The European Antitrust Review 2014 Section 3: Country chapters

Israel

The applicable law

The primary law dealing with antitrust issues is the Restrictive Trade Practices Law – 5748, 1988 (the Antitrust Law or the Law). The Antitrust Law addresses the substantive rules that apply to the various restrictive trade practices (ie, restrictive arrangements, corporate mergers, monopolies and concentration groups) as well as the sanctions for the violation of such rules. In addition, the Antitrust Law determines rules concerning the structure and the powers of the Antitrust Authority, the antitrust director general and the Antitrust Tribunal, as well as procedural rules that apply to cases brought before them.

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 any of them, or between himself and a third party’ (article 2(a)).

The Law also cites four matters, a restriction in respect of which shall be deemed a restrictive agreement (article 2(b)):

  • the price that shall be demanded, proposed or paid;
  • 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
  • restriction regarding the quantity, quality or type of assets or services in the business.

Where a trade association sets or recommends a policy for all or several of its members that might prevent or reduce competition between them, such a recommendation or policy shall be deemed a restrictive agreement; the trade association and those members who acted according to the recommendation or policy 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 director general from the duty to have it approved (article 4). However, in certain well-defined cases, a statutory exemption applies. Section 3 of the law sets statutory exemptions according to which, notwithstanding the definition given in article 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 relating to specific business sectors – agriculture, air and maritime transportation;
  • vertical mutual exclusivity arrangements;
  • 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, block exemption rules have been issued by the director general, pursuant to section 15A of the Law, concerning the following types of restrictive arrangement: arrangements of minor importance (de minimis), joint ventures, R&D, restraints ancillary to mergers, arrangements between related companies, exclusive distribution/purchase agreements, franchise, arrangements between aircraft carriers and arrangements between maritime carriers and arrangements between air carriers concerning the marketing of flight capacity (the latter was introduced in December 2012).

In August 2012, the director general introduced for public consultation a draft of a new block exemption for non-horizontal arrangements that do not contain price restrictions.

In 2005, the minister of industry, trade and labour appointed a public committee to analyse the law and recommend any necessary amendments thereto. Based on the committee’s recommendations, amendments have been proposed to the Law in respect of restrictive practices and concentrated markets (see Monopolies, below). As yet, the proposed amendment in respect of restrictive arrangements has not been incorporated into law.

Companies’ mergers

A ‘companies’ merger’ is broadly defined in the Law to include the acquisition of the principal assets of a company by another entity (a separate division in the company may be regarded as a ‘principal asset’, even if it does not produce most of the company’s revenues), or the acquisition of shares in a company by another entity through which the acquiring company is accorded:

  • more than 25 per cent of either the nominal value of the issued share capital or of the voting power of the acquired company;
  • the power to appoint more than 25 per cent of the directors of the acquired company; or
  • participation in more than 25 per cent of the profits of the acquired company.

The acquisition may be direct or indirect or by way of rights accorded by a contract (article 1). Nevertheless, since the law does not provide a conclusive set of characteristics that will constitute a merger, even the acquisition of less than 25 per cent of any of the above-mentioned rights may constitute a merger if further affinity exists between the parties (such as loans or involvement in the management of a firm).

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, both of which have places of business in Israel, is also subject to the Law and requires the submission of pre-merger notifications and the director general’s approval (article 18).

A merger must be notified to the director general if at least one of the following conditions is met (article 17(a)):

  • The cumulative turnover of the merging entities in Israel, in the preceding fiscal year, exceeded 150 million shekels, and the turnover in Israel of each of at least two of the merging parties exceeded, in the same period, 10 million shekels.
  • As a result of the merger, the combined share of the merging companies in the total production, sale, marketing or purchase of a particular good and similar good, or provision of a particular service or similar service, exceeds 50 per cent.
  • One of the merging companies has a monopoly in Israel (ie, it holds a market share that exceeds 50 per cent), in any relevant market.

The director general will object to a merger or approve it subject to 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 director general, order the separation of an entity merged in violation of the law (article 25).

Over the years, the IAA has introduced several guidelines regarding various aspects of the merger review process and the liability to submit pre-merger notification forms:

  • guidelines regarding the substantive analysis of horizontal mergers (January 2011). The guidelines describe the methodology used in the IAA’s review process of mergers and the main types of evidence on which the IAA would typically rely to predict whether a horizontal merger might substantially harm competition. The guidelines state the main considerations taken into account by the director general in his or her decision making and address issues such as market definition, anti-competitive effects, efficiencies and the likelihood of market coordination;
  • guidelines regarding remedies for mergers that raise reasonable grounds of competitive concern (July 2011), which discuss the circumstances in which the IAA will block a merger and when it will approve it subject to conditions. Further, it discusses the spectrum of conditions that the IAA may impose and describes the circumstances under which the various types of conditioned will be used. The guidelines manifest the IAA’s current policy to prefer structural restrictive conditions over behavioural conditions as the appropriate remedy in merger cases;
  • guidelines in respect of the failing firm doctrine (January 2010);
  • guidelines for reporting and evaluating mergers (January 2008); and
  • statement concerning the duty to submit pre-merger notification forms for self-purchase of shares (January 2000).

Monopolies

A party 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 director general may declare the existence of a monopoly.

In general, a monopolist:

  • may not unreasonably refuse to deal (supply or purchase) the goods or services in which it holds a monopolistic market share (article 29); and
  • 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). For instance, a monopolist may not charge unfair prices and may not apply dissimilar conditions to similar transactions.

The director general 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 director general has the authority to supervise and instruct the monopolist in its business activities, to ensure that its behaviour, or that the mere existence of a monopoly, does not harm competition in the market or the public (article 30). The Law also states that any harm relating to one of the following shall be deemed to be harmful to competition or to the public (article 30(c)): price, quality, quantity and terms of supply, and barriers to entry or to switching.

The Antitrust Tribunal may, at the application of the director general, 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).

Concentration group

In July 2011, the 12th amendment to the Law came into force, providing the director general with extensive powers with respect to concentration groups (oligopolies). The substantive analysis of market concentrations has been extracted from the section in the Law that regulates monopolies and a separate section specifically regulating oligopolistic markets was enacted.

Prior to the amendment, the director general had the authority to declare the existence of a concentration group (oligopoly), if two or more persons with no, or minor, competition between themselves hold an aggregate market share of more than 50 per cent.

The measure of the degree of competition between the firms in a market was problematic since such examination could have not relied on real empirical measures.

Thus, the definition of a ‘concentration group’ was amended such that, instead of focusing on the degree of competition in the concentrated market, the focus shifted to the existence of conditions in the market that may facilitate or stifle effective competition (such as barriers to entry or cross-ownership structures in the relevant market).

The amendment empowers the director general to declare the existence of a concentration group if a group of persons (or entities) holds more than 50 per cent of the total supply or purchasing power of goods or services in a market and the following conditions are met (article 31B):

  • there is no competition, or minor competition, between the members of the group, or the market circumstances allow a low degree of competition between the members of the group; and
  • instructions by the director general are expected to prevent a significant harm or concern for harm to competition in the market or to the public, or may significantly strengthen competition or may create conditions for significant improvement of competition in the market.

The director general may order a concentration group to take steps that would prevent harm or concern for harm to competition in the market or to the public or steps that are expected to significantly increase the competition between the members of the concentration group, or to create conditions for such increment (article 31C(a)).

The Antitrust Tribunal may, on application of the director general, order the sale of holdings (entirely or partly), by any one of the following persons, if the sale would prevent significant injury or concern for injury to competition in the market or to the public, or if the sale would strengthen significantly the competition between the members of the concentration group (article 31C(b)):

  • a person that holds rights in another person in the market and at least one of them is a member of the concentration group;
  • two persons that are active in the same market and hold rights in a third person, and at least one of them is a member of the concentration group; or
  • a person that holds rights in two persons or more which are active on the same market and at least one of them is a member of the concentration group.

Consequences of violations of the law

Any violation of the law has criminal, administrative and civil consequences.

Criminal sanctions include up to three years’ imprisonment or a maximum fine of 2.2 million shekels, and may be given to 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 director general;
  • 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, in contravention of 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;
  • acted in a manner that contravened an instruction given by the director general according to articles 30 or 31C (ie, instructions to monopolies and concentration groups);
  • acted in a manner that contravened an order given by the Antitrust Tribunal according to articles 25 or 31 (ie, an order for separation of unlawful merged entity or monopoly); or
  • acted in a manner that contravened 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).

In addition, that person shall be liable to a daily fine of 14,000 shekels for each day that the offence persisted. If a corporation is involved, the said fines are doubled (articles 47(a) and 47(b)).

In the case of ‘aggravating circumstances’, the period of imprisonment may be up to five years. ‘Aggravating circumstances’ include factors such as the market share and the position of the accused in the market that was affected by the offence, the period 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 with 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).

The director general may also take several administrative measures against those who violate the Law: a declaration pursuant to article 43(a) of the Law, which serves as prima facie evidence in court (see ‘The Antitrust Authority’, below); a consent decree (article 50B); or instructions to be imposed on monopolies (articles 27 and 30) and on the members of a concentration group (article 31C). In addition, as of May 2012, under the 13th amendment to the Law, the director general is also authorised to impose monetary sanctions on corporations and individuals that are involved in violations of the Law, in lieu of criminal indictment. The monetary sanction under the amendment is up to 1 million shekels or, for a corporation of which revenues in the preceding financial year exceeded 10 million shekels – up to 8 per cent of the corporation’s annual revenues but not more than 24 million shekels (section G1).

Furthermore, the Antitrust Tribunal may:

  • order any person not to take an action which violates the provisions of the Law, and to give security to such effect, and order any action necessary for the prevention of such violation (article 50A);
  • issue any order it deems necessary in order to ensure the implementation of a decision it has made regarding a restrictive trade practice (article 35);
  • order the breaking-up of a monopoly (article 31(a));
  • order the divestiture of an illegal merger (article 25); and
  • order the sale of holdings by members of a concentration group (see ‘Concentration group’, above)

As for the civil consequences, any act or omission contrary to the provisions of the Law or the instructions of the director general is deemed a tort under the Torts Ordinance [New Version], 5728-1968 (article 50). The Class Action Law enables the submission of class actions in antitrust cases.

The Antitrust Authority

The Israeli Antitrust Authority was established in 1994 and currently employs approximately 80 employees in three professional units: legal, economic and investigations. The director general is vested with extensive investigative authority and with the power to initiate civil, administrative and criminal proceedings. The director general 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 to object to companies’ mergers (article 21);
  • to take measures directed at preventing abuse of monopolistic powers (article 30);
  • to instruct members of a concentration group to take measures directed at preventing harm or concern for such harm to competition, or measures that will improve competition in the market or between the members of the concentration group (article 31C(a)), or measures that will create conditions for such an improvement; and
  • to declare that (article 43(a)):
    • a person or an entity constitutes a monopoly (article 26(a)) or several persons or entities constitute a concentration group (article 31B);
    • an arrangement is a restrictive agreement;
    • a policy recommended or set by a trade association is a restrictive agreement;
    • a companies’ merger must be notified to the director general;
    • a companies’ merger was unlawfully executed in practice; or
    • a monopolist abused its dominant position in the market.

Such declaration serves as prima facie evidence in court (eg, in civil actions for damages).

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

Judicial review of the Authority’s decisions and criminal proceedings

The director general’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 director general, or a trade or consumers’ association, may appeal the director general’s exemption or decision (article 15(a)).

  • If the director general decides to object to a companies’ merger or to approve it with conditions, the merging parties may appeal against such decision (article 22(a)). In addition, if the director general 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 to the Antitrust Tribunal (article 22(b)).
  • A monopolist may appeal the director general’s demand that it must have its contracts with its clients or suppliers approved as a ‘uniform 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 director general to a monopolist, may appeal such instructions (article 30(f)).
  • A member of a declared concentration group, a consumer’s association or any other person that is injured by instructions given by the director general to a concentration group, may appeal such instructions (article 31C(d)).
  • The director general’s determination according to article 43(a) (see above) may be appealed by those at which the determination is directed.
  • The director general’s decision to impose monetary sanction may also be appealed to the Antitrust Tribunal (article 50M(a)).

In addition, being an administrative entity, the activities of the director general may be reviewed by the Supreme Court sitting as the High 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 judgments of both the Antitrust Tribunal and the District Court may be appealed to the Supreme Court.

Recent developments

In February 2013, the IAA introduced a new legislative memorandum for the Antitrust Law in which it proposed several amendments to the Law. Inter alia, the IAA suggested the adoption of the American triple damage model in private enforcement of the Antitrust Law, except for cases where the defendant was granted immunity from criminal prosecution under the leniency programme of the IAA. Another proposed amendment relates to the aviation sector and, if approved, will subject any agreement between foreign airlines, which relates to the operation or absence of operation in Israel, to the prior approval of the director general, even if Israel is not the main subject of the agreement. Lack of such approval would render the agreement illegal and might result in the foreign airlines’ directors and office holders being subject to criminal prosecution.

In March 2013, the IAA issued draft guidelines regarding the disclosure of information in the course of due diligence prior to a transaction between competitors. The IAA states that the exposure of sensitive information to a competitor in the course of due diligence may harm competition and therefore might amount to a restrictive arrangement. The guidelines provide tools to identify which information would be considered ‘sensitive information’ and general guidance of how to perform the due diligence process in a manner that minimises the potential competitive harm and is consistent with the antitrust law.

In May 2013, the director general announced his intention to declare the two seaport companies of Ashdod and Haifa as a concentration group in the market for services of loading and unloading containers, and to impose orders on the seaports, subject to a hearing. The director general specified the following two instructions: First, the companies currently operating in Ashdod and Haifa seaports will not provide any further service in piers or new ports which are not already being operated – including the operation of two new platforms that are expected to enter the market soon. The second expected instruction is that Haifa Port or Ashdod Port, and anyone acting on their behalf, shall not take any action that would thwart or make it difficult for another operator to enter the market or to operate in it. According to the IAA, the said measures may prevent injury or risk of significant damage to the public or to competition in the market.

In April 2013, the IAA announced its intention to indict two laundry companies and their managers for an alleged attempt to coordinate the Health Ministry’s tender for the provision of washing and ironing services to five hospitals, and for an alleged attempt to coordinate, during elicitation procedure before the District Court of Jerusalem, the purchase of an industrial laundry company.

In February 2013, the IAA introduced a memorandum, which aims to minimise the current agricultural statutory exemption in the law and attain the wholesalers of agricultural products, who are not farmers, outside the protection of the exemption. It is suggested that farmers will continue to enjoy an exemption in respect of the agricultural products that they produce, while non-agricultural companies or those who are not fully owned by farmers will not enjoy the exemption.

Epstein, Chomsky, Osnat & Co & Gilat Knoller & Co Law Offices

Rubinstein House
20 Lincoln Street
Tel Aviv 67134
Israel
Tel: +972 3 5614777
Fax: +972 3 5614776

Eytan Epstein
epstein@ecglaw.com

Tamar Dolev-Green
tamar@ecglaw.com

Shiran Shabtai
shiran.shabtai@ecglaw.com

www.ecglaw.com

Epstein, Chomsky, Osnat & Co & Gilat Knoller & Co Law Offices is the outcome of a recent merger between Epstein Chomsky Osnat & Co and certain divisions of the former Zaltzman, Gilat, Knoller, Graus, Salomon and Co law firm – both continuously listed in D&B and the BDI’s leading law firms in Israel. The firm employs 45 professionals and is located at the heart of Tel Aviv’s business and financial district.

ECO&GK is a law firm committed to providing its clients with quality and timely professional legal services. The firm is structured to provide the full range of legal services required by local and foreign clients for their business and investment needs, ongoing management of operations and litigious matters.

The firm practises and provides its clients with services in all aspects of civil, corporate and commercial transactions and litigation, international trade, antitrust, public tenders, government regulations and licences, insurance and banking services, finance and securities, tax law, insolvency, liquidation and reorganisation, communication laws, aviation, transportation and ground-handling laws, labour law, environmental law, real estate and construction law, cooperative societies and intellectual property.

ECO&GK renders ongoing and comprehensive consultation and representation services to a wide variety of international and domestic corporations and businesses, including leading telecommunications, energy, pharmaceutical, banking, credit cards, insurance, construction and technological companies. The firm advises both government entities and all types of business entities, including manufacturers, distributors, agencies, retail chains and private business persons. ECO&GK has rich and varied commercial and business experience, a devoted and skilled staff and extensive contacts in the legal and business community in Israel and abroad, enabling it to provide its clients with comprehensive, up-to-date, effective and fast legal counsel. The firm’s relationships with its clients and its familiarity with their business and their specific requirements enable it to accompany them and provide them with legal counsel and assistance often exceeding the boundaries of simple legal service, such as creating business contacts, locating marketing channels and investors, and the like.

ECO&GK’s antitrust department advises leading domestic and international entities in relation to all types of antitrust enquiries, including restrictive arrangements, mergers and acquisitions and abuse of dominant position, and represents its clients before the Antitrust Authority and all the legal instances, including in class action cases. The firm regularly collaborates with leading foreign law firms in notifications and filing of international mergers and joint venture transactions. ECO&GK employs some of the leading attorneys in this field, the majority of whom were formerly employed by the Antitrust Authority in Israel and the competition authorities in Europe and the US.

The firm and some of its professionals have been repeatedly ranked by leading research organisations, such as the European Legal 500, Chambers and Partners, Who’s Who Legal, D&B and BDI, among the top competition law firms and practitioners in Israel. Furthermore, the firm has been included in Global Competition Review’s list of leading competition law firms worldwide since 2004.

Back to top

Law Business Research Ltd

87 Lancaster Road, London
W11 1QQ, UK
Queen's Award logo American Bar Association strategic partner logo

Copyright © 2014 Law Business Research Ltd. All rights reserved. | http://www.lbresearch.com

87 Lancaster Road, London, W11 1QQ, UK | Tel: +44 207 908 1188 / Fax: +44 207 229 6910

http://www.globcompetitionreview.com | editorial@globalcompetitionreview.com