Recently, news related to the FAS (Russian antimonopoly government agency) appears mostly in the context of legislative initiatives. One such initiative is the proposal of «the 5th antitrust package», aimed at regulating the digital economy. However, along with this activity, the antimonopoly authority continues to conduct a large number of investigations of various markets.
One such activity of the authority is to conduct antitrust investigations against home appliances and consumer electronics producers (audio and video devices for personal use).
Over the past 2 years, the FAS accused some of the largest manufacturers of consumer electronics of violating antitrust laws. In general, the antimonopoly authority accused these companies of unlawfully coordinating the economic activity of their contracting parties, which resulted in resale price maintenance by independent sellers (resellers).
In accordance with the Law on the Protection of Competition, coordination means various actions of a coordinator in relation to the market players, aimed at aligning their behavior in some way. In practice, it is possible to coordinate the actions of various entities, for example, by establishing uniform rules of conduct, coercing to perform or refuse to perform certain actions, imposing sanctions on counterparties for violation of established rules of conduct, or introducing incentives to comply with established rules of conduct.
According to antitrust legislation, illegal coordination of actions of third parties is only possible if the following conditions are met:
✓the coordinator does not belong to the same undertaking (group of entities) as the coordinated entities;
✓the coordinator is not conducting its business within the same market where the coordinated entities operate.
The following analysis of recent antitrust cases related to violations in the consumer electronics market helps to make conclusions regarding the actions and circumstances to which the authority pays attention, and what was used as the evidence of violations of antitrust laws by manufacturers during antitrust investigations.
Since 2017 the FAS initiated antitrust investigations and subsequently opened cases against Samsung Electronics Rus, LG Electronics RUS, Apple Rus. Also, in June 2019, the antimonopoly service initiated a case on the grounds of violation of antitrust laws against the Russian Philips subsidiary – Sangfei SES Electronics Rus LLC. The companies were charged with conducting coordination of resellers, which led to resale price maintenance of certain smartphones.
These cases have certain similarities, both in the factual circumstances that were reviewed by the antimonopoly authority and deemed violating the antimonopoly legislation and in the antimonopoly authority’s strategies of collecting evidence and proving the violations.
Prior to the initiation of cases, the FAS conducted extraordinary field audits (dawn raids) of these companies. The main purpose of these audits is usually to collect and analyze the information from corporate laptops of particular employees (often these are files in the “My Documents” folder, business correspondence in Outlook). It is important to note that the FAS has the right to copy information and documents only from electronic devices which belong to the company (for example, an office computer or a phone with a corporate SIM card). Copying information (correspondence from instant messengers and social networks, SMS messages) from personal mobile devices of employees is not allowed. In the event of such evidence collection, this evidence may be deemed inadmissible in court.
In recent cases, the antimonopoly authority analyzed not only the correspondence with counterparties, but also the internal correspondence of employees of the companies being inspected. Thus, in the investigation against Samsung Electronics Rus, the FAS regarded correspondence between company employees as an evidence of an antimonopoly violation (through which, according to representatives of the antimonopoly body, employees coordinated reseller prices and forced them to follow the implied agreements).
Along with extraordinary inspections, the antimonopoly body sent requests for documents and information to resellers, whose answers were later carefully compared. In particular, the FAS of Russia asked the resellers for information regarding the process of purchase and selling of electronic devices, as well as information on the prices at which smartphones were purchased and sold.
The antitrust authority also reviewed the pricing algorithms that the companies used and investigated their functional and technical characteristics. Price algorithm means special software that allows monitoring of resale prices within a particular market (usually only prices of products that the operator of the algorithm sells).
The use of a price algorithm for monitoring of prices is not prohibited per se (by object). Such use becomes illegal if it is aimed at ensuring compliance of resellers with recommended resale prices (for example, by withholding bonuses, imposing other sanctions) and leads to the maintenance of such prices, including prohibiting the use of discount systems by resellers (or limit the maximum amount of such discounts).
Such a position regarding the use of price algorithms is expressed by the FAS in Recommendations issued this year on “Practices in the use of information technologies in trade, including those associated with the use of price algorithms”.
Having collected all the necessary information, the antimonopoly authority first defined the product and geographical boundaries of the markets. In all cases, the geographical boundaries of the markets were determined as the territory of the Russian Federation. The product boundaries of the market were limited to specific products, for which manufacturers monitored and imposed prices. In addition, the FAS of Russia established the fact that there is no competition between the coordinating companies and the resellers (as mentioned earlier, the coordinator should not be a participant of the same market as the coordinated entities).
An important component of all cases was the establishment by the antimonopoly service of a link between the price dynamics for specific models of consumer electronics and price monitoring by the manufacturers, sending letters with recommended prices, and imposing sanctions for resellers diverting from recommended prices.
For example, in one of the cases, the FAS of Russia indicated that the manufacturer had ceased to conduct shipment of goods to resellers who did not comply with recommended retail prices. In another case, the antimonopoly service noted a significant reduction in shipments of electronic devices to resellers who sold goods at a lower price than was recommended by the manufacturer.
Based on the results of investigations and cases, the FAS established the following set of elements of illegal coordination:
✓the establishment of recommended resale prices for goods that were published on the official websites of manufacturers or brought to the attention of resellers (resellers did not deviate from the prices recommended by manufacturers);
✓maintaining control by the manufacturer’s employees over prices set by resellers (prices were regularly monitored by using special software, by requesting information from resellers and by visual inspection of shopping areas);
✓influencing resellers to comply with the recommended resale prices (if resellers reduced the prices, manufacturer’s employees insisted on increasing prices);
✓imposing sanctions on resellers who do not comply with recommended retail prices. (for example, there was a significant reduction in shipments of goods to resellers, who did not follow the recommendations of manufacturers).
As a result, the FAS concluded that the violation in the actions of manufacturers was by conducting the illegal coordination, which led to the maintenance of resale prices, and subsequently filed administrative cases to impose fines. The fine for illegal coordination is up to 5 million rubles.
When determining the amount of the fine in particular cases, the antitrust authority takes into account such circumstances as the company’s cooperativeness during the investigation, as well as willingness to stop the violation before the end of the official investigation, which may usually lead to decreasing the amount of the fine.
Despite the fact that the Russian Code on administrative offenses does not yet explicitly mention the existence of antimonopoly compliance system as a ground for reducing fines, in practice the antimonopoly service always takes this circumstance into account when imposing an administrative penalty.
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