The main competition legislation in Israel is the Restrictive Trade Practices Law, 5748-1988 (the Antitrust Law). The Antitrust Law provides the legal grounds upon which the Antitrust Commissioner and the Israel Antitrust Authority (IAA) regulate restrictive arrangements, merger transactions, monopolies and concentration groups.
The Antitrust Law was enacted in the late 1980s with EU competition law (the Treaty of Rome) as its primary model and source of inspiration. In the late 1990s U.S. competition law doctrines and principles began to play a more prominent role in the implementation of the Antitrust Law by the IAA. This manifested, among others, in a more liberal approach towards mergers and unilateral conduct.
In 2011 major social unrest broke out, concentrating on the high cost of living which was attributed to limited competition and weak antitrust regulation. In parallel, a new Commissioner with a more hawkish view of competition law, took office. As a result, the IAA deviated significantly from principles of U.S. competition law, adopting tougher positions, which often set worldwide precedents. The most notable example was the amendment of the Antitrust Law which authorized the IAA to regulate oligopolistic markets ("concentration groups"), as well as to micro-regulate certain sectors (e.g., the Food Law).
A restrictive arrangement is defined as any arrangement between business parties in which at least one of them restricts itself in a way that may decrease competition in the market, restricts competition between the contracting parties or restricts competition between any one of them and a third party (the substantive test).
The Antitrust Law further determines that the existence of restrictions relating to prices, profits, market allocation, or quantity, quality or type of products or services, renders an arrangement a per se restrictive arrangement regardless of its potential effect on competition or lack thereof (the per se presumptions).
According to case law, the per se presumptions are normally not applicable to vertical arrangements (i.e., agreements between parties at different levels of the supply chain such as supplier-distributor relationships), which are assessed under the substantive test. Engaging in a restrictive arrangement is illegal unless it has been exempted by the Commissioner, approved by the Antitrust Tribunal or if it falls within the scope of a statutory or block exemption. Statutory or block exemptions may apply, among others, to certain vertical arrangements (e.g., exclusive distribution agreements, IP licensing agreements), certain horizontal arrangements (e.g., certain joint ventures) or other types of arrangements (e.g., intragroup agreements). However, contracting parties' ability to rely on these exemptions should be carefully reviewed, as most are subject to requirements (including market share thresholds). Parties to an illegal restrictive arrangement are exposed to potential criminal, administrative and civil sanctions.
Merger control law applies, among others, to the acquisition of the principal assets of the target (including the acquisition of a line of business) or acquisition of more than 25% of either the outstanding shares, voting rights, rights to appoint directors or dividend rights of the target company. A merger must be notified to the IAA if at least one of three thresholds is met (a turnover threshold, monopoly threshold and merger-to-monopoly threshold). Failure to notify a merger exposes parties to potential criminal, administrative and civil sanctions.
The IAA is granted an initial 30-day timeframe to review mergers, subject to extensions. The IAA proposed a significant overhaul of merger control rules, which is still at a very early legislative stage.
A firm is deemed a monopoly if it controls more than 50% of a relevant market. The Commissioner is empowered to issue declaratory proclamations, which serve as evidence sufficient to establish fact until proven otherwise (prima facie evidence) in any legal proceeding that the firm in question is indeed a monopoly. Recently, the IAA advocated for an amendment to the Antitrust Law, which would subject firms possessing market power to the Antitrust Law's monopoly provisions even if their market share falls short of 50%. This legislative initiative is still in its infancy.
The main monopoly prohibitions are refusal to deal and abuse of dominant position. The latter consists of (a) a general prohibition on abusing dominant position in a manner that may decrease competition or harm the public and (b) certain actions that are considered per se abuses of monopoly position (e.g., predatory pricing, tying and price discrimination). The IAA can issue directives to monopolies in order to prevent potential harm to competition or the public.
In order to better combat low competition in oligopolistic markets, the Israeli legislature introduced a major revision to the Antitrust Law several years ago. The revision authorizes the Commissioner to declare that a group of competitors dominating more than 50% of a market are a "concentration group," provided that (a) there is limited competition or there are conditions for limited competition between group members and (b) there are remedies capable of preventing harm to competition or increasing competition in the market. With this authority, the Commissioner can act as a super-regulator of the market and apply measures needed to increase competition or prevent further harm (e.g., decreasing barriers to entry or expansion by forbidding the use of long-term contracts, terminating facilitating practices like information exchanges). The Antitrust Tribunal is authorized to issue more drastic instructions such as mandating the divestment of holdings (even minority holdings) in a competing firm.
Additional Competition Legislation
While the majority of competition legislation resides within the Antitrust Law, there is also legislation that deals with certain market characteristics and regulates specific sectors.
The Promotion of Competition and Reduction of Concentration Law, 5774-2013 deals with three main areas: mandating that considerations relating to competition and concentration be taken into account in the allocation of public assets (e.g., concessions and licenses granted by the government); a prohibition on multi-layered corporate holding structures; and the separation between financial and non-financial assets. The law is of increasing importance in public tenders.
The Promotion of Competition in the Food Sector Law, 5774-2014 (the Food Law), was enacted to increase competitiveness in the food sector and reduce product prices. It prohibits, limits and regulates certain practices that could potentially be used by major suppliers or retailers to limit competition. Additionally, it empowers the Commissioner to intervene when retail markets are geographically concentrated. Firms in the sector must be well acquainted with the Food Law and with the IAA's interpretive guidelines, as violation of the law may have severe criminal, administrative and civil implications.
Other developments and trends
As of 2012, the Commissioner is empowered to impose financial sanctions for a wide range of offenses, all of which are also subject to criminal enforcement, as well as other administrative measures. The IAA's current policy is to generally prefer financial sanctions over criminal enforcement for non-cartelistic offences such as illegal vertical arrangements, abuse of dominant position and failure to comply with data requests. The IAA recently released draft guidelines on the methodology to be used by the Commissioner in calculating financial sanctions. While the methodology is quite complex, the most critical factor affecting the level of payment is the likely effect of the offence on competition.
In 2014, the IAA published guidelines on its enforcement policy regarding excessive pricing, establishing that the IAA views excessive prices by monopolies, under certain conditions, as illegal unfair pricing. The guidelines, which are contrary to the IAA's previous practice, were contentious from the outset, and are now being formally re-evaluated by the Commissioner following difficulties in their implementation.
In recent years there has been a significant increase in private enforcement of competition law, most notably – by way of class actions. In the past two years alone, about a dozen class actions have been filed on excessive pricing grounds, one of which was recently certified as a class action by the Central District Court relying in part on the excessive pricing guidelines which are now undergoing re-evaluation.
Civil claims filed by indirect purchasers against alleged international cartels are also on the rise. Israel's class action jurisprudence in such cases is in its infancy. The outcomes of these cases are likely to be standard-setting.
Originally published by Doing Business in Israel.
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