The Impact of EU Competition Law on Russian Business

Jorg Karenfort
Partner, Salans

Joseph Hainz
Associate, Salans LLP Berlin office
The growing economic interaction between Russia and the European Union effectuates the increasing importance of EU competition law for Russian companies.

The EU Commission has strongly intervened in the activities of foreign companies, mainly U.S. companies, in the past. The EU blocked the merger of the U.S. companies GE and Honeywell, even though the U.S. authorities had cleared the union. In the recent Microsoft cases, the U.S. software company has been forced to significantly change certain business practices and is subject to severe fines of almost 1 billion euros, while the U.S. authorities have not engaged in similar proceedings against Microsoft.

With Russian companies vigorously expanding their foreign business, including in the EU, they might soon be engaged in similar proceedings under EU competition law. This is particularly true for companies in regulated and sensitive industries, such as energy and raw materials.

This view is already illustrated by a growing number of cases from both the European Commission and courts that involve Russian companies. An example is the recent case concerning De Beers, the world market leader in the production and supply of rough diamonds, and Alrosa, which occupies the No. 2 position in the same market. The European Commission intervened heavily in the business relationship between the two companies by requesting De Beers to offer certain significant commitments. Alrosa appealed against the commission's decision before the European Court of First Instance without success.

In addition, a Russian competition law that entered into force in 2006 is widely regarded as being heavily influenced by EU competition law and policy, and it is likely that the Federal Anti-Monopoly Service will at least partly lean on the experiences of the EU authorities in its future actions.

EU competition law has seen extensive modernization in the last decade. The main changes in recent years were:

• A revised EC merger control regulation.

• The modernizing and decentralizing features of Council Regulation 1/2003, including the shared enforcement Article 81 EC Treaty.

• A further 10 countries joined the European Union.

• New EC fining guidelines were adopted in September 2006, likely leading to a significant increase in fines.

One underlying consideration for most of these measures was -- apart from implementing recent economic and competition theory and practice -- the attempt to relieve the commission administration from its existing workload. While some undertakings today benefit from an accelerated procedure in Brussels, the changes have also led to intense enforcement actions both against cartels and the abusive behavior of market-dominant firms. The new system of self-appraisal pursuant to Article 81 EC Treaty and the related block exemptions has put the burden of assessing the competitive effects on the undertakings without the possibility of a binding exemption letter issued by the commission. Consequently, the individual undertaking bears the risk of a misjudgment. Indepth knowledge of these new block exemption regulations and their interlocking with the still-existing possibility of an individual exemption is of growing importance for Russian companies as it might spare them potential fines from the commission. Also, and even more important in certain cases, agreements violating EC competition law may be null and void. The assessment of EC competition law by Russian companies may be facilitated by the fact that a new Russian law on the protection of competition embodies a certain convergence with EU law regarding the criteria for exemption of anti-competitive practices.

Similar to Article 10.1 of the Russian competition law, Article 81 EC Treaty applies only to undertakings having dominant market power. It prohibits any abuse by one or more firms with a dominant position. The aim is not to prevent market dominance itself, but the abuse of such dominance for anti-competitive ends. It prohibits the abuse of market power both by unilateral conduct of a single firm as well as by concerted action of several oligopolists. Unlike under the Russian competition law, there are no specific thresholds, such as certain market shares that determine the market-dominant position. The main criteria by which a dominant market position is determined are the structure of the market, the structure of the firm and the firm's conduct.

The intensified activities of Russian businesses in the EU or their dealings with EU companies increase the scope of application for EU competition law. This poses new challenges to Russian business leaders and will also likely lead to a growing convergence between Russian and EC law in the long run.