ‘On proving illegal agreements and concerted practices (including bid-rigging)’ ‘On the agreements in innovation in high-technological activities’ ‘On the assessment of legality of business action of the dominant undertaking’ ‘On the proving and calculation of damages imposed by violation of competition law’ On the enforcement of the law ‘On protection of competition’ towards technological interconnection and non- discriminatory access in heating’ 8. ‘On enforcement of art. 10 (prohibition of the abuse of dominance) of the law ‘On protection of competition’ 9. ‘On the publication of general rate increase (GRI - *advance freight announcement) by international ocean container liner shippers’

Explanations (clarification Notes): 2016-2018 Applied Economics Department, Institute of Industrial and Market Studies . Explanations (clarification Notes): 2016-2018 10. ‘On the enforcement of competition law by antitrust authorities against violations of the rule on pricing’ 11. ‘On the calculation of damages imposed by competition law violation’ 12. ‘On competition enforcement in electricity’ 13. ‘On the use of confidential information under competition law enforcement’ 14. ‘On the qualification of agreements between undertaking in tenders’ … Explanations extend the legal rules on competition in Russia, and many of them develops exactly legal standards of enforcement

Applied Economics Department, Institute of Industrial and Market Studies . Ambiguous impact of guidelines and clarification notes on legal standards Guidelines ‘On the assessment of competition’ (2010): intensifies discussions on the market analysis and effects of conduct taking market structure into account Being initially developed for abuse of dominance, they are applied in the investigations of almost all anticompetitive conducts However many recent Clarifications (2016-2018) tend to describe evidence of illegal actions as features of specific conducts. So, they support object-based not effect-based enforcement 2010 – Guidelines ‘On the assessment of competition

Actions that federal antitrust service takes cont’d Applied Economics Department, Institute of Industrial and Market Studies . Actions that federal antitrust service takes cont’d Introduction of specific legal procedures Warnings and precautions (from 2011) Combination of Statement of Objection with conduct remedy Conduct remedies, Code of Fair Practices, Commercial Policies Ex-ante regulation procedures do not improve legal standards: Normally do not contain explanations of casual relationships between allegedly illegal conduct and restriction of competition; under the presence of conduct remedies, code of fair practice etc non- compliance is considered as sufficient evidence of infringement , therefore anticompetitive effects should not be proved Blue segment: number of infringement decisions; red segment: number of warnings 2013-2017

Conclusions Legal standard as multiple Nash equilibria Applied Economics Department, Institute of Industrial and Market Studies . Conclusions Legal standard as multiple Nash equilibria Depend on the strategies chosen by ‘players’ Especially in the context of decentralized enforcement Neither legislator no competition authority no courts choose legal standards ‘by themselves’ Dynamics I: together with the development of legal standards competition authority takes effort to avoid compliance with higher standards ‘Dynamics I’: in order to avoid critiques on inadequate legal standards competition authority elaborates guidelines to explain the approach it takes… Guidelines may stimulate new turn of discussions but also may support object-based enforcement...

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