The Israeli Economic Competition Law 5748-1988 (the Law) defines and regulates three types of restrictive trade practices: restrictive arrangements, a companies’ merger and a monopoly.
A restrictive arrangement is an arrangement between at least two persons or legal entities conducting business, which limits at least one party thereof in a manner that might prevent or reduce competition. A restrictive arrangement might be horizontal or vertical. The Law also provides a number of specific restraints, the existence of which in a horizontal arrangement would constitute a presumption of harm to competition. A horizontal arrangement involving a restraint relating to one of the following issues is deemed a restrictive arrangement:
- the price to be demanded, offered or paid;
- the profit to be obtained;
- market allocation; and
- the quantity, quality or type of assets or services in the business.
Being a party to a restrictive arrangement without the prior authorisation of the Competition Tribunal is forbidden unless the arrangement is specifically exempted by the competition commissioners’ decision. Alternatively, the arrangement can be subject to the provisions of a general statutory exemption as set out in the Competition Law or benefit from one of the Block Exemption Regulations issued by the commissioner. The Israeli Competition Authority (ICA) recently introduced a self-assessment policy regarding certain vertical arrangements.
A companies’ merger is widely defined and includes:
• the acquisition of most of the assets of a company or other business entity (including registered foreign companies, partnerships (whether registered or not), non-profit organisations, cooperative societies, among others) by another business person or business entity;
- an acquisition of shares in a company by another business person or business entity that would provide the acquiring party a holding of more than 25 per cent of the nominal value of the issued share capital;
- the right to appoint more than 25 per cent of the directors in a business entity; or
- the right to participate in more than 25 per cent of a business entity’s profits.
The acquisition may be direct or indirect, or by contractual rights. Subject to separate and aggregate turnover and market share thresholds pre- and post-merger (calculated with reference only to the domestic market), a merger between local and foreign entities that conduct business in Israel is subject to the Law and requires pre-merger notification and approval thereunder.
Pre-merger notification must be submitted by all relevant parties – the acquirers and the target – to the commissioner if one of the following applies:
- the aggregate market share of the merging parties exceeds 50 per cent post-merger (for example, the merger creates a monopoly under the law);
- one of the parties to the merger is a monopoly under the law pre-merger; or
- the aggregate domestic turnover of the merging entities, in the preceding fiscal year, exceeds 360 million new Israeli shekels and each one of the merging entities had a domestic turnover of at least 10 million new Israeli shekels.
The commissioner shall block a merger, or approve it subject to structural or behavioural conditions after he or she had consulted with the Advisory Committee appointed under the Law, if, in his or her opinion, as a result of the merger, either competition in a market, or the public interest, might be significantly harmed. The Competition Tribunal may, upon application submitted by the commissioner, order the separation of an entity that merged in violation of the Law.
An entity shall be deemed a monopoly if its share in the supply or purchase of the total goods or services in a certain market, exceeds 50 per cent or if it holds a significant market power in relation with their supply or purchase. The current legal criterion is both of market share and market power. A monopoly (whether declared as such by the commissioner or not) may not unreasonably refuse to supply (or to purchase) the goods or services in which it holds a dominant position. Additionally, a monopolist may not act in a manner that constitutes an abuse of its dominant position in the market in a manner likely to reduce competition in business or harm the public. Examples of such conduct are unfair pricing, discrimination (the application of different conditions to similar transactions that might grant some customers or suppliers unfair advantage over their competitors), tying arrangements and so on. Abuse of a dominant position is also considered a criminal offence if accompanied by an intent to harm competition or the public. If the commissioner is of the opinion that competition or the public welfare is being prejudiced as a result of a monopoly or the behaviour of a monopolist, he or she may instruct the monopolist as to measures to be taken by it to prevent such prejudice.
The commissioner may declare two or more persons or entities conducting business as a ‘concentration group’ if between the members of such group or in the relevant market there is low competitiveness in business or if there are conditions for low competitiveness in business. Thus, measures taken by the commissioner might avoid harm or fear from significant harm to the public or to competition in business between the members of such group or in the relevant market, or significantly enhance competition in the market or create conditions for significant enhancement of the competition in the market.
The Competition Tribunal may, at the application of the commissioner, order the separation of a monopoly into a few separate legal entities.
Under a recent amendment, the commissioner may instruct an official importer of goods regarding the measures to be taken to avoid harm to competition from parallel or personal import, as a result of the official importer’s position or behaviour.
Criminal and civil implications
Violation of the Law by an entity or its relevant officers and employees constitutes a criminal offence (with up to five years’ imprisonment and millions of new Israeli shekels fines as the maximum potential exposure) as well as a civil tort. Further, a person (individual or corporation) with an interest in the lawsuit, a consumers’ association and, since 2006, even the ICA itself, may file a class action upon a breach of the Law.
The commissioner may impose on a person that violates the law an administrative fine of up to one million new Israeli shekels, and if the violator is an entity with a turnover higher than 10 million new Israeli shekels, an administrative fine of up to 8 per cent of its turnover, but no more than 100 million new Israeli shekels. The commissioner shall consider in his or her decision about the amount of the administrative fine, among other things:
- the term of the violation;
- the level of harm that the violation might cause to the competition or the public welfare;
- the part of the violator in the violation and its influence on its execution; and
- the existence or the absence of previous violations and when they were made.
An administrative declaration issued by the commissioner (for example, declaring certain conduct a restrictive arrangement; that a companies’ merger was executed without prior approval; or declaring the existence of a monopoly) constitutes a prima facie evidence in any civil procedure.
The Competition Authority’s structure and powers
The ICA was established in 1994. It is mandated to prevent the creation of and to supervise market power through merger control and anti-cartel enforcement, restrain abuse of such power by dominant firms and preserve competition in various markets. It has extensive investigative authority and the power to initiate civil, administrative and criminal proceedings against legal entities and their relevant employees and officers.
The commissioner can:
- exempt parties to a restrictive arrangement from the duty to apply to the Competition Tribunal for approval thereof;
- publish block exemption regulations;
- approve or block companies’ merger;
- declare the existence of a monopoly or a ‘concentration group’; and
- take measures to prevent abuse of dominant position, including by specific instructions to monopolists and official importers of goods.
The ICA currently employs approximately 140 employees in five professional departments: legal, chief economist, markets, investigations and the concentration division.
Criminal proceedings for violations of the Law may be launched by the commissioner and are conducted exclusively before the District Court in Jerusalem. The Court’s judgments may be appealed to the Supreme Court. The commissioner’s administrative actions and decisions (exemptions granted for restrictive arrangement, approvals and blocking of mergers, monopolies declarations, among others) are subject to judicial review by the Competition Tribunal (which sits also within the District Court in Jerusalem). The Competition Tribunal’s judgments may be also appealed to the Supreme Court.
Civil proceedings under the Law, including contractual claims, tort claims and class actions, may be brought before any competent court in Israel.