Newsletter: "Tightening of competition law for digital markets"

On September 1, the important fifth "anti-monopoly package" came into force in Russia, which regulates changes to the Russian Competition Act.


Particularly important are the amendments to the law that oblige online marketplaces to comply with antitrust law. It has been clarified how a dominant position on the "digital market" can be determined. Company acquisitions are also affected by the changes: Approval must now also be obtained from the Russian antitrust authority ("FAS") if the contract price of a transaction is higher than RUB 7 billion (approx. EUR 70 million).


The FAS is of the opinion that the amendments create more effective protection of consumer rights. The procedures for investigating cartel cases have been shortened and the audit approach to analyzing the market has been changed. The regulatory authority will only be interested in platforms that allow "dishonest" behavior:

  • unjustified refusal of access to a digital platform;
  • Imposing unfavorable conditions on consumers;
  • discrimination against entrepreneurs who sell goods on the marketplace.


Although the fifth anti-monopoly package is referred to as a "digital" package, the changes affect the control of a wide range of transactions. The changes affect not only online services, but also a wide range of companies from other sectors.




"Network effect" and what is it good for?


The competition analyses used for traditional markets are not suitable for online markets. Therefore, the law introduces the concept of the "network effect" - a characteristic of the digital goods market that makes the value of a program dependent on the change in the number of its users. The network effect is regarded as a special characteristic that should be examined when analyzing the competitive situation on a goods market. This effect is explained by the FAS using the example of cab aggregators. The more drivers there are in the app, the more passengers connect to it. The number of transportation companies also grows. This is because the waiting time for a new order is reduced for the drivers and the time until a car arrives is reduced for the customers.


The FAS will now determine the network effects and establish whether the owner of a digital platform can significantly influence the conditions for the distribution of a good or service. In doing so, the anti-monopoly authority emphasizes that the existence of such an effect does not mean that a monopoly exists. In a competitive market, the network effect acts as a counterweight and regulator. If the market is close to a monopoly, this effect becomes a barrier to market entry.




Conditions for the recognition of a monopoly


The Russian Competition Act contains a new Article 10.1, which prohibits monopolies for owners of digital platforms. Monopolies can be recognized under a combination of several conditions:

  • due to the network effect, the owner of the platform can exert a decisive influence on the movement of goods, eliminate competitors and hinder their access to the market;
  • the proportion of transactions on a particular commodity market that are carried out via the digital platform exceeds 35%;
  • the turnover of the platform in the last calendar year is more than RUB 2 billion (EUR 20 million).


However, the legislator supplemented this article in the second reading to the effect that the owner of a platform can provide evidence that its activity is deemed to be authorized under antitrust law, i.e. that no possibility of exclusionary restraints of competition are created and if this is or can be the result of its activity:

  • improving the production, sale of goods or promoting technical and economic progress or improving the competitiveness of goods produced in Russia on the global goods market;
  • obtaining benefits by buyers that correspond to the benefits of the owner of the platform.




Threshold for the approval of transactions


According to Article 28 Russian Competition Act, the approval of an M&A transaction by the FAS depends on the book value of the assets and the revenues. Previously, approval was required if the value of the assets exceeded RUB 7 billion (approx. EUR 70 million) or if the revenue from the sale of goods exceeded RUB 10 billion (approx. EUR 100 million) and the price of the assets exceeded RUB 800 million (approx. EUR 8 million).


This provision has now been amended. Approval must now be obtained from the antimonopoly authority if the value of the transaction alone exceeds RUB 7 billion. This is particularly relevant for the IT sector, where accounting assets are often not particularly high.




Antitrust exemptions


Article 11 Russian Competition Act prohibits anti-competitive agreements, including cartels in tenders. The prohibition does not apply to agreements between companies belonging to the same group of persons, or if one company has gained control over the other, or if both are controlled by the same person. According to the amendments, measures by economic operators to increase, reduce or maintain tender prices do not fall within the scope of the exemption rule.