Application Appeal against Non-Regulatory Legal Acts of the Antimonopoly Authority

To: the Moscow City Arbitration Court

107802, Moscow, 10, Novaya Basmannaya St.



Applicant: OJSC Unified Trade Company

115035, Moscow, 8A/2, Ovchinnikovskaya nab., building 1



Respondent: the Russian Federation Ministry for

Antimonopoly Policy and Support of Entrepreneurship

123995, Moscow, 11, Sadovaya Kudrinskaya St.



State duty: 1,000 (one thousand) roubles



APPLICATION

Appeal against Non-Regulatory Legal Acts of the Antimonopoly Authority



Facts



On 11 February 2004, the Commission of the Russian Federation Ministry for Antimonopoly Policy and Support of Entrepreneurship (hereinafter - the Respondent) passed a decision on case No. 1 06/5-04 (hereinafter - the Decision) on the following:



- to qualify the actions of OJSC United Trade Company (hereinafter - the Applicant), coordinating the activity of OJSC Caustic, JSC Caustic, and OJSC Sayanskhimplast, aimed at attaching caustic soda manufacturers to particular consumers, as a violation of Art. 6 (5) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 (hereinafter - the Law on Competition);

- to qualify the actions of OJSC United Trade Company, OJSC Plastkard, JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, and OJSC Sayanskhimplast as a violation of Art. 6 (3) of the Law on Competition, manifested in concerted actions resulting in elimination of competition on the caustic soda market;

- to qualify the actions of OJSC United Trade Company, OJSC Plastkard, JSC Caustic, and OJSC Sayanskhimplast as a violation of Art. 6 (3) of the Law on Competition, manifested in concerted actions resulting in the elimination of competition on the market of polyvinylchloride-S;

- to issue an instruction to OJSC United Trade Company to terminate the violation of Art. 6 (5) of the Law on Competition;

- to issue an instruction to OJSC United Trade Company, JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, OJSC Plastkard, and OJSC Sayanskhimplast to terminate the violation of Art. 6 (3) of the Law on Competition on the market of caustic soda;

- to issue an instruction to OJSC United Trade Company, OJSC Plastkard, JSC Caustic, and OJSC Sayanskhimplast to terminate the violation of Art. 6 (3) of the Law on Competition on the market of polyvinylchloride-S;

- relevant structural units of the Respondent shall prepare claims to the arbitration court for the liquidation of OJSC United Trade Company;

- relevant structural units of the Respondent shall prepare the necessary materials for presentation to the RF Prosecutor General's Office for consideration of the issue of imposing criminal responsibility on the top management of OJSC United Trade Company on the basis of Art. 178 of the Russian Federation Criminal Code.



On the basis of the said Decision, in keeping with Art. 12 of the Law on Competition, the Respondent issued instruction No. 1 06/5-04 to terminate the violation of the antimonopoly legislation, in particular:



1. The Applicant shall terminate the violation of Art. 6 (5) of the Law on Competition.

2. The Applicant, JSC Caustic, OJSC Caustic, and OJSC Sayanskhimplast shall introduce amendments to relevant provisions of the supply contracts, excluding the terms envisaging 100% sale of the commercial output, within ten days from the moment of issuance of the decision on case No. 1 06/5-04.

3. JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov, and OJSC Sayanskhimplast shall terminate the violation of Art. 6 (3) of the Law on Competition on the market of caustic soda.

4. JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov, OJSC Sayanskhimplast, marketing organisations constituting a single group of entities with the said companies shall conclude direct contracts for supply of caustic soda with the consumers at economically reasonable prices and on mutually beneficial terms within ten days from the moment of issuance of the decision on case No. 1 06/5-04.

5. The Applicant, JSC Caustic, OJSC Caustic, and OJSC Sayanskhimplast shall terminate the violation of Art. 6 (3) of the Law on Competition on the market of polyvinylchloride-S.

6. JSC Caustic, OJSC Caustic, and OJSC Sayanskhimplast shall conclude direct contracts for supply of polyvinylchloride-S with the consumers at economically reasonable prices and on mutually beneficial terms within ten days from the moment of issuance of the decision on case No. 1 06/5-04.



The Applicant considers the Respondent's Decision and Instruction to be unlawful for the following reasons.



In accordance with Art. 13 of the RF CC, a non-regulatory act of a public authority or a body of local self-government inconsistent with the law or other legal acts and violating civil rights and legally protected interests of an individual or a legal entity may be recognised invalid by the court.



Proceeding from the wording of Art. 13 of the RF CC, as well as explanations of the RF Supreme Court of Arbitration presented in item 6 of the Decision of the RF Supreme Court Plenum No. 6 and the RF Supreme Court of Arbitration Plenum No. 8 of 01.07.1996 «On Some Issues Related to the Application of Part One of the Russian Federation Civil Code,» the grounds for issuing a court decision on invalidation of a non-regulatory act are both its inconsistency with the law or another legal act, and the violation by this act of civil rights and legally protected interests of an individual or a legal entity filing a relevant court claim.



1. Inconsistency of the Decision and Instruction with the Law



The Respondent's right to pass decisions and issue instructions is prescribed by Art. 12 and 27 of the Law on Competition. Art. 27 (4) of the Law on Competition stipulates that «the consideration by the antimonopoly body of presentations from the authorities and applications from organisations and individuals, adoption of decisions and issuance of instructions envisaged by this Law, as well as control over the observance of the antimonopoly legislation shall be exercised in the manner established by the federal antimonopoly body.»



The procedures for considering cases of violation of the antimonopoly legislation were approved by Order of the RF MAP No. 91 of 25.07.91 (hereinafter - the Procedures).



1.1. In accordance with item 2.6 of the Procedures, «the consideration of a case at a commission session shall be conducted by the chairman in a manner ensuring the most full and comprehensive analysis and evaluation of the circumstances of the case, elimination and prevention of violations of the antimonopoly legislation, observance of the rights and lawful interests of persons involved in the case.»



Therefore, the Commission shall draw its conclusions on the basis of a full and comprehensive analysis and evaluation of the circumstances related to the activity of the market entities. The observance of the rights and lawful interests of persons involved in the case shall mean not only the persons initiating the antimonopoly proceedings, but also the persons with respect of which such proceedings are conducted.



During the adoption of the appealed decision, the Respondent considered as an established fact the concerted actions restricting competition on the markets of caustic soda and polyvinylchloride-S taken by the Applicant jointly with OJSC NAC Azot, OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov, OJSC Sibur-Neftekhim, OJSC Khimprom, and OJSC Plastkard, which provided the grounds for the issuance of a relevant instruction to the said persons.



The only justification of the fact of violation of the norms of antimonopoly legislation in the form of concerted actions provided by the Respondent was the reference to the contracts for commercial output supply concluded between the Applicant and intermediate marketing organisations selling the produce of the said manufacturers, which could not serve as the evidence of concerted actions between the manufacturers and the Applicant without the evaluation of the entire combination of the existing mutual relations and economic factors.



Moreover, in violation of the principle of comprehensive and full examination of the circumstances of the case under consideration, the Respondent has dismissed the Applicant's petition for involving additional persons in the case and requesting additional evidence aimed at the implementation of this principle, and also waived the Applicant's petition for conducting an expert evaluation aimed, in keeping with the Procedures for Conducting an Analysis and Evaluation of the State of the Competition Environment on Product Markets approved by Order of the RF MAP of 20.12.1996 (item 1.4), at the examination of the product dimensions of the product market, the product market subjects (quantity and composition of sellers and buyers), geographic dimensions of the product market, volume of the product resource of the market, share of the economic entity on the market, quantitative characteristics of the product market structure, qualitative characteristics of the product market structure (entry barriers), and other issues related to the establishment of circumstances recognised as significant for qualifying the actions of entities as restriction of competition as per Art. 6 of the Law on Competition.



According to Art. 6 of the Law on Competition, concerted actions restricting competition are coordinated and organised actions of economic entities consciously placing their behaviour in dependence on behaviour of other market actors, which also result (can result) in restriction or elimination of competition on a relevant product market.



Considering the specific structure of Art. 6 of the Law on Competition, consisting of formal elements, to confirm the presence of qualifying elements of an offence stipulated by item 3 of the said article in organisations' actions, the antimonopoly authority should establish the fact of economic entities' actions aimed at restriction of competition in each particular case.



Meanwhile, as there is evidence in materials of the case, suggesting that the actual manufacturers of the commercial output did not participate in its sale to the Applicant, an unequivocal proof of their concerted actions in this case can only consist in their identification as economic entities comprising one group with the so-called «marketing» organisations.



However, the Respondent did not check the mutual relations of persons involved in the case during the confirmation of the elements of a violation of the antimonopoly legislation by the parties to the case, and dismissed the Applicant's petition for involving relevant persons - LLC Chemical Group NITOL, JSC MKhK Evrokhim, JSC Khimpromtrading, LLC Priborlab, LLC Khimprom Trade House, and OJSC AC Sibur - in the case, which has entailed the adoption of an unjustified decision.



Moreover, the Respondent's conclusions disclosed in the appealed Decision on the violation of Art. 6 of the Law on Competition by the Applicant contradict the conclusion made by the Respondent's decision on case No. 1 05/4-04 of 11.02.04 on the violation by the Applicant of Art. 5 of the Law on Competition on the same market (caustic soda). As an economic entity cannot simultaneously occupy a dominant position (Art. 5) and coordinate entrepreneurial activity of commercial organisations (Art. 6), this suggests that the Decision does not meet the requirements of item 2.6 of the Procedures.



1.2. The Respondent regards as confirmation of coordination of the market players' actions by the Applicant the term of the contracts concluded with JSC Caustic, OJSC Caustic, and OJSC Sayanskhimplast that the Seller shall not be entitled to resell the Produce subject to transfer to the Applicant into the property of other persons except the latter, and if third parties address the manufacturer with a proposal on the purchase of this produce, to refer them to the Applicant.



However, this condition is not a qualifying element of an offence stipulated by Art. 6 (5) of the Law on Competition or the evidence of possible coordination by the Applicant of the actions of the market players, as this contractual term stems directly from the norms of the RF civil legislation on sales contracts in accordance with which the seller shall transfer the product in the amount stipulated by the contract directly to the buyer, and only on the latter's instruction - to third parties. If the seller transfers a lesser amount of the produce than envisaged by the sales contract in violation of this contract, the buyer has a right, in accordance with Art. 466 of the RF CC, to demand the transfer of the lacking amount of the product. Therefore, in keeping with the sales contract, the Applicant had a right to demand from the manufacturers the transfer to the Applicant of the amount of the produce stipulated by the contract, which does not prove the Applicant's possible coordination of actions of relevant manufacturers.



The Respondent's allegation concerning additional expenses connected with the transportation of caustic soda to consumers that have an inconvenient (more remote) geographic location compared to traditional suppliers is also unfounded. The Respondent is guided by relevant applications of several consumers, on the basis of which is makes a conclusion on overall coordinated activity of the Applicant and manufacturers on the market of caustic soda. This conclusion contradicts the facts, as the Applicant, upon coordination with the said consumers ….

(missing page)



In connection with the above, and guided by Art. 34 of the RF Constitution, Art. 13 of the RF CC, Art. 6, 12, 27, 28 of the Law on Competition, Art. 197-199 of the RF APC,

we request the court



1. To invalidate the decision and instruction issued on 11.02.2004 by the Russian Federation Ministry for Antimonopoly Policy and Support of Entrepreneurship on case No. 1 06/5-04.

2. To refund from the budget the state duty paid in the amount of RUR 1,000.



Attachments:



1. The post office receipt on the mailing of the claim to the Respondent.

2. A copy of the Russian MAP decision of 11.02.2004 on case No. 1 06/5-04 _________ pages.

3. A copy of the instruction of the Russian MAP No. 1 06/5-04 of 11.02.2004 _________ pages.

4. Documents on the payment of the state duty ________ pages.

5. A copy of the OJSC UTC state registration certificate.

6. An application for adoption of claim enforcement measures.



General Director

OJSC United Trade Company (signature) K.V. Selivanov







THE NINTH ARBITRATION COURT OF APPEAL

in the name of the Russian Federation



RULING

City of Moscow

21 October 2004 No. 09AP-3146/04-AK



The operative part of the decision was announced on 14 October 2004,

Its full text was prepared on 21 October 2004



The Ninth Arbitration Court of Appeals in the composition of:

Chief justice I.D. Li,

Judges V.G. Bliznets and E.V. Yakutov,



the record of the court proceedings kept with the use of a computer by secretary I.I Rasputina,

with the participation of:



On behalf of the Applicant: A.A. Rokhlin under the authority of power of attorney No. ETK/78 of 12.04.2004, certificate No.2609;

A.V. Kukin under the authority of power of attorney No. ETK/66 of 23.03.2004, certificate No. 1696;

On behalf of the Respondent: I.V. Bashlakov-Nikolaev under the authority of power of attorney No. IA/1612 of 11.06.2004, certificate No. 1016;

O.A. Savinova under the authority of power of attorney No. AG/2641 of 07.07.2004, passport 4503 733416;

S.Yu. Vershinin under the authority of power of attorney No. IA/770 of 19.05.2004, certificate No. 1510;

S.V. Doronin under the authority of power of attorney No. IA/636 of 14.05.2004, certificate No. 357.



Having considered at a court session the appeal filed by the RF MAP (now the RF FAS) against the decision of the Moscow City Court of Arbitration of 09 August 2004 on case No. A40-8432/04-2-45 passed by judge T.I. Makhlaeva,

on the claim of OJSC United Trade Company to the RF MAP (now the RF FAS) on invalidation of the decision and instruction of 11.02.2004 No. 1 06/5-04 with respect of the Applicant,



HAS ESTABLISHED:



OJSC United Trade Company has applied to the Moscow City Court of Arbitration with a claim to invalidate the decision and instruction of the RF MAP (mow the RF FAS) of 11.02.2004 No. 1 06/5-04 issued to the Applicant.



By decision of 09.08.2004 the arbitration court satisfied the presented claims motivating its decision with the argument that the antimonopoly body has failed to prove the fact of violation of the antimonopoly legislation by the Applicant envisaged by Art. 6 (3 and 5) of the Federal Law «On Competition and Restriction of Monopolistic Activity on Product Markets» (hereinafter - the Law on Competition), and that it has violated the order of issuing the appealed non-regulatory acts.



The RF MAP disagreed with the court decision and filed an appeal requesting to cancel this decision and dismiss the presented claims. The Applicant referred in its claim to the fact that the conclusions made by the court do not conform with the circumstances of the case, the court has improperly applied provisions of substantive law. The antimonopoly body is authorised to pass decisions and issue instructions for purposes of preventing and terminating violations of the antimonopoly legislation. The appealed acts were adopted in accordance with the requirements of bylaws in compliance with the established order. The court has arrived at an incorrect conclusion that procedures of analysing the fungibility of caustic soda have been violated. The court has also arrived at an erroneous conclusion concerning a lack of objective aspects of the violations imputed upon the Applicant.



In its response to the appeal, OJSC United Trade Company supported the decision made, noting that the first instance court has properly applied provisions of substantive law and justifiably established the violation by the Respondent of the order of decision and instruction issuance, manifested in improper determination of the OJSC UTC share on the market and product fungibility. In addition, the Applicant's actions lack an objective aspect of offences imputed upon it. It requested to leave the court decision without change.



At the session, a representative of the RF FAS supported the arguments presented in the appeal, requested to cancel the court decision and dismiss the claim.



A representative of OJSC UTC objected at the session against the arguments presented in the appeal on the motives of the response, supported the decision made and requested to leave it without change.



The lawfulness and validity of the decision were examined in accordance with Art. 266 and Art. 268 of the RF APC. The appeal instance, having heard the explanations of the parties, examined and evaluated the evidence of the case, considered that the decision shall be left without change.



According to the materials of the case, the case of violation of the antimonopoly legislation No. 1 06/5-04 was initiated on the basis of the applications to the Russian MAP by deputy of the State Duma of the RF Federal Assembly V.N. Bondar, OJSC Krasnoyarskenergo, OJSC Shchekinazot, OJSC Kuibyshevazot, OJSC Azot, OJSC Volzhsky Orgsintez, OJSC Syassky Pulp and Paper Plant, OJSC Archangelsk Pulp and Paper Plant, OJSC Solombalsk Pulp and Paper Plant, OJSC Neusidler Syktyvkar, OJSC Kotlass Pulp and Paper Plant, OJSC AVTOVAZ, RAO Bumprom, OJSC Russian Aluminium Management, OJSC TD Viskoza, OJSC Kazan Synthetic Rubber Plant, OJSC Lukoil-Neftekhim, OJSC Polyplast, OJSC Nizhnekamskneftekhim, LLC Continental Management Timber Company.



The above persons in their applications pointed to the violation of the antimonopoly legislation, manifested in elimination of competition on markets of caustic soda and polyvinylchloride suspension (hereinafter - PVC-S) by introducing a monopolistic produce marketing scheme.



Upon the results of consideration of this case, the Russian MAP on 11.02.2004 passed the following decision:



- to qualify the actions of OJSC UTC, coordinating the activity of OJSC Caustic, JSC Caustic, and OJSC Sayanskhimplast, aimed at attaching caustic soda manufacturers to particular consumers, as a violation of Art. 6 (5) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 (hereinafter - the Law on Competition);

- to qualify the actions of OJSC UTC, OJSC Plastkard, JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, and OJSC Sayanskhimplast as a violation of Art. 6 (3) of the Law on Competition, manifested in concerted actions resulting in elimination of competition on the caustic soda market;

- to qualify the actions of OJSC UTC, OJSC Plastkard, JSC Caustic, and OJSC Sayanskhimplast as a violation of Art. 6 (3) of the Law on Competition, manifested in concerted actions resulting in elimination of competition on the market of PVC-S;

- to issue an instruction to OJSC UTC to terminate the violation of Art. 6 (5) of the Law on Competition;

- to issue an instruction to OJSC UTC, JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, OJSC Plastkard, and OJSC Sayanskhimplast to terminate the violation of Art. 6 (3) of the Law on Competition on the market of caustic soda;

- to issue an instruction to OJSC UTC, OJSC Plastkard, JSC Caustic, and OJSC Sayanskhimplast to terminate the violation of Art. 6 (3) of the Law on Competition on the market of PVC-S;

- the Russian MAP shall prepare claims to the arbitration court for the liquidation of OJSC UTC;

- the Russian MAP shall prepare the necessary materials for presentation to the RF Prosecutor General's Office for consideration of the issue of imposing criminal responsibility on the top management of OJSC United Trade Company on the basis of Art. 178 of the Russian Federation Criminal Code.



On the basis of the said decision of the Respondent, it issued instruction No. 1 06/5-04 to terminate the violation of the antimonopoly legislation, in particular:



- The Applicant shall terminate the violation of Art. 6 (5) of the Law on Competition.

- The Applicant, JSC Caustic, OJSC Caustic, and OJSC Sayanskhimplast shall introduce amendments to relevant provisions of the supply contracts, excluding the terms envisaging 100% sale of commercial output, within ten days from the moment of issuance of the decision on case No. 1 06/5-04.

- JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov, and OJSC Sayanskhimplast shall terminate the violation of Art. 6 (3) of the Law on Competition on the market of caustic soda.

- JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov, OJSC Sayanskhimplast, marketing organisations constituting a single group of entities with the said companies shall conclude direct contracts for supply of caustic soda with the consumers at economically reasonable prices and on mutually beneficial terms within ten days from the moment of issuance of the decision on case No. 1 06/5-04.

- The Applicant, JSC Caustic, OJSC Caustic, and OJSC Sayanskhimplast shall terminate the violation of Art. 6 (3) of the Law on Competition on the market of polyvinylchloride-S.

- JSC Caustic, OJSC Caustic, and OJSC Sayanskhimplast shall conclude direct contracts for supply of polyvinylchloride-S with the consumers at economically reasonable prices and on mutually beneficial terms within ten days from the moment of issuance of the decision on case No. 1 06/5-04.



In support of its requirements, the Applicant referred to the fact that the RF MAP Commission made its conclusions on the basis of an incomplete and incomprehensive analysis and evaluation of the circumstances connected with the activity of the market entities. Moreover, during the adoption of the appealed decision account was taken only of the rights and lawful interests of the persons initiating the antimonopoly proceedings, while the rights and lawful interests of the persons with respect of which these proceedings have been initiated were ignored.



The Applicant also pointed to the fact that the Respondent failed to present evidence of concerted actions of OJSC UTC and the manufacturers, as well as the evidence of coordination of the manufacturers' actions by the Applicant. Therefore, the fact of violation of Art. 6 (3 and 5) of the Law on Competition has not been confirmed.



The court at the first instance dismissed the presented claims under the pretext that the appealed decision and instruction did not conform with the requirements of the RF antimonopoly legislation.

In keeping with items 2.12 and 2.15 of the Rules of Considering Cases of Violation of the Antimonopoly Legislation, approved by Order of the RF MAP No. 91 of 25.07.1996, the decision of the Commission considering a case of violation of the antimonopoly legislation should disclose the circumstances of the case established by the Commission and the conclusions made by the Commission as a result of consideration of the case.



The conclusion made by the court at first instance concerning the violation of these norms by the Respondent is groundless, as the decision of the antimonopoly authority does present the circumstances which were established and the motives underlying the conclusions. Insufficient justification and violation of dispute settlement procedures significant for antimonopoly proceedings, established by the first instance court, are not evidence of a violation of requirements set to the content of the antimonopoly body's decision.



However, the court at first instance has arrived at a reasonable conclusion concerning the violation of procedures for the settlement of a number of issues significant for antimonopoly proceedings and disagreed with the conclusions made by the antimonopoly authority presented in the appealed decision.



Item 3 of Art. 6 of the Law on Competition prohibits the conclusion of agreements or conducting concerted actions by economic entities not competing between each other on a relevant product market, receiving (potential purchasers) and supplying (potential sellers) a product (fungible products), if such agreements or concerted actions result or can result in prevention, restriction, or elimination of competition.



Item 5 of Art. 6 of the Law on Competition bans the coordination of entrepreneurial activity of commercial organisations which results or can result in restriction of competition.



According to the above provisions, to recognise economic entities as violators of these norms, it is necessary to establish the existence of competition and evaluate its status. It is impossible to make a reasonable judgement that the Applicant's actions have resulted in restriction, elimination or prevention of competition, or the emergence of a real threat of such implications, without the evaluation of the competition status on a certain product market.



The analysis and evaluation of the competitive environment on product markets is conducted in accordance with the Procedures approved by Order of the RF MAP No. 169 of 20.12.1996.



According to item 1.1 of the Procedures of Conducting the Analysis and Evaluation of the Competitive Environment on Product Markets, it is applicable also to the consideration of cases of violation of the antimonopoly legislation.



In accordance with item 1.4 of the Procedures, calculation and analytical work should be conducted for the evaluation of the status of the competitive environment, to determine:



- the product dimensions of the product market;

- the subjects of the product market (quantity and composition of sellers and buyers);

- the geographic dimensions of the product market;

- the volume of the market product resource;

- the market share of the economic entity;

- quantitative characteristics of the product market structure;

- qualitative characteristics of the product market structure (entry barriers);

- the economic entity's market potential.



The conducted analysis makes it possible to draw conclusions concerning the development or non-development of competition on the product market, expediency and forms of applying antimonopoly measures to remedy the situation.



In accordance with item 2.2 of the Procedures, the identification of the product dimensions of a product market should be based on buyers' opinion on the fungibility of products comprising one product group. Such opinion can be found out as a result of a total or sample buyers' poll and supported with data of a merchandising review.



The analysis conducted by the RF MAP department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes contains the conclusion that consumers do not have an opportunity to substitute caustic soda and PVC-S with any other produce.



This conclusion cannot be considered justified as it is based only on the polls of economic entities initiating the antimonopoly proceedings, which are the principal consumers that use caustic soda and PVC-S in their technological process as the main kind of raw material and are obviously interested in the outcome of the case.



The opinions of other independent consumers about the possibility of substituting caustic soda and PVC-S with another product were not studied by the Respondent. These conclusions are not backed with any independent evidence, specifically, merchandising reviews, data of industrial and independent information services and centres on the state, structure, and volume of the product markets, participation of individual produce manufacturers and purchasers in the trading, etc. (item 1.6 of the Rules).



The argument of the antimonopoly authority that in keeping with Art. 4 of the Law on Competition, fungibility of products shall be determined by the consumers is justified. However, it does not follow from provisions of this article that the opinions of buyers (consumers) should be accepted unconditionally and their soundness should not be verified in order to observe a balance of interests of economic entities by conducting expert reviews, and item 2.2 of the Procedures of Conducting Analysis and Evaluation of the Competitive Environment directly prescribe to conduct a merchandising review. Therefore, the antimonopoly authority had to conduct such an expert review, particularly in view of the fact that the initiators of the antimonopoly proceedings (according to the appealed decision) are the main (»dominant») consumers of caustic soda and PVC-S and their opinion may constitute the same kind of concerted actions as are imputed upon the Applicant and the manufacturers.



During the court hearings at first instance the Respondent referred to the opinion of the Russian Engineering Academy (REA) «Forestry Engineering Technologies» of May 2004 in support of the impossibility of substituting caustic soda with other products.



The Respondent's reference to this opinion in substantiation of the lawfulness and validity of the appealed decision is inconsistent, as it was issued in May 2004, after the decision of 11.02.2004 was passed. Moreover, it concerns only consumers in the pulp-and-paper industry, whereas caustic soda is used in other industrial sectors as well: aluminium production, automobile industry, and power engineering.



A letter from the Institute of the Russian Language of 27.07.2004 and the REA opinion on the impossibility of economically beneficial substitution of caustic soda with soda ash in the pulp-and-paper industry are irrelevant to this case as per Art. 68 of the RF APC, as they were also received after the appealed acts were issued.



Fungibility criteria also include functional substitution of various products, established by comparing the consumption purposes of a given product and its supposed fungibles. It is necessary to take into consideration the differentiated approach of different consumer groups to this problem. One and the same produce may circulate on one and the same territory on different product markets, and these markets should be considered separately (para 9 of item 2,4 of Procedures No. 169). Under such circumstances the Respondent's conclusion about a lack of fungibles to caustic soda cannot be considered justified and documentarily supported.



The Respondent established the following:



- The main manufacturers of PVC-S in Russia are: JSC Caustic, OJSC Caustic, OJSC Plastkard, and OJSC Sayanskhimplast. The analysis of the competitive environment on the product market of PVC-S has revealed that the aggregate share of the said enterprises on the PVC-S market exceeds 65%.

- The main manufacturers of caustic soda in Russia are: OJSC Plastkard, JSC Caustic, OJSC Caustic, OJSC Khimprom, OJSC Sibur-Neftekhim, OJSC NAC Azot, OJSC Sayanskhimplast, and OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov. The analysis of the competitive environment on the product market of caustic soda has also shown that the aggregate share of the said enterprises on the caustic soda market exceeds 65%.



These circumstances were established as a result of an analysis of the competitive environment on the market conducted by the RF MAP department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes.



During the calculation of the Applicant's share on the caustic soda market the Respondent did not take into account the output volumes of solid caustic soda - a product with the same chemical characteristics as liquid caustic soda. Apparently, fungibility with other products has not been confirmed either. These circumstances have a considerable impact on the definition of the Applicant's share on the product market.



The Respondent's decision is based on the assumption that the Applicant's share on the market of caustic soda is 100%. However, the analysis of elements of monopolistic prices of caustic soda conducted by OJSC ITKOR shows that the Applicant's share is 80%, i.e. there are different estimates. Consequently, the Respondent has not properly established the Applicant's share on the relevant product market, taking into account all the circumstances significant for this issue.



The following documents were presented to substantiate the conclusions concerning the violation of Art. 6 (3) of the Law on Competition by OJSC UTC: the application of deputy V.N. Bondar of 07.10.03; applications, complaints, and telegrams of caustic soda and PVC-S consumers; records of the session of the Russian MAP Commission of 11.02.2004; supply contracts concluded by OJSC UTC in 2003-2004 with consumers of the said produce; a letter from the RAN Institute of the Russian Language of 27.04.2004; an opinion of the Russian Engineering Academy without a number or a date of issuance; letters from OJSC CNIIB, OJSC Kotlass Pulp and Paper Plant on the impossibility of substituting caustic soda with soda ash.



The application filed by deputy V.N. Bondar contained the information that after the creation of OJSC UTC in July 2003 this company has monopolised the PVC-S market, as a result of which it has become impossible to purchase the produce directly from manufacturer plants, as the marketing departments of the manufacturers, as well as the traditional dealers were referring all consumers to OJSC UTC. This situation led to a dramatic 10-percent hike of the price of this produce within two months, which made it unprofitable to purchase domestic PVC-S and reduced the competitiveness of this produce as compared to the imported analogues.



The applications of caustic soda consumers had it that in the course of the 2004 contracting campaign consumers were denied the conclusion of contracts for supply of this product by the traditional caustic soda suppliers under the pretext that in order to conclude a supply contract it was necessary to apply to OSJC UTC. Moreover, the price of caustic soda set by OJSC UTC was 1.5 - 2 times higher than the market price of this product that existed in 2002-2003.



The above documents cannot be accepted as proof of a violation of Art. 6 (3) of the Law on Competition by OJSC UTC, as they represent the opinions of persons interested in the purchase of produce at a price almost below the cost of its output.



According to Art. 6 of the Law on Competition, concerted actions restricting competition are the actions of economic entities consciously placing their behaviour in dependence on behaviour of other market actors, which also result (can result) in restriction or elimination of competition on a relevant product market.



To confirm the presence of qualifying elements of an offence stipulated by item 3 of the said article in the organisations' actions, the antimonopoly authority should in each case establish the fact of concerted actions of economic entities, aimed at restriction of competition.



The Respondent has not presented any evidence of concerted actions. The contracts presented by the Respondent cannot by themselves serve as the confirmation of concerted actions, as the law does not prohibit the sale of the entire volume of produce to one sole buyer, the more so if a higher price is offered for the produce. All the other actions of referring consumers to OJSC UTC and refusal to sell the produce are a consequence of the fact that all 100% of the produce was sold at the moment of consumers' address to the manufacturers.



In addition, the Respondent has not conducted an investigation of mutual relations between the persons involved in the case for purposes of confirming the elements of a violation of the antimonopoly legislation by the parties to the case. It dismissed a relevant petition filed by the Applicant for involving the following persons in the case: LLC Chemical Group NITOL, JSC MKhK Evrokhim, JSC Khimpromtrading, LLC Priborlab, LLC Khimprom Trade House, and OJSC AC Sibur.



At the same time, the issue of concerted actions cannot be solved in the absence of any of the participants in such actions, as this would seriously violate the rights of the persons not involved in the case and entail incomplete examination of the circumstances significant for the appealed decision of the Respondent.



The Respondent regards as a confirmation of coordination of actions of the market participants by OJSC UTC the term of the contracts concluded with JSC Caustic, OJSC Caustic, and OJSC Sayanskhimplast that the Seller shall not be entitled to resell the Produce subject to transfer to the Applicant into the property of other persons except the latter, and if third parties address the manufacturer with a proposal on the purchase of this produce, to refer them to the Applicant.



The said contractual terms do not constitute an objective aspect of the elements of an offence envisaged by Art. 6 (5) of the Law on Competition and do not confirm the facts of coordination of actions of the market participants by OJSC UTC. The above conditions do not contradict the norms of the civil law, including articles 454, 455, 465, 466, 485, 506, and 507 of the RF CC.



Moreover, the coordination of actions of equal individual economic entities, independent from the coordinator is impossible, as the lack of dependence would attest to the voluntary nature of the actions of the coordinated entity, and in the event of a mutual will it would constitute concerted actions which cannot be qualified under Art. 6 (5) of the Law on Competition.



The Respondent has failed to provide the evidence of dependence of caustic soda and PVC-S manufacturers on OJSC UTC. Therefore, the Applicant's actions cannot be qualified as coordination, as there is no fact of violation as stipulated by Art. 6 (5) of the Law on Competition.



The Respondent used the analysis of elements of monopolistic prices of caustic soda prepared by the Institute of Placement and Market Situation Studies (ITKOR) to draw a conclusion that OJSC UTC expenses included in the price of caustic soda were unreasonable and economically unjustified.



However, a monopolistically high price is a price set by an economic entity occupying a dominant position on the product market as a result of withdrawal of goods from circulation for the purposes of its overstatement to gain excess profit and/or compensate for unreasonable expenses by infringing the economic interests of other economic entities or individuals.



Facts formally indicating to possible elements of a monopolistic price can in fact be a consequence of the market situation rather than a result of dominance abuse on the market by an economic entity in conditions of free pricing.



The appealed decision lacks the validation of costs and profit objectively needed for production development.



The appealed decision and instruction of the antimonopoly authority affect the rights and lawful interests of OJSC UTC in the sphere of entrepreneurship and other business activity and do not conform with requirements of Art. 6 and Art. 27 (1, 3, and 4) of the Law on Competition.

In violation of Art. 65 and Art. 200 (part 5) of the RF APC, the Respondent has not proven the facts underlying the decision and instruction of 11.02.2004.



Under such circumstances, the court at first instance made reasonable conclusions concerning the inconsistency of the appealed decision of the antimonopoly authority with requirements of the law and other non-regulatory acts, which provides the grounds for its invalidation in accordance with Art. 8, 12, 13 of the RF CC, Art. 6, 12, 27, 28 of the RSFSR Law «)n Competition and Restriction of Monopolistic Activity on Product Markets.»



The instruction issued on the basis of an invalid decision is also invalid.

Considering the above, the Respondent's appeal should be dismissed. The Applicant has been exempt from the payment of state duty.

Considering the above and guided by Art. 110, 266, 268, 269, and 271 of the RF APC,





HAS DECIDED:



to leave the decision of the Moscow City Court of Arbitration of 09 August 2004 on case No. A40-8432/04-2-45 without change, and dismiss the appeal.



Chief justice I.D. Li,

Judges V.G. Bliznets and E.V. Yakutov



The Ninth Arbitration Court of Appeals







Written Explanations of the Russian FAS on Case No. A40-8432/04-2-45





1. The Federal Arbitration Court of the Moscow District cancelled the decision and ruling of the court at first and appeals instances on case No. A40-8432/04-2-45. In its Ruling No. KA-A40/13442-04 of 05.03.2005, it noted that the court considered the case without the participation of the persons whose rights and obligations are covered by the decision.



Consequently, the cassation court pointed out, it is impossible to evaluate whether the courts have properly or improperly applied provisions of substantive law without taking into account the arguments of the persons about whose rights and obligations the decision is made.



The cassation court referred case No. A40-8432/04-2-45 to the Moscow City Court of Arbitration for a retrial.



Under the circumstances, the participation in the case and, therefore, an opportunity to present explanations on the case by OJSC Caustic (Volgograd), JSC Caustic (Sterlitamak), OJSC Sayanskhimplast, OJSC NAC Azot, OJSC Sibur-Neftekhim, OJSC Khimprom (Volgograd), OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov (OJSC KChKhK), and OJSC Plastkard will ensure a full and comprehensive examination of the case.



In accordance with the Decision of the Russian MAP of 11.02.2004 on case No. 1 06/5-04, OJSC United Trade Company (OJSC UTC) and manufacturers of caustic soda and PVC-S - OJSC Caustic, JSC Caustic, OJSC Sayanskhimplast, OJSC NAC Azot, OJSC Sibur-Neftekhim, OJSC Khimprom, OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov (OJSC KChKhK), and OJSC Plastkard - were recognised as violators of items 3 and 5 of Art. 6 of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 (hereinafter - the Law on Competition).



The essence of the violation committed by the said persons consists in the following.

Consumers of caustic soda (major enterprises of the chemical, pulp-and-paper, aluminium, automobile industry and power engineering using it in their technological processes as a necessary component) were denied by their traditional suppliers of this produce the conclusion of supply contracts during the 2004 contracting campaign, motivating this with the fact that from now on their produce will be supplied by OJSC UTC (vol. 2, case pages 38-62, 1-3) as prescribed by the contracts concluded by them with OJSC UTC. Moreover, caustic soda consumers received notifications from OJSC UTC or its operators that in 2004 this product will be supplied exclusively by OJSC UTC, as the entire volume of caustic soda manufactured in the Russian Federation from now on belongs to this company (vol. 2, case pages 63-75). At the same time, the price of caustic soda set by OJSC UTC equalled RUR 6,000, VAT and transport expenses not included, which exceeded the 2002-2003 market price of this produce 1.5 - 2 times. In addition, some applicants complained that OJSC UTC has singly appointed unprofitable consignors which had an inconvenient (more remote) geographic location compared to the traditional suppliers, or restricted the choice of consignors.



The Commission learned that the above manufacturers (as well as their marketing organisations) have practically simultaneously (in the period from late November to mid-December) concluded almost identical contracts with OJSC UTC, according to which the manufacturers were obliged to hand over in property of OJSC UTC 100% of their output (vol. 2, case pages 136-218). OJSC UTC was purchasing the produce at prices practically similar to the prices at which the manufacturers used to supply their produce directly to consumer enterprises in 2002-2003.



As the manufacturers of PVC-S and caustic soda with which OJSC UTC has concluded such contracts have an aggregate share on relevant markets exceeding 65%, by concluding such contracts OJSC UTC has acquired a dominant position on the marketing level of these markets.



Therefore, the conclusion and implementation of the said contracts has resulted in the organisation of a monopolistic marketing pattern of the produce manufactured by formerly competing economic entities. The creation of such a marketing pattern has led to the disappearance of rivalry between competing economic entities selling caustic soda, which existed before the monopolisation of the marketing section of this product market by OJSC UTC. Before this moment the economic entities could take independent actions to restrict the opportunity of other economic entities - their competitors - to unilaterally influence the general terms of the product circulation (any significant price increase by one of the sellers of caustic soda would urge the consumers to buy the product at a more profitable price from its competitor, especially in conditions of overproduction), while after the conclusion of the said contracts such a possibility vanished, as all the manufactured produce (caustic soda and PVC-S) formerly marketed by competing economic entities is currently marketed by one sole company - OJSC UTC. This means an actual elimination of competition, as defined by Art. 4 (paragraph 6) of the Law on Competition.



It should also be mentioned that the contracts concluded between OJSC UTC and caustic soda and PVC-S manufacturers (their marketing organisations) introduce the obligation of the manufacturers to sell the entire volume (100%) of their output to OJSC UTC. At the same time, in keeping with the terms of the contracts (generally, it is item 1.5 of the contracts), they do not have the right to sell or otherwise transfer this produce to other persons, and even if third parties address the manufacturers with a proposal on the manufacture of produce from raw materials supplied by the customer, the manufacturers shall have to refer those persons to OJSC UTC for settling this issue. Non-compliance with these requirements entails the imposition of a penalty on the manufacturer in the amount of 100% cost of the produce supplied to third parties.



The Commission of the Russian MAP has also found out that all contracts concluded between OJSC UTC and manufacturers of caustic soda and PVC-S (their marketing organisations) contain clauses according to which OJSC UTC appoints consignees and defines shipment volumes at its own discretion, proceeding from the overall volume of the company's output. Moreover, output volumes are also agreed by parties to the contract in advance, and the price at which OJSC UTC supplies the product to end consumers is established by OJSC UTC independently.



The implementation of these contracts have provided OJSC UTC with an opportunity to unilaterally influence the terms of circulation of the product on the market (in this case, the price of the product and the geography of its supply), and the manufacturers cannot restrict such unilateral influence by their independent actions due to the terms of the above contracts.



Therefore, due to the above contracts OJSC UTC solely determines the product circulation conditions on the market, and their terms prevent caustic soda and PVC-S manufacturers from conducting independent business activity in the area of concluding caustic soda supply contracts with other buyers except OJSC UTC, while the buyers of this produce, consequently, have to purchase it only from OJSC UTC.



Considering the above, the Commission of the Russian MAP has established the following:



- OJSC UTC, a company not competing with caustic soda and PVC-S manufacturers, concluded contracts with them and their marketing organisations, envisaging obligatory 100-percent supply of their output (including the produce manufactured from raw materials supplied by the customers) to consignees indicated by OJSC UTC;

- the aggregate share of the manufacturers participating in these contractual relations (in the capacity of consignors) on the markets of caustic soda and PVC-S exceeds 65%;

- the implementation of these contracts results in the OJSC UTC dominance on the marketing level of the caustic soda and PVC-S markets;

- the implementation of these contracts eliminates the rivalry between caustic soda and PVC-S manufacturers, aimed at better satisfaction of consumer needs and ensuring the formation of free market prices;

- as a result of conclusion and implementation of contracts with OJSC UTC, the caustic soda and PVC-S manufacturers and their marketing organisations consciously place their produce marketing activity in total dependence on behaviour of OJSC UTC and fully streamline it with this company's requirements;

- concerted actions of the manufacturers (their marketing organisations) and OJSC UTC aimed at implementing the said contracts result in the infringement of the produce manufacturers' rights.



On the basis of the above facts, the Commission of the Russian MAP recognised the actions and contracts of OJSC UTC and caustic soda and PVC-S manufacturers as violations of Art. 6 of the Law on Competition as on February 2004.



At the same time, in the course of court hearings of case No. A40-22062/04-2-72-139 concerning the invalidation of the decision of the Russian MAP of 11.02.2004 on case No. 1 05/4-04 on the violation of Art. 5 (1) of the Law on Competition by OJSC UTC, the Russian FAS has conducted an additional investigation of the OJSC UTC activity on the market of caustic soda in 2004.



The investigation conducted by the Russian FAS has revealed the following:



The price increase of liquid caustic soda on the Russian Federation domestic market is partially justified and caused by the need to maintain the chlorine sector of the chemical industry in an operable state as a strategic industry.



The actions of OJSC UTC on the market of liquid caustic soda had a certain positive economic effect on this market (optimisation of export supplies and reorientation of output volumes not demanded on the domestic market to export, assisting in improving the economic characteristics of the manufacturers' performance), which partially compensated for the negative implications for this market, which have manifested themselves during nine months of 2004.



The OJSC UTC share on the domestic caustic soda market by the beginning of the 4th quarter of 2004 dropped to a level below 65% due to an overall increase of caustic soda output and conclusion of direct contracts between the consumers and some manufacturers of caustic soda (OJSC Sayanskhimplast, and OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov, LLC Usolye-Khimprom).



These circumstances provided the grounds for concluding an out-of-court settlement between OJSC UTC and the Russian FAS on the case under consideration, in accordance with which OJSC UTC recognised the fact of setting a monopolistically high price of caustic soda in the period from 01.01.2004 to 30.09.2004 (a copy of the FAS decision No. A40-161-05 of 28.02.2005 on approval of the out-of-court settlement is attached).



The Russian FAS also considers it necessary to draw the attention of the court to the circumstance that OJSC UTC has actually fulfilled the appealed instruction of the Russian MAP.



E.g. according to item 2 of the Russian MAP Instruction, OJSC UTC and the manufacturers of caustic soda were instructed for purposes of eliminating the violation of Art. 6 (3) of the Law on Competition to introduce amendments to caustic soda supply contracts, striking from them the provisions envisaging 100-percent sale of caustic soda by the manufacturers of this produce to OJSC UTC.

These requirements of the Russian MAP Instruction have been fulfilled.



In addition, OJSC UTC cancelled the contracts for the sale of caustic soda with such caustic soda manufacturers as OJSC Sayanskhimplast and OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov. These companies have concluded direct contracts with caustic soda consumers.

These circumstances are also the evidence of actual termination of violation of Art. 6 (5) of the Law on Competition.



Therefore, the Russian FAS believes that the Commission of the Russian MAP has lawfully established the violation of Art. 6 of the Law on Competition by OJSC UTC and manufacturers of caustic soda and PVC-S, manifested in conducting actions and concluding contracts aimed at restriction of competition on the market of caustic soda.



At the same time, the situation on the caustic soda market resulting from the conducting of such actions and concluding of contracts by OJSC UTC and caustic soda and PVC-S manufacturers led to reorientation of output volumes not in demand on the domestic market to export, which ensured an improvement of economic characteristics of the caustic soda manufacturers' performance, which was evaluated by the Russian FAS as a favourable socioeconomic effect in keeping with Art. 6 (4) of the Law on Competition.



2. It is also necessary to point out that the Applicant's argument on improper identification of its share on the caustic soda market by the Russian MAP is untrue.



To substantiate its argument, the Applicant claims that the Russian MAP Decision contains a conclusion on 100-percent share of OJSC UTC on the market, while in the opinion of OJSC ITKOR, this share has been established as 80%, in connection with which it alleges that its share on the market of caustic soda has not been properly identified.



However, these conclusions do not conform with the facts of the case.

The appealed Decision of the Russian MAP merely points to the fact that OJSC UTC considers itself a monopolist with 100-percent share on the market and that contracts between OJSC UTC and manufacturers (sellers) of caustic soda and PVC-S contain a clause on obligatory sale of 100% of their output. The Decision of the Russian MAP contains a conclusion that the aggregate share of these manufacturers on the market exceeds 65%.



The opinion of OJSC ITKOR compares the overall volumes of caustic soda manufactured and imported to the territory of the Russian Federation and the volumes of this product manufactured by the companies with which OJSC UTC has concluded contracts. As a result of this comparison a conclusion was made that the share of OJSC UTC on the market exceeded 80%.



Therefore, there are no contradictions on the issue of the size of the OJSC UTC market share between the Russian MAP Decision and the opinion of OJSC ITKOR.



Moreover, in the opinion of the Russian FAS, this difference is irrelevant for purposes of applying item 3 of Art.6 of the Law on Competition.



The analysis of item 3 of Art. 6 of the Law on Competition shows that its provisions are applicable only if the aggregate share of participants in anticompetitive concerted actions (or at least one of their participants) on the market is not less than 35%.



In this case, the aggregate share of economic entities participating in concerted actions with OJSC UTC on relevant markets (caustic soda and PVC-S) exceeds 65%.



Therefore, to apply item 3 of Art. 6 of the Law on Competition to these relations, it is quite sufficient that the manufacturers of caustic soda and PVC-S participating in concerted actions jointly occupy shares on relevant product markets exceeding 35%, and the precise share of OJSC UTC on these markets in this connection is not crucial.



Under these circumstances, the Russian FAS believes that the Applicant's claims should be dismissed or that an out-of-court settlement is possible.



On the basis of the response of the Russian MAP on this case and these written explanations, guided by Art. 10 and 13 of the RF XX, Art. 6 of the Law on Competition, Art. 200 of the RF APC, the Federal Antimonopoly Service



REQUESTS



the Moscow City Court of Arbitration to propose to OJSC UTC and manufacturers of caustic soda and PVC-S - OJSC Caustic, JSC Caustic, OJSC Sayanskhimplast, OJSC NAC Azot, OJSC Sibur-Neftekhim, OJSC Khimprom, OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov (OJSC KChKhK), and OJSC Plastkard - to conclude an out-of-court settlement with the Russian FAS, and in the event of impossibility of solving the dispute by concluding an out-of-court settlement, to dismiss the entire amount of claims presented by OJSC United Trade Company.



Attachment: a copy of the representative's power of attorney.



Deputy Head of the Legal Department

Of the Federal Antimonopoly Service

(representative under the authority of power of attorney) O.G. Mishakov







Excerpt from Respondent's Appeal Response



6. The court made a proper conclusion that the antimonopoly authority has failed to prove the elements of an offence stipulated by Art. 6 of the Law on Competition.



According to the FAS position, illegal concerted actions of which the Applicant is accused consist in conclusion by the Applicant with each individual manufacturer of «almost identical contracts with OJSC UTC, according to which the manufacturers were obliged to hand over into property of OJSC UTC 100% of their output.»



However, firstly, each of the individual contracts did not restrict competition, and qualifying the entire quantity of the concluded bilateral contracts in accordance with Art. 6 (3) of the Law is unlawful, as it does not conform with the disposition of item 3 of Art. 6 of the Law. This is confirmed, among other things, by conclusions of the Linguistic Opinion presented in the case issued by a professor of the theoretic and applied linguistics desk of the Moscow State University named after M.V. Lomonosov Philology Department. «The conducted analysis shows that the meaning of the word concerted in the modern Russian language (in contexts like concerted actions of economic entities) suggests the existence of mutual agreements between all entities participating in the concerted actions.»



Therefore the assertion of FAS that concerted actions do not suggest the existence of an agreement (written or verbal) does not correspond to the meaning of the words and expressions used in the text of the Law.



Secondly, a document executed on one typewritten page entitled «Report on Negotiations» cannot serve as proper evidence of concerted actions, as this document does not indicate its author or the source of its receipt, and also because (even assuming it is genuine) it concerns negotiations between UTC and an organisation which was not involved in the case as a participant of concerted actions. UTC does not confirm the existence of such a document.



In addition, according to the Linguistic Opinion presented by UTC, «the noun coordination in combination with the words coordination of activity and coordination of entrepreneurial activity suggests the presence in the described situation of a subject - a physical or legal person - exercising the guidance of work of other physical and legal persons, being vested with relevant authorities.»



As UTC, referred to in the MAP Decision as the coordinator, had no authority to exercise the guidance of the work of manufacturer plants, the qualification of its actions as a violation of Art. 6 (5) of the Law is also unlawful.



The terms of the contracts concluded by UTC do not contradict the CC and do not confirm the fact of concerted actions and coordination of entrepreneurial activity.



Numerous references made by FAS to the disagreement of the antimonopoly authority with the price set by UTC cannot be evaluated within the context of this case, as they are irrelevant to the elements of the offence stipulated by Art. 6 (3 and 5) of the Law on Competition.



The FAS argument that «the Commission disposed of information» on business and corporate ties between the manufacturers and their marketing organisations, due to which allegedly the «Commission had grounds to assume» that there was no need to involve the persons with which UTC had concluded contracts, also calls for objection. Such inexplicitness and absence of reference to the sources of the «information» during the consideration of a case of violation of the antimonopoly legislation seems to be totally unacceptable. Moreover, according to «paragraph 7 of the court Decision» (apparently, FAS refers to paragraph 7 of page 4 of the Decision), there is no trace of evidence that the court agreed with the MAP conclusion that it was not necessary to involve the said persons in the consideration of the case.









The Moscow City Arbitration Court

107802, Moscow, 10, Novaya Basmannaya St.



Applicant: OJSC Unified Trade Company

115035, Moscow, 8A/2, Ovchinnikovskaya nab., building 1



The public authority whose

non-regulatory acts are appealed:

the Federal Antimonopoly Service

(as a legal successor of the Russian MAP)

123995, Moscow, 11, Sadovaya Kudrinskaya St.



GSP-5, D-242, 123995



RESPONSE

to the Filing of a Claim on Case No. A40-8432/04-2-45



The Federal Antimonopoly Service has considered the application filed by OJSC United Trade Company (hereinafter - OJSC UTC) on invalidating the Decision of the Russian MAP of 11.02.2004 (outgoing No. AC 1813 of 13.02.2004) and the Instruction of the Russian MAP of 11.02.2004 (outgoing No. AC 1812 of 13.12.2004) on case No. 1 06/5-04 of violation of the antimonopoly legislation (hereinafter - the Decision and Instruction), and regards the claims presented by it as unreasonable and not subject to satisfaction for the following considerations:



In keeping with Art. 65 (1) and Art. 200 (5) of the Russian Federation Arbitration Processional Code (hereinafter - RF APC), the burden of proof of validity of the appealed acts rests on the authority that has adopted the acts. Consequently, the subject of proof by the Russian MAP includes: (1) the authority to issue the appealed acts; (2) the existence of circumstances underlying the adoption of the appealed acts; (3) consistency of the appealed acts with the law or another regulatory legal act.



1. The non-regulatory acts of the Russian MAP have been issued within the frames of the authority granted to the antimonopoly body by the law.



According to Art. 12 (1) of the RSFSR Law «On Competition and Restriction of Monopolistic Activity on Product Markets» No. 948-1 of 22.03.1991 (hereinafter - the Law on Competition), the antimonopoly body is authorised to initiate cases based on the elements of a violation of the antimonopoly legislation, pass decisions and issue instructions un results of their consideration.



Item 2 of the same article vests the antimonopoly authority with the right to issue binding instructions to economic entities, including instructions on eliminating the consequences of violation of the antimonopoly legislation, on changing the terms or cancelling contracts and other transactions, on concluding contracts with economic entities, and taking actions aimed at ensuring competition.



The appealed Decision and Instruction were issued as a result of consideration of a case of violation of the antimonopoly legislation. The essence of requirements of the Instruction boils down to the elimination of the consequences of violation of the antimonopoly legislation and taking actions aimed at ensuring competition, namely, changing contractual terms and concluding contracts.



Item 8 of Art. 12 of the Law on Competition authorised the antimonopoly body to establish a dominant position of an economic entity.



Therefore, the appealed Decision and Instruction have been issued without exceeding the authorities granted to the Russian MAP by law.



2. The appealed acts of the Russian MAP were adopted justifiably and in conformity with the law and bylaws.



2.1. In keeping with Art. 27 (2) of the Law on Competition, the grounds for initiating and considering cases, adoption of decisions and issuance of instructions by the antimonopoly body include presentations of the authorities, applications filed by organisations and individuals, as well as the initiative of the antimonopoly body.



Item 4 of Art. 27 of the Law on Competition stipulates that the consideration of applications filed by organisations by the antimonopoly body as well as monitoring the observance of the antimonopoly legislation shall be exercised in the manner established by the federal antimonopoly authority.



The procedures for considering cases of violation of the antimonopoly legislation are established by the Rules of Considering Cases of Violation of the Antimonopoly Legislation approved by Order of the Russian MAP of 25.07.1996 No. 91 (hereinafter - the Rules).



According to item 2.1 of the Rules, if there are indications of a violation of the antimonopoly legislation, the Minister shall issue an order to set up a Commission for considering a concrete case consisting of not less than three experts of the Russian MAP.



The grounds for initiating case No. 1 06/5-04 by the Ministry were the applications filed to the Russian MAP by deputy of the State Duma of the RF Federal Assembly V.N. Bondar, OJSC Krasnoyarskenergo, OJSC Shchekinazot, OJSC Kuibyshevazot, COJSC Azot, OJSC Volzhsky Orgsintez, OJSC Siassky Pulp and Paper Plant, OJSC Archangelsk Pulp and Paper Plant, OJSC Solombalsk Pulp and Paper Plant, OJSC Neusidler Syktyvkar, OJSC Kotlass Pulp and Paper Plant, OJSC AVTOVAZ, RAO Bumprom, OJSC Russian Aluminium Management, OJSC TD Viskoza, OJSC Kazan Synthetic Rubber Plant, OJSC Lukoil-Neftekhim, OJSC Polyplast, OJSC Nizhnekamskneftekhim, LLC Continental Management Timber Company (annexes No. 1 - 20).



The application filed by deputy V.N. Bondar contained the information that after the creation of OJSC UTC in July 2003 this company has monopolised the PVC-S market, as a result of which it has become impossible to purchase the produce directly from manufacturer plants, as the marketing departments of the manufacturers, as well as traditional dealers were referring all consumers to OJSC UTC. This situation led to a dramatic 10-percent hike of the price of this produce within two months, which made it unprofitable to purchase domestic PVC-S and reduced the competitiveness of this produce as compared to the imported analogues.



The applications of caustic soda consumers informed that in the course of the 2004 contracting campaign consumers were refused from conclusion of contracts for supply of this product by the traditional caustic soda suppliers under the pretext that to conclude a supply contract it was necessary to apply to OSJC UTC (annexes No. 21 - 45). They also received notifications that in 2004 supplies will be made exclusively by OJSC UTC, as the entire volume of caustic soda manufactured in the Russian Federation from now on will belong to this company (annexes No. 46 - 58). Moreover, the price of caustic soda set by OJSC UTC at RUR 6,000, VAT and transport expenses not included, was 1.5 - 2 times higher than the market price of this product that existed in 2002-2003. In addition, some applicants complained that OJSC UTC has singly appointed unprofitable consignors which had an inconvenient (more remote) geographic location compared to the traditional suppliers, or restricted the choice of consignors.



Having established the existence of elements of a violation of Art. 6 of the Law on Competition from the contents of the applications, the Minister issued order No. 13 or 15.01.2004 (annex No. 59) to set up a Commission for consideration of the case.



In accordance with item 2.3 if the Rules, the Commission Chairman - Deputy Minister has issued determination No. AC 463 of 16.01.2004 on initiation of the case (annex No. 60).



The case was considered within a three-month period envisaged by item 2.5 of the Rules (the determination on initiation of the case was issued on 16.01.2004, and the appealed non-regulatory acts of the Ministry - on 13.02.2004).



2.2. The following circumstances were established as a result of consideration of the case, providing the grounds for adoption of the decision and issuance of the instruction:



The raw material used for the manufacture of polyvinylchloride suspension (PVC-S) is chlorine obtained by electrolysis of sodium chloride solution with the use of a mercury electrode, and raw hydrocarbon. The electrolysis produces caustic soda. The technology of manufacture of PVC-S is directly connected with chlorine and caustic soda production. The market characteristics are mutually related. PVC-S and caustic soda have no fungibles.



The main manufacturers of PVC-S in Russia are: JSC Caustic (Sterlitamak), OJSC Sayanskhimplast, and OJSC Plastkard. The analysis of the competitive environment on the product market of PVC-S has revealed that the aggregate share of the said enterprises on the market of PVC-S exceeds 65%.



The main manufacturers of caustic soda in Russia are: OJSC Caustic (Volgograd), JSC Caustic (Sterlitamak), OJSC Sayanskhimplast, OJSC NAC Azot, OJSC Sibur-Neftekhim, OJSC Khimprom (Volgograd), and OJSC Kirovo-Chepetsk Chemical Plant named after B.P. Konstantinov (OJSC KChKhK). The analysis of the competitive environment on the product market of caustic soda has also shown that the aggregate share of the said enterprises on the caustic soda market exceeds 65%.



These circumstances were established as a result of an analysis of the competitive environment on the market conducted by the RF MAP Department for competition policy in the agro-industrial, forestry, chemical, and natural resources complexes in accordance with the Procedures of Conducting the Analysis and Evaluation of the Competitive Environment on Product Markets approved by Order of the RF MAP No. 169 of 20.12.1996. It should be emphasised in this connection that the antimonopoly body is the only public authority authorised to conduct an analysis and evaluation of the state of the competitive environment and establish a dominant position of economic entities. Under such circumstances, conducting an expert evaluation in accordance with the Procedures, which was petitioned by the Applicant at the Russian MAP Commission session (item 1.1 of the application), would mean a reassignment to an external organisation the functions that should be exercised by the Russian MAP. In this connection, the Commission of the Russian MAP has dismissed this petition.



Information provided by the listed economic entities - manufacturers does not allow referring them to one group of entities as per Art. 4 of the Law on Competition, therefore these companies are competitors on the markets of caustic soda and PVC-S, which they were before the beginning of 2004 (caustic soda market) and before July 2004 (PVC-S market).



In 2002-2003 consumers of PVC-S and caustic soda purchased these products directly from the manufacturers or their subsidiary (affiliated) marketing organisations.



E.g. PVC-S manufactured by OJSC Sayanskhimplast was sold directly to over 40 consumers in the Russian Federation (annexes No. 61, 62). The same product manufactured by JSC Caustic (Sterlitamak) was also sold to consumers on the basis of direct contracts (copies of some contracts are attached - annexes No. 63-67). PVC-S manufactured by OJSC Plastkard was marketed in the same manner (sales information is provided in annex No. 68). The market prices of PVC-S in 2003 were formed on average on the level of RUR 18,000 per tonne, VAT and transport expenses not included.



Caustic soda was also purchased by consumer enterprises directly from the manufacturers or their marketing organisations. In particular, OJSC Solombalsk Pulp-and-Paper Plant purchased caustic soda from OJSC Caustic (Volgograd), JSC Caustic (Sterlitamak), and OJSC NAC Azot (annex No. 9); OJSC AVTOVAZ purchased caustic soda from OJSC Caustic (Volgograd), JSC Caustic (Sterlitamak), OJSC Chemical Plant (Kirovo-Chepetsk) (annex No.12); OJSC Siassky Pulp-and-Paper Plant purchased caustic soda from OJSC NAC Azot (annex No. 69); OJSC Archangelsk Pulp-and-Paper Plant purchased this product from OJSC Sibur-Neftekhim (annexes No. 70, 71); OJSC Kotlass Pulp-and-Paper Plant purchased caustic soda from OJSC Caustic (Volgograd), JSC Caustic (Sterlitamak), and OJSC Sibur-Neftekhim (annex No. 11); Kemerovo OJSC Azot purchased caustic soda from LLC Energy-Chemical Company (JSC Khimprom), OJSC Sayanskhimplast (JSC Khimsoda), LLC Nitol Chemical Group (JSC Khimprom) (annex No. 5).

The average market prices of caustic soda in 2003-2003 were RUR 3,400 per tonne (VAT and transport expenses not included).



During the 2003 contracting campaign consumers were sending offers to their traditional suppliers to conclude contracts for supply of PVC-S and caustic soda for 2004 (annexes No. 72-75, 1), which were turned down under the pretext that from now on produce would be supplied by OJSC UTC (annexes No. 21-45, 1) as per their contracts with OJSC UTC. In addition, consumers started receiving notifications from OJSC UTC or its operators (annexes No. 46-58) that OJSC UTC owns the entire produce manufactured by certain companies, and also that OJSC UTC owns the entire volume of caustic soda manufactured in the Russian Federation, in connection with which these goods will be supplied exclusively by OJSC UTC. It is noteworthy that some manufacturers, for example, OJSC Sayanskhimplast, and OJSC Sibur-Neftekhim, until mid-2003 were intending to preserve their usual counterparties to the supply contracts and in their letters pointed to the possible supply of the produce in 2004 at prices of late 2003, and even concluded relevant contracts (annexes No. 76-80). However, aster the conclusion of contracts with OJSC UTC their marketing policy has radically changed, and in their new letters they started informing the buyers that they should apply to OJSC UTC on issues related to produce supply, because this organisation had an exclusive right of supply of their produce (annexes No. 21, 25, 26, 33).



The Commission of the Russian MAP learned that OJSC UTC was actively negotiating with caustic soda and PVC-S manufacturers and their marketing organisations the need to organise centralised marketing of their produce. In particular, the Commission has examined a report on negotiations (annex No. 81) on the prospects of caustic soda sale in Russia, conducted in Moscow on 03.11.2003 with the participation of representatives of OJSC UTC and JSC MKhK Evrokhim (NAC Azot comprises one group of entities with it as JSC MKhK Evrokhim holds 100% shares of NAC Azot and discharges the functions of its executive body, which is substantiated by the information attached to the application for the purchase of 100% shares of NAC Azot by JSC MKhK Evrokhim). The report contains data on the analysis of the market, the plans of purchase of the «entire volume of CS» (caustic soda), on the planned initial purchasing price of RUR 3,000 per tonne, not including VAT, the plans of repeated increase of caustic soda prices on the domestic market.



The Commission has found out that the aforementioned manufacturers (as well as their marketing organisations) have concluded almost identical contracts with OJSC UTC, according to which the manufacturers were obliged to hand over in property of OJSC UTC 100% of their output (annexes No. 82-91). At the same time, such manufacturers as OJSC Caustic, JSC Caustic, OJSC Sayanskhimplast, and OJSC Plastkard jointly occupy more than 35% share on the markets of caustic soda and PVC-S. Moreover, the Commission disposed of information on business and corporate relations between the manufacturers and their marketing organisations and proceeded from the premise that in keeping with Art. 4 (the last paragraph) of the Law on Competition, the provisions of this Law applicable to economic entities shall be applied to a group of entities (i.e. a group of entities is regarded as a single economic entity). Specifically, the Commission had information on the group of entities including JSC MKhK EvroKhim (annex No. 92). On the basis of these data, the Commission had grounds to assume that one of the conditions necessary to apply Art. 6 (3) of the Law on Competition, namely, the aggregate share of participants in agreements (concerted actions) should be not less than 35%, was met. Consequently, there was no need to involve in the case such companies as LLC Chemical Group NITOL, JSC MKhK Evrokhim, JSC Khimpromtrading, LLC Priborlab, LLC Khimprom Trade House, and OJSC AC Sibur, which was solicited by the Applicant at the session of the Russian MAP Commission.



Attention should be paid to the fact that all the aforementioned contracts (both with manufacturers and with the manufacturers' marketing organisations) contain an identical clause (generally, item 1.5 of the contract):



«The Seller shall not have the right to sell or otherwise transfer the Produce subject to transfer to the Buyer under this Contract into the property other persons, except the Buyer.»



In most of the contracts, this item is supplemented with another condition: «If third parties address the Supplier with a request to manufacture and sell the said produce for them, the Seller shall refer those persons to the Buyer for settling this issue.»



As a matter of fact, OJSC UTC was purchasing the produce at prices at which the manufacturers used to supply the produce directly to consumer enterprises in 2002-2003.



As the aggregate share of caustic soda and PVC-S manufacturers on relevant product markets exceeds 65% (as mentioned above), by concluding the said contracts OJSC UTC has acquired a dominant position on the marketing section of these markets.



OJSC UTC representatives also confirmed at the Russian MAP Commission session that OJSC UTC is the owner of the entire volume of caustic soda manufactured on the territory of the Russian Federation (minutes of the Russian MAP Commission session - annex No. 93) by presenting the information on the sales and purchase of relevant produce (annex No. 94).



Having monopolised the marketing level of the caustic soda market and acquired a dominant position on the marketing level of the PVC-S market, OJSC UTC started imposing new supply conditions on consumers (annexes No. 95-97). As a result of such actions the consumers were compelled to conclude contracts with OJSC UTC (or its operators) on the supplier's terms, because they used caustic soda in uninterrupted production processes.



The analysis of the contents of these contracts (annexes No. 98-103) shows that being identical they contain a condition that the supplier selects consignors independently and at its own discretion, and also has the opportunity to dictate prices. E.g. in January 2004, OJSC UTC set the price of caustic soda for practically all consumers in the amount of RUR 6,000 per tonne (VAT and transport expenses not included), which is twice the level of the 2003 prices. At the same time, the price of caustic soda purchase by OJSC UTC from the manufacturers was RUR 3,000, which is below the cost. The growth of PVC-S prices as a result of emergence of a dominant marketing organisation in the 1st quarter of 2004 reached 10%.



Moreover, OJSC UTC introduced new monopolistic patterns of marketing ready output, leading to restriction of competition by depriving consumers of a possibility of making an independent choice from which manufacturers and on what mutually advantageous conditions to purchase caustic soda. For example, OJSC UTC assigned as a consignor of goods for OJSC Shchekinazot only NAC Azot, which, in the opinion of OJSC Shchekinazot, is inadmissible for a normal pace of uninterrupted production process. For some consumers, e.g. OJSC AVTOVAZ, the appointed consignors were located father than the traditional suppliers, which entails additional transport expenses. As for the manufacturers themselves and their marketing organisations, they stopped competing between each other, because their marketing activity from now on was regulated by a sole company - OJSC UTC.



Some consumers told their traditional suppliers about their reluctance to purchase the product from OJSC UTC and made a repeated offer of continuing their contractual relations. Many consumers were fruitlessly trying to agree with OJSC UTC to lower the price of caustic soda (annexes No. 95-97, 104-108).



It is noteworthy that OJSC UTC dominant (monopolistic) position on the markets of caustic soda and PVC-S marketing, contrary to the Applicant's assertion (last paragraph of item 1.1 of the Application) does not at all rule out the possibility of coordination of entrepreneurial activity of manufacturers (marketing organisations) of these products, but on the contrary, only serves to increase the possibility for such coordination.



Therefore, the Russian MAP Commission, having heard the persons involved in the case, examined the presented documents and information, fully and comprehensively analysed the circumstances of the case and given them a proper evaluation, has reliably established the following facts:



- OJSC UTC, a company not competing with caustic soda and PVC-S manufacturers, concluded contracts with them and their marketing organisations, envisaging obligatory 100-percent supply of their output (including the produce manufactured from raw materials supplied by the customers) to consignees indicated by OJSC UTC;

- the aggregate share of the manufacturers participating in these contractual relations (as consignors) on the markets of caustic soda and PVC-S exceeds 65%;

- the implementation of these contracts results in the OJSC UTC dominance on the marketing level of the caustic soda and PVC-S markets;

- the implementation of these contracts eliminates the rivalry between caustic soda and PVC-S manufacturers, aimed at better satisfaction of consumer needs and ensuring the formation of free market prices;

- as a result of conclusion and implementation of contracts with OJSC UTC, the caustic soda and PVC-S manufacturers and their marketing organisations consciously place their produce marketing activity in total dependence on behaviour of OJSC UTC and fully streamline it with this company's requirements;

- concerted actions of the manufacturers (their marketing organisations) and OJSC UTC to implement the said contracts result in the infringement of the produce manufacturers' rights.



2.3. These circumstances (and not merely the fact of conclusion of supply contracts between the Applicant and marketing organisations, as stated by the Applicant in item 1.1 of its claim) served as the basis for recognising the actions and contracts of OJSC UTC and manufacturers of caustic soda and PVC-S as a violation of Art. 6 of the Law on Competition.



Item 3 of Art. 6 of the Law on Competition prohibits the conclusion of agreements or conducting concerted actions by economic entities not competing with each other on a relevant product market, receiving (potential purchasers) and supplying (potential sellers) a product (fungible products), if such agreements or concerted actions result or can result in prevention, restriction, or elimination of competition. The provisions of this item are not applicable to economic entities whose aggregate share on a certain product market does not exceed 35%.



Item 5 of Art. 6 of the Law on Competition bans the coordination of entrepreneurial activity of commercial organisations which results or can result in restriction of competition.



The Law on Competition does not provide definitions of the notions of «agreement» and «concerted actions.» However, the contents of Art. 6 and the general meaning of the Law on Competition prompts the conclusion that an anticompetitive agreement is an arrangement between economic entities on coordination of some or other aspects of entrepreneurial activity which results (can result) in restriction or elimination of competition on a relevant product market. Anticompetitive concerted actions are coordinated and organised actions of economic entities consciously placing their behaviour on behaviour of other market participants, which also result (can result) in restriction or elimination of competition on a relevant product market.



This means that the notions «agreement» and «concerted actions» are not identical but have equal results and represent different forms of anticompetitive concerted behaviour (cartels). Concerted actions, unlike agreements, do not envisage the conclusion of a verbal or written arrangement between economic entities on conducting certain actions. Concerted actions may result from repeating the actions taken by one economic entity simultaneously or immediately after another economic entity. This is confirmed by the literal interpretation of the word «to concert» - to bring into proper correlation, which is provided by the Explanatory Dictionary of the Russian Language by S.I Ozhegov.



This position is reflected in legal practice as well. E.g. the rulings of the Federal Arbitration Court of the North-Western District of 15.06.2000 on case No. A56-22220.99 (annex No. 110) draw attention to the sufficiency of establishing the fact of price increase by economic entities directed at restricting competition to state the presence in the organisations' actions of qualifying elements of an offence envisaged by Art. 6 (1) of the Law on Competition in the absence of reasonably justified economic grounds for the price increase.



The term «coordination of entrepreneurial activity» is not defined by the Law on Competition either, therefore it is necessary to proceed from the commonly accepted meaning. This meaning, as explained by the Institute of the Russian Language named after V.V. Vinogradov of the Russian Academy of Sciences (annex No. 111) is motivated by the verb «to coordinate» - to agree, to harmonise certain actions, events, etc. Therefore, coordination of entrepreneurial activity may consist in some or other form of agreement (by concluding contracts, agreements, etc.) of certain actions taken within the frames of exercising entrepreneurial activity in general, for instance, supplies or manufacture, determining the directions of commodity flows, etc.



The analysis of the mentioned provisions and comparing their contents to legal practice, the meaning of the terms and facts established by the Russian MAP Commission suggests the conclusion that the Russian MAP Commission has lawfully and reasonably qualified the actions of OJSC UTC and enterprises manufacturing caustic soda and PVC-S as concerted actions and coordination of entrepreneurial activity, i.e. violations of items 3 and 5 Art. 6 of the Law on Competition.



An instruction was issued for purposes of terminating the violation of the antimonopoly legislation and eliminating its implications, requiring to take actions aimed at ensuring competition. OJSC UTC was required to introduce amendments to relevant items of caustic soda supply contracts with a ten-day period, striking from them the clause envisaging the sale of 100% of commercial output (item 2 of the Instruction). The manufacturers of caustic soda and PVC-S and the marketing organisations comprising one group of entities with the former were required to conclude direct supply contracts with consumers within a ten-day period (items 4 and 6 of the Instruction).



The requirements set by the Instruction are quite specific and are obviously aimed at restoring competition on the markets of caustic soda and PVC-S , which existed before the conclusion of contracts between OJSC UTC and the manufacturers (their marketing organisations). Such a short period for concluding (amending) the contracts is connected with the facts that, firstly, direct contractual relations between the manufacturers (their marketing organisations) and consumers existed until quite recently (December 2003) and therefore their restoration would not take much time and, secondly, the amendment of one term of the contracts between the manufacturers (their marketing organisations) and OJSC UTC - concerning 100-percent sale of produce - would objectively not take much time, and thirdly, the violation has very serious socioeconomic consequences: it entails the infliction of multimillion losses on consumers and triggers a chain reaction of price increase of the produce manufactured by the consumers, which has a negative impact on the economic situation in the country as a whole.



Consequently, the appealed non-regulatory acts have been issued lawfully, justifiably, within the limits of the authorities granted to the federal antimonopoly body, in strict compliance with the legally prescribed procedure of their issuance.



3. Non-regulatory acts of the Russian MAP do not violate the rights and legally protected interests of the Applicant.



Firstly, the lawful and justified acts of the Russian MAP (which follows from the contents of items 1 and 2 of this response) are aimed at the termination of the violation of the antimonopoly legislation by the Applicant, and therefore cannot be qualified as acts violating its rights.



Secondly, Art. 34 of the Russian Federation Constitution does not allow economic activity aimed at monopolisation and unfair competition. In keeping with part two of item 2 of Art. 1 of the Russian Federation Civil Code, the rights of a legal entity can be restricted by federal law for purposes of protection of the fundamentals of the constitutional order, morality, health, rights and lawful interests of other persons, ensuring national defence and state security. Such restrictions are prescribed by part two of item 1 of Art. 10 of the Russian Federation Civil Code (RF CC) which prohibits the use of civil rights for purposes of restriction of competition, as well as dominance abuse on the market. A ban on anticompetitive agreements (concerted actions) is imposed by Art. 6 of the Law on Competition.

According to Art. 13 of the RF CC, a non-regulatory act of a public authority inconsistent with the law or other legal acts and violating civil rights or legally protected interests of a legal entity may be invalidated by the court.



According to item 6 of the Joint Decision of the RF Supreme Court Plenum and the RF Supreme Court of Arbitration Plenum No. 6/8 of 01.07.1996 «On Some Issues Related to the Application of Part One of the Russian Federation Civil Code,» the grounds for issuing a court decision on invalidation of a non-regulatory act are simultaneously:



- its inconsistency with the law or another legal act,

- the violation by this act of civil rights and legally protected interests of an individual filing a relevant court claim.



However, in the case under consideration, both of the above conditions are missing:



1. The appealed acts have been issued legally and justifiably.

2. The lawful actions of the public authority aimed at terminating the antimonopoly legislation cannot be qualified as a violation of the Applicant's rights, as the rights the violation of which is claimed by the Applicant are restricted by law.



Proceeding from the above, guided by Art. 10 and 13 of the RF CC, Art. 6 of the Law on Competition, Art. 200 of the RF APC, the Federal Antimonopoly Service



REQUESTS



The Moscow City Court of Arbitration to fully dismiss the claims the OJSC United Trade Company.



Annexes:



1. Application of deputy V.N. Bondar of 07.10.2003 No. BV-600/01.

2. Application of OJSC Krasnoyarskenergo of 28.01.2004 No. 119-176-214.

3. Application of OJSC Shchekinazot of 22.12.2003 No. 6363.

4. Application of OJSC Kuibyshevazot of 18.12.2003 No. 0045/3667.

5. Application of COJSC Azot of 24.12.2003 No. 8675.

6. Application of OJSC Volzhsky Orgsintez of 08.12.2003 No. 12/2688.

7. Complaint of OJSC Siassky Pulp-and-Paper Plant of 26.12.2003 No. 33-16/9-2625.

8. Application of OJSC Archangelsk Pulp-and-Paper Plant of 26.12.2003 No. 1/1-5420.

9. Application of OJSC Solombalsk Pulp-and-Paper Plant of 25.12.2003 No. 12-21-12/5917.

10. Application of OJSC Neusidler Syktyvkar of 29.12.2003 No. 24/15418.

11. Application of OJSC Kotlass Pulp-and-Paper Plant of 25.12.2003 No. 029/3876.

12. Application of OJSC AVTOVAZ of 04.01.2004 No. 52000/k-13.

13. Application of RAO Bumprom of 26.12.2003 No. 163-VG.

14. Application of OJSC Russian Aluminium Management of 03.02.2004 No. 01-18-024/04.

15. Application of OJSC Viskoza Trade House of 03.02.2004 No. 205.

16. Application of OJSC Kazan Synthetic Rubber Plant of 28.01.2004 No. 1/49.

17. Application of OJSC Lukoil-Neftekhim n/n (incoming MAP of 28.01.2004 No. 2676).

18. Application of OJSC Polyplast n/n.

19. Application of OJSC Nizhnekamskneftekhim of 26.01.2004 No. 36/69.

20. Application of LLC Continental Management LPC of 10.02.2004 No. 01/19.

21. Letter from OJSC Sibur-Neftekhim of 18.12.2003 No. 8440-05/1.

22. Telegram from OJSC Caustic of 17.12.2003.

23. Telegram from JSC Caustic of 05.12.2003.

24. Letter from OJSC Sibur-Neftekhim of 18.12.2003 No. 8412-05/1.

25. Letter from OJSC Sibur-Neftekhim of 18.12.2003 No. 8440-05/1.

26. Letter from OJSC Sibur-Neftekhim of 18.12.2003 No. 8413-05/1.

27. Telegram from OJSC Caustic of 17.12.2003.

28. Letter from OJSC Caustic of 11.12.2003 No. 139/1017.

29. Letter from OJSC Sibur-Neftekhim of 18.12.2003 No. 8417-05/1.

30. Letter from OJSC Caustic of 17.12.2003 No. 039/1034.

31. Telegram from OJSC Caustic of 27.11.2003.

32. Letter LLC Khimprom Trade House of 18.12.2003 No. 261.

33. Notification of OJSC Sayanskkhimplast of 18.12.2003 No. 22-6954.

34. Letter from VOJSC Khimprom of 26.12.2003 No. 13/4330.

35. Letter from OJSC Sibur-Neftekhim of 18.12.2003 No. 8420-05/1.

36. Notification of OJSC Sayanskkhimplast of 12.01.2004 No. 22-64.

37. Letter from VOJSC Khimprom of 26.12.2003 No. 13/4330.

38. Telegram from OJSC Caustic of 27.11.2003.