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Главная /  Article /  When fines do not instil fear, or a special...
When fines do not instil fear, or a special measure for offenders

Elena Sokolovskaya,
Chief Expert of Competition and Law journal

A fine and an order are measures established for a breach of antitrust legislation. They cannot be applied simultaneously. Yet, how one of them takes priority over the other is not regulated. Lately, instead of a fine, the Russian Federal Antimonopoly Service (FAS) has started using the more stringent measure, namely orders, to transfer unlawfully gained income to the government purse. Let us find out what explains this practice and what it is founded on.

The FAS may issue to a business entity, in whose operations offences against antitrust legislation have been identified, an order to cease the breaches and eliminate their consequences. This document may specify, for instance, that the entity has to change its conduct on the commodity market including in relation to other participants.

Orders that are issued when actions are recognised as a monopolistic practices or unfair competition and set an obligation for the income received from such activities to be remitted to the federal budget have carved a special niche for themselves.

It is impossible to hold a person liable for a breach of antitrust legislation under administrative law while also issuing an order to remit the income to the budget (article 51(3) of Federal Law No. 135-FZ “On protecting competition” dated 26 July 2006, the “Law on Protecting Competition”).

Please note
Clause 5 of the note to article 14.31 of the Code of Administrative Offences also provides that a person that has received such an order cannot be held liable under articles 14.31, 14.32, and 14.33 of the same Code.

A question arises regarding the order of priority of measures ensuring competition. In which case does the FAS impose administrative liability and in which does it issue an order to remit the income received to the federal budget?

To answer the question one has to understand what sort of fine is charged from the infringer, a turnover fine in the form of a percentage of the revenue received from the sale of goods (work or services) on the market where the administrative offence was committed, or a fixed amount.

The trend has evolved in the practice of the antitrust authority to issue orders to offenders to remit their income

A turnover fine is paid when the actions of the business entity result or may result in competition being restricted or eliminated. The antitrust body will have the right to make the legal entity remit unlawfully received income to the federal budget only if it is established that an administrative fine cannot be charged. This issue is resolved within the scope of proceedings in an antitrust case (Letter No. IA/46433/16 of the Russian Federal Antimonopoly Service dated 8 July 2016 “On orders being issued to remit to the federal budget income received from monopolistic activity).

The Appeal Panel of the FAS has, on a number of occasions, reviewed complaints against orders of local bodies whereby business entities were obliged to remit to the federal budget income generated as a result of a breach of antitrust legislation (the resolutions of the Appeal Panel of the FAS dated 23 April 2019 in case No. 08-16/3-2018 and in case No. 03-16/5-201, dated 15 May 2019 in case No. 05-23k/2018 and dated 25 April 2019 in case No. 03-16/8-2018). At the same time, that the local authority’s decision did not contain evidence of it being impossible to calculate the amount of a fine allowed the Appeal Panel to conclude that it was unlawful to impose an obligation on the defendants to remit funds to the public purse.

An approach has evolved in the practice of courts and administrative bodies whereby an order to remit income is not handed down if a turnover-based administrative fine may be calculated based on the amount of proceeds or expenses (clause 13 of the Overview of the practice of antitrust legislation being applied by collective bodies of the FAS (for the period from 1 July 2018 to 1 July 2019) approved by a Protocol of the Presidium of the FAS).

Will the situation change if a fixed penalty is imposed on the infringer?

Until now we have heard almost nothing about orders of this type being issued when a breach has resulted or could result exclusively in other persons’ interests being infringed and has in no way affected the state of competition.

To be fair, such practice was rather typified by individual occurrences.

Example

In 2023, St Petersburg Division of the FAS identified a breach of article 14.2 of the Law on Protecting Competition in the actions of a company, which resulted in the general public being misled by information that was known to be false being placed in project declarations and information materials about what size the areas of apartments were: an area lower than the actual area was specified to attract consumers. The FAS Division issued Order No. 078/01/14.2-11/2023 dated 2 November 2023 whereby the company was instructed to remit to the state budget more than RUB 52 million of income received as a result of the act of unfair competition.

Nevertheless, the number of such orders over the last year has been increasing dramatically.

Examples

In its Order No. 11/01/10-11/2024 dated 9 October 2024, the FAS of Russia imposed an obligation on a major player on the telecoms market to remit to the state budget RUB 3 billion of unlawfully generated income in view of the fact that in April and May of 2024 the company had raised the price of mobile communications services by 8% on average for more than 30 million subscribers, thereby abusing its dominant position (a violation of article 10(1)(1) of the Law on Protecting Competition).

The state authority issued similar orders1 to pharmaceutical companies for a breach of the ban provided for in article 14.5 of the Law on Protecting Competition by way of putting on the market generic products of original medicines protected by patents until 2028. The first company will have to return to the state budget more than RUB 960 million, while the second company will have to return more than RUB 577 million. For one of the companies, such an order is not the only one this year: previously the antitrust authority obliged it to pay more than RUB 513 million to the state budget for a similar offence, but with respect to a different medicine (the FAS’s Decision dated 4 October 2024 in case No. 08/01/14.5-51/2024).

For information
The launch of a generic medicine on the market before the patent of the original medicine expires is an act of unfair competition not only in relation to suppliers of the original medicine, but also in relation to other pharmaceutical companies that have registered their products and are waiting for the patent to expire to launch such products on the market.

One may conclude that a trend of issuing such orders against offenders has evolved in the practice of the antitrust regulator over the past year. At the same time, it is not officially established that an order has priority over a fixed penalty (or vice versa). So in what situation may the regulator use such a severe punishment?

The orders are issued when it is no longer effective to hold the offender liable under administrative law

I would say that there is only one rational answer: orders of this type are issued when it is no longer effective to hold an offender liable under administrative law, given that a fixed fine is much lower than the amount that should be remitted to the state budget. Companies just pay a fine that does not impose any considerable financial burden on them, and continue breaking the antitrust laws. The issuing of an order, however, has the purpose of preventing further offences, which in general is quite logical.

Thus, the regulator is increasingly active in using ways of protecting competition: in 2023, counter-advertising lawsuits of the antitrust authority were what received a renewed life, while in 2024, orders to remit unlawfully generated income to the federal budget have been issued more often than ever before. We are keeping track of the changes and watching what other measures of response the FAS will use in its fight for competition.

 

1. FAS recognised AxelPharm and Akrikhin to have violated the Law on Protecting Competition // Website of the FAS. 30 October 2024. URL: https://fas.gov.ru.


16.12.2024

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