Russian Diamond Producer ALROSA Wins Appeal to European Court of First Instance

July 11, 2007

Cleary Gottlieb successfully represented ALROSA Company Limited, Russia’s largest diamond producer, in its challenge of a European Union decision prohibiting ALROSA from selling any of its rough diamonds to De Beers, the world’s largest diamond producer. The European Union had previously prohibited all dealings between the two companies with effect from June 1, 2009, following the Commission’s rejection of their five-year trading agreement, signed in 2002. At the time, the rough diamonds reserved for De Beers under the trade agreement represented roughly half of ALROSA’s annual production and all of its diamond exports.

The Commission had initially accepted ALROSA and De Beers’ joint proposal to reduce the annual volume of rough diamonds sold under the trade agreement. Following a change in the Commission’s membership and a largely negative response to the Commission’s market testing of the proposed settlement, the Commission decided, without explanation, to accept De Beers’ unilateral commitment to cease purchasing rough diamonds from ALROSA beginning in 2009. In exchange, the Commission agreed to terminate the competition proceedings pending against De Beers and ALROSA.

The Court of First Instance, in the first case to interpret the Commission’s new commitment procedure, has annulled the Commission’s acceptance of De Beers’ unilateral commitment. In rejecting the proposed prohibition on sales as disproportionate, the Court held that “The fact that an undertaking had proposed commitments to the Commission does not relieve it from its duty to assess whether these commitments are proportionate.” The Court also ruled that ALROSA had been denied the right to know the grounds for the Commission’s rejection of the parties’ original joint commitments, as well as an opportunity to make known its views on the Commission’s decision accepting De Beers’ unilateral commitment.