Russia opens Samsung case

13.02.2019

Apparently mirroring probes brought against Apple and LG, Russia’s antitrust watchdog is investigating Samsung’s Russian subsidiary for allegedly coordinating the resale prices of some of its devices.

Russia’s Federal Antimonopoly Service revealed yesterday that it has formally launched an in-depth investigation into Samsung Electronics Rus Company after raiding the company’s offices last year.

The FAS said it uncovered evidence that Samsung’s interactions with device resellers had violated Russia’s antitrust law because they “led to the establishment and maintenance of prices for a number of smartphones and tablets”.

Andrei Tsarikovsky, the deputy head of the FAS, said that the enforcer has uncovered multiple violations of the antitrust laws by Samsung and its rivals Apple and LG in the markets for sale of smartphones.

Its cases against the three smartphone manufacturers have shown that the illegal coordination of economic activities is widespread in the retail market for these devices, Tsarikovsky said, noting that the FAS is systematically monitoring compliance with antitrust laws in this sector.

The FAS concluded in February 2018 that LG Russia had used an algorithm to monitor the prices its resellers charged and forced retailers to comply with its own price recommendations. Retailers informed LG of rivals who would not comply with its recommended prices and LG then contacted the non-compliant companies to correct their pricing, the FAS found.

A year earlier, the watchdog found that Apple’s Russian subsidiary illegally forced retailers that sold its products to charge set prices for iPhones. Apple would reach out to those that failed to comply with the mandate, the enforcer noted.

Apple and LG’s behaviour – and potentially Samsung’s alleged conduct – runs afoul of a provision in Russia’s antitrust law that bans companies from forcing retailers to comply with recommended pricing, which is similar to a charge of resale price maintenance.

The FAS also considered bringing a case against Sony, but it decided not to proceed after an initial probe did not turn up any competition law violations.

Bryan Cave Leighton Paisner partner Vitaly Dianov in Moscow, whose firm advised a couple of the resellers in the Apple case, said that the Samsung probe reflects a continuation of the enforcer’s interest in the smartphone industry over the past couple of years.

The cases have several similarities in their development and organisation, including that they have all been led by the FAS’s cartel department, he added.

Dianov said there is some economic logic behind the behaviour that has been at the centre of the FAS’s probes. When a company launches a new device and the demand is higher than the supply, there are economic incentives to stabilise the prices at the retail end, he explained. The FAS recognises this, but still wants to ensure that there has been no interference or anticompetitive influence in setting such prices.

The enforcer did not find any collusion among the resellers in the Apple and LG cases, but it discovered direction from the manufacturers, he noted. Apple even sent draft advertisements with pricing information to the resellers, he said.

The fine for such behaviour remains low in Russia, but companies face reputational damage and potential remedies, which can be strict, Dianov said. The FAS is okay with the low penalty threshold, since its main weapon has been to impose conditions on companies, he said.

Indeed, FAS boss Igor Artemiev has often touted the ability of his agency to curb the conduct of major global companies through the imposition of behavioural commitments. Failing to comply with court-imposed remedies in Russia can result in criminal proceedings against companies and individuals.

Torsten Syrbe at Clifford Chance in Moscow said that other manufacturers of similar products are now concerned that they might also face an FAS inspection for similar types of conduct. Many of the players in the market are from Asia, and they are sensitive about investigations, Syrbe said.

The Samsung case is standard and simple, he said, noting that fines for the type of coordination alleged against Samsung are minor and the cases are handled quickly. The FAS will tell Samsung that it should not have interfered with the pricing for the devices and the company might get a small fine in the spring, he added.

While there is nothing critical at stake from a financial or reputational perspective, there is the chance the FAS imposes an order that affects Samsung’s business model, Syrbe said. Baker McKenzie partner Anton Subbot in Moscow said that the Samsung case “looks like a clone” of those brought against Apple and LG. He said it would be interesting to see if the enforcer says anything new about the digital means of monitoring retail prices.

The FAS has previously been outspoken about using algorithms and other new methods to detect anticompetitive behaviour.

Alexander Viktorov at Freshfields Bruckhaus Deringer in Moscow said the case follows the enforcer’s trend of going after smartphone manufacturers, but it is otherwise just an ordinary example of the agency doing its job. There is still the chance that the formal proceedings against Samsung will not bear fruit and the claims turn out to be unsubstantiated, he said.

Samsung did not respond to a request for comment.

Author: Charles McConnell

Link: https://globalcompetitionreview.com/article/1180255/russia-opens-samsung-case

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