Israel

Eytan Epstein and Tamar Dolev-Green

Epstein Chomsky Osnat & Co

The applicable law

The Restrictive Trade Practices Law, 5748-1988 (the Law) defines three types of restrictive trade practices: restrictive agreements, company mergers and monopolies.
The Law, reforming the original Restrictive Trade Practices Law enacted back in 1959, introduced a merger supervision regime for the first time in the late 1980s. Later amendments during the 1990s established the Antitrust Authority (article 41A) (1994); amended the Monopoly Chapter by prohibiting a monopolist from abusing its dominant position in a manner that might harm competition or the public (article 29A); introduced class actions under the Law (1996; that chapter was annulled in 2006, following the enactment of the Class Actions Act); authorised the general director to instruct a monopolist to avoid abusive behaviour (article 30, 1998); and introduced the general director’s authority to regulate block exemptions (article 15A), the consent decree procedure (article 50B), the pre-ruling procedure (article 43A) and aggravating circumstances in antitrust offences (article 47A) – all of these happened in 2000).
In 2005, the minister of trade and industry appointed a public committee to analyse the Law and recommend required amendments thereto. In 2005 the committee published its recommendations to amend the restrictive practices chapter in the Law and recently, in 2008, it published its recommendations in respect of concentrated markets (see below). So far, no amendments have been made to the Law.

Restrictive agreements

The Law defines a restrictive agreement as ‘an agreement, made between persons (such term includes legal entities) carrying on a business, according to which at least one of the parties restricts himself in such manner that might prevent or reduce the business competition between himself and the other parties to the agreement, or some thereof, or between himself and a third party’ (article 2(A)).
The Law also states four practices that shall be deemed as restrictive agreements: determining the price that shall be demanded, proposed or paid; determining the profit that shall be produced; dividing a market, fully or partly, according to the place of business or according to the persons or types of persons being dealt with; and dividing a market, fully or partly, according to the quantity of the assets or services in the business, and their quality or type (article 2(B)). Where a trade association sets or recommends a policy for its members, or a part thereof, which might prevent or reduce competition between them, such a recommendation or policy shall be deemed a restrictive agreement and the trade association and its members shall be deemed parties to a restrictive agreement (article 5). Adaptation of actions by a person conducting business to an existing restrictive agreement shall also be deemed as being party to such restrictive agreement (article 6).
A restrictive agreement is prohibited, unless it is approved in advance by the Antitrust Tribunal, or exempted by the general director of the Antitrust Authority from the duty to have it approved (article 4). However, in certain well-defined cases, a statutory exemption applies. Section 3 of the Law provides that, notwithstanding the definition given in section 2 thereof to restrictive arrangements, several arrangements shall not be deemed restrictive, such as: arrangements involving restraints all of which are established by law; arrangements involving restraints, all of which relate to the right to use intellectual property rights; and arrangements entered into by a company and its subsidiary.
In addition, common agreements, such as exclusive distribution, and research and development joint ventures, may be exempted by block exemption regulations issued by the general director.

Company mergers

A company merger under the Law includes the acquisition of the principal assets of a company by another company, and the acquisition of shares in a company that accord the acquiring company more than 25 per cent of the nominal value of the issued share capital, or the right to appoint more than 25 per cent of the directors, or the right to more than 25 per cent of the company’s profits. The acquisition may be direct or indirect, or by contractual rights (article 1). Subject to market share and turnover thresholds (in the domestic market), a merger between an Israeli and a foreign entity or between two foreign entities that both have place of business in Israel, is subject to the Law and requires pre-notification and approval (article 18).
Pre-merger notification must be submitted to the general director if one of the following conditions is met (article 17(A)):
• the cumulative turnover of the merging entities in Israel, in the former fiscal year, exceeded 150 million new Israeli shekels (approximately €28 million), and the turnover in Israel of each of at least two of the merging parties exceeded, in the same period, 10 million shekels (approximately €1.8 million);
• as a result of the merger, the market share of the merging companies in Israel in the area of business activity concerning their goods and services exceeds one half; or
• one of the merging companies is a monopoly in Israel under the Law (ie, it holds a market share that exceeds 50 per cent), in any relevant market.

The general director will object to a merger or approve it with conditions if, in his or her opinion, as a result of the merger, competition in a market or the public’s interests might be significantly harmed (article 21(A)). The Antitrust Tribunal may, at the application of the general director, order the separation of an entity merged in violation of the Law (article 25).

Monopolies

A person shall be deemed a monopolist if he, she or it holds under his, her or its control a concentration of more than 50 per cent of the total supply or purchasing power of goods or services in a market (article 26(A)). According to the Law, the general director may declare the existence of a monopoly. The Law also provides the general director with the authority to declare the existence of a concentration group, if two or more persons with no, or minor, competition between themselves hold an aggregate market share of more than 50 per cent (article 26(D)).
A monopolist may not unreasonably refuse to deal (supply or purchase) the goods or services it holds a monopolistic position over (article 29), may not apply dissimilar conditions to similar transactions and, in general, may not act in a manner that constitutes abuse of its position in the market, in a manner likely to reduce competition in business or to harm the public (article 29A).
The general director may order a monopolist to apply certain legal restrictions on the terms appearing in its common contracts, and to apply official Israeli industrial standards (article 27). The general director has the authority to supervise and instruct the monopolist in its business activities, to ensure there is no abuse (article 30). The Antitrust Tribunal may, at the application of the general director, order the separation of a monopoly, the separation of legal entities and the sale of the ownership and control of such entities to third parties (article 31).

Consequences of violations of the Law

Any violation of the Law has both criminal and civil consequences.
Any person that:
• was part of a restrictive agreement that was not duly approved or temporarily permitted by the Antitrust Tribunal, and that was not exempted by the general director;
• did not fulfil a term under which an approval, a temporary permission or an exemption for a restrictive agreement was given;
• did not notify a companies merger or performed an act that was deemed to be a companies merger, fully or partly, contradicting the Law;
• did not fulfil a term under which a companies merger was approved;
• abused a dominant position in the market where the intention to reduce competition in business or to harm the public was proven; or
• acted in a manner that contradicted an order given by the Antitrust Tribunal according to articles 35 or 36 of the Law (ie, an order which is required to assure compliance with the Antitrust Tribunal’s decision or an interim order);
shall be liable to up to three years’ imprisonment or a maximum fine of 2 million new Israeli shekels (approximately €375,000). In addition, that person shall be liable to a daily fine of 13,000 new Israeli shekels (approximately €2,400) for every day that the offence went on. If a corporation is involved, the said fines are doubled (article 47(A)).
In the case of aggravating circumstances, the period of imprisonment may be up to five years. Aggravating circumstances may be factors such as the market share and position of the accused in the market that was affected by the offence, the term over which the offence took place, the damage that was caused or is expected to be caused to the public as a result of the offence, and the profits that the accused achieved (article 47A).
If an offence under the Law was committed by a corporation, then every person that was, at the time of the offence, an active director, a partner (except a limited partner) or a senior officer responsible for that field, shall also be charged under that offence, unless that person has proven that the offence was committed without his or her knowledge and that he or she took all reasonable measures to ensure compliance with the Law (article 48).
As for the civil consequences, any act or omission contrary to the provisions of the Law is deemed a tort under the Torts Ordinance (article 50). In addition, a class action may be brought in the event that an offence was committed under the Law.

The Antitrust Authority

The Israeli Antitrust Authority was established in 1994 and presently employs approximately 70 employees in three professional units: legal, economic and investigations. The general director has powers both in the administrative and criminal context and may investigate and prosecute those who violate the Law. The general director is authorised:
• to exempt parties to a restrictive agreement from the duty to apply to the Antitrust Tribunal for approval (article 14);
• to regulate block exemption regulations (article 15A);
• to approve (with or without conditions) or object to companies mergers (article 21);
• to take measures directed at preventing abuse of monopolistic powers (article 30); and
• to declare that (article 43(A)):
• a person or an entity holds a monopoly or a few persons or entities are a concentration group (article 26);
• an arrangement is a restrictive agreement;
• a policy recommended or set by a trade association is a restrictive agreement;
• a companies merger has to be notified to the general director; or
• a monopolist abused its dominant position in the market.

The general director maintains a registry, open to the public, of decisions relating to applications to and approvals of companies mergers, restrictive agreements and monopolies (article 42). The registry does not contain information declared confidential, that is a trade secret, or that involves national security or foreign relations.

Judicial review of the Authority’s decisions and criminal proceedings
The general director’s actions and decisions are subject to judicial review by the Antitrust Tribunal, which sits within the district court in Jerusalem. Any person that might be injured as a result of a restrictive agreement that was exempted by the general director, or a trade or consumers’ association, may appeal the general director’s exemption or decision (article 15). If the general director decides to object to a companies merger or to approve it with conditions, the merging parties may appeal against such decision (article 22(A)). If the general director decides to approve a proposed merger, with or without conditions, any person that might be injured as a result, or a trade association or consumers’ association, may appeal (article 22(B)). A monopolist may appeal the general director’s demand that it must have its contracts with its clients or suppliers approved as a ‘uniformed contract’, or that it must adapt the assets it sells to the official standard (article 28). A monopolist, a consumers’ association or any other person that is injured by instructions given by the general director to a monopolist, may appeal such instructions (article 30(F)). The general director’s declaration according to article 43(A) (see above) is also subject to an appeal at the Antitrust Tribunal.
In addition, the activities of the general director may be reviewed judicially by the Supreme Court of Justice. Civil proceedings, according to the Law, including contractual claims, tort claims and class actions, may be brought before any competent court in Israel. Criminal proceedings for violations of the Law are conducted exclusively before the district court in Jerusalem. The Antitrust Tribunal’s and the district court’s judgments may be appealed to the Supreme Court.

Recent developments

Proposed amendment to the Law – oligopolies

In June 2008 a proposed amendment to the Law was distributed, aimed at better regulating concentrated markets.
The proposed law was drafted by a special committee set up for the purpose of re-examination of the Law, headed by Professor Zohar Goshen. The committee, of which one of the members is the general director, sees the proposed amendment as a significant development for the Israeli economy in light of its small size, which makes the economy prone to oligopolistic markets.
Currently, the substantive analysis of concentrations is set out in the same chapter of the Law which regulates monopolies. Where the general director declares the existence of a ‘concentration group’, such concentration is deemed to be a monopoly and is subject to the same provisions in the Law which apply to monopolies. While a monopoly is defined as the concentration of more than half of the assets or services in a market in the hands of one person, the Law defines a ‘concentration group’ as two or more persons holding an aggregate market share higher than 50 per cent, between whom there is minor or no competition.
The committee’s proposed amendments are founded on two fundamental principles.
Primarily, the recognition that the Law’s current definition of a ‘concentration group’ is problematic – there are no real empirical means to measure the degree of competition existing between firms in a market. Instead, the committee believes, it is far more in line with antitrust doctrine and practice, to assess the prevailing competitive conditions of a specific concentration and how such competitive conditions can be expected to affect the level of competition within that particular oligopolistic market. Such competitive conditions include an analysis of barriers to entry, market power, etc.
Secondly, the recognition that an analysis of monopolies and of oligopolies is, and should be, fundamentally distinct. The economics, commercial incentives and commercial behaviour of a monopoly are different to that of an oligopoly. The committee noted that the Antitrust Law’s bundling of monopolies and oligopolies into the same analytical framework is not effective nor is it accurate. Instead, it notes, oligopolies should be evaluated independently and in light of factors and competitive analysis relevant to oligopolistic market behaviour.
In light of these principles, the following main amendments to the Law are proposed:
• The substantive analysis of concentrations is extracted from the section in the Law which regulates monopolies and introduces a new separate section to specifically regulate oligopolistic markets.
• The definition of a ‘concentration group’ is amended. Instead of focusing on the degree of competition then existing between the firms in a concentrated market, the focus is shifted to the existence of conditions in the market which may facilitate or stifle effective competition. The general director may declare a ‘concentration group’ to exist under three cumulative conditions:
• More than half of the assets or services in a market are concentrated in the hands of a few players.
• The conditions for facilitating competition between those persons are limited or competition itself between those persons is limited. A non-exhaustive list of such conditions is provided, and includes barriers to entry, barriers to free movement between players and cross-ownership structures between market participants.
• There are steps which may be taken to prevent competitive harm or the risk thereof, to increase the competition in the market or to create conditions which will facilitate competition in the market.
• In declaring the existence of a ‘concentration group’, the general director is empowered to issue instructions to the firms in the relevant market, aimed at preventing competitive injury. These instructions may be both behavioural and structural, such as a prohibition of an exchange or publication of information, the removal of barriers to entry or switching barriers, or even divestiture of common ownership.

Guidelines on merger notification and examination

In January 2008 the general director enacted the Director General’s Guidelines Regarding the Process of Reporting and the Assessment of Mergers in Terms of the Antitrust Law, 1988 (the Guidelines). The Guidelines address in detail many aspects of merger reporting and assessment. For example, the Guidelines detail the general director’s approach and interpretation as regards, inter alia, the following issues:
• Which types of transactions constitute a ‘merger of companies’. Beyond the formulaic statutory provisions providing for a de jure acquisition of rights in a company which will constitute a merger, the Guidelines provide for when the director general will regard a transaction as having created a de facto merger.
• The thresholds for reporting a merger.
• What will be considered to be an early implementation of a merger (ie, implementation of a merger without the required regulatory approval).
• Various issues related to the timing of notification of a merger, such as the grant (as opposed to the exercise) of share options.
• A discussion of what will be considered to be a mere internal reorganisation as opposed to a merger.
• The director general’s approach to an acquisition of the assets of a company as a merger.
• What kinds of legal persons, such as individuals and foreign companies, would be considered to be ‘acquiring companies’, for purposes of merger control. Of course, this is significant as regards any duty to notify the merger to the Israel Antitrust Authority.

An extract from The European Antitrust Review 2009