Israel: Updated competition policy affects merger control and enhances ICA enforcement against anticompetitive conduct

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In summary

Israeli competition law is dynamic and affected by legislative changes, updated policy of the Israeli Competition Authority (ICA) and case law. In recent years, the ICA has continued developing the block exemptions regime to allow parties to move forward towards self-assessment rather than seek regulatory permits. In parallel, the ICA has demonstrated a more careful approach towards mergers and has increased administrative and criminal enforcement in fields such as abuse of dominant position and restrictive arrangements.


Discussion points

  • Restrictive arrangements control regime
  • Merger control regime and amendments to the thresholds and forms
  • Monopoly control regime and concerted group control regime
  • Enforcement measures under the Law and private enforcement
  • Pro-competitive developments
  • Requests for Information

Referenced in this article

  • Economic Competition Law 5748-1988 and its Regulations
  • ICA policy paper on resale price maintenance arrangements
  • ICA draft amendment to the block exemption for exclusive distribution or franchise
  • ICA decision with respect to MBI Pharma for excessive pricing
  • Gafniel v Central Bottle Company Ltd
  • Tnuva v Naor and Naor v Tnuva
  • RLFI agriculture Ltd v Man Trucks and Bus AG et al
  • Zalicha v Tnuva

The Economic Competition Law 5748-1988 (the Law)[1] is the primary law dealing with competition and antitrust issues in Israel. Its objective is to prevent harm to competition and to the public. The Law contains the substantive rules that apply to various restrictive trade practices (restrictive arrangements, mergers, monopolies and concerted groups).

The Law encompasses rules concerning the structure and the powers of the ICA,[2] the Director General of the ICA (the Director General) and the Competition Tribunal (the Tribunal), as well as the procedural rules that apply to cases brought before each of them.

Recent years have been characterised by:

  • trends to strengthen the position of the ICA and increase administrative and criminal enforcement;
  • the ICA’s focus on its advisory capacity within the government;
  • development of block exemptions regime, to allow parties to move forward towards self-assessment rather than regulatory permits, alongside publish of guidelines regarding the proper and careful application of these exemptions;
  • the ICA’s policy that Israeli consumer would not be inferior to other consumers worldwide, for example, regarding technology and digital economy aspects;
  • increasing civil follow-on class actions against international cartels; and
  • the ICA’s more careful approach towards mergers: the average schedule for clearance has increased, as well as enforcement against gun-jumping prior to the actual closing of the merger

Restrictive arrangements control regime

Definition

Section 2(a) of the Law defines a restrictive arrangement as an arrangement between persons (including legal entities) conducting business, according to which at least one of the parties restricts itself in a manner that might prevent or reduce competition between the person and the other parties to the arrangement, or any of them, or between the person and a third party. Section 2(b) of the Law also provides conclusive presumptions that an arrangement involving a restraint will be deemed to be a restrictive arrangement if it relates to:

  • the price to be demanded, offered or paid;
  • the profit to be obtained;
  • market allocation; or
  • the quantity, quality or type of assets or services in the business.

In general, a restrictive arrangement is prohibited under the Law, unless it is permitted in accordance with the Law. Section 4 of the Law establishes that parties to a restrictive arrangement can receive an approval from the Tribunal if it finds that the arrangement is in the public interest,[3] or it can be exempted by the Director General at the request of a party to a restrictive arrangement and following a consultation of the Director General with the Exemptions and Mergers Committee. The Director General considers whether the restrictive arrangement considerably reduces competition or causes substantial harm to competition, whether the objective of the arrangement is to reduce or eliminate competition, and whether the restraints in the arrangement are necessary to fulfil the objectives of the arrangement.

A similar provision is set forth in section 15A(a) as a condition to the authority of the Director General to determine a block exemption rule. To assist parties to restrictive arrangements in evaluating the effect of a certain arrangement, the ICA published a public statement on the interpretation of sections 14(a)(2) and 15A(a)(2) of the Law. The statement provides clarification that not only do the parties need to indicate that there is no significant harm to competition or that there is no harm to competition in a significant part of the market, but they are also required to indicate that the arrangement between the parties has a legitimate purpose and that the restraints are necessary to fulfil the legitimate purpose of the arrangement. In essence, the ICA broadened the block exemptions and included a self-assessment regime. Accordingly, in recent years, restrictive arrangements are rarely evaluated under section 14 of the Law by the ICA.

With regard to the extraterritorial application of the restrictive arrangement control regime, the ICA applies the ‘effects doctrine’ to acquire extraterritorial jurisdiction over restrictive arrangements, including cartels executed outside Israel that harm competition in Israel.

Statutory exemptions

A statutory exemption may also apply to certain arrangements that, among other things, involve restraints that are established by law, relate to specific business sectors (eg, agricultural, international air or sea transportation) or involve restraints relating to intellectual property rights.

Block exemptions

Section 15A of the Law grants the Director General the power to establish block exemptions. By publishing block exemptions, the Director General essentially exempts parties to a restrictive arrangement from seeking a specific exemption from the Director General or the approval of the Tribunal, subject to the fulfilment of the terms of the various block exemptions.

In recent years, the ICA has published various block exemptions, including for:

  • syndicated loans and restrictive arrangements causing de minimis harm to competition;
  • joint ventures;
  • research and development agreements;
  • exclusive dealing;
  • exclusive distribution or franchise;
  • non-horizontal arrangements; and
  • joint ventures for the marketing and supply of security equipment in foreign countries.

Recent developments in the restrictive arrangement regime

In July 2021, the block exemption for non-horizontal arrangements was amended, so that it no longer excludes arrangements that contain price restrictions. In the explanatory notes of the draft amendment to the block exemption, the ICA explained that even though resale price maintenance (RPM) arrangements could harm competition under certain circumstances, there could be pro-competitive justifications for these arrangements, including increased competition between brands and, as a result, increased social welfare.

However, following the above-mentioned amendment, in February 2023, the ICA published an amendment to the policy paper regarding non-horizontal RPM arrangements, so that it would accord with the self-assessment conditions in the block exemption for non-horizontal arrangements.

In general, according to this amendment, the main competitive concern arising from the RPM arrangements is harm to intra-brand competition over price. Other concerns indicated in the public statement are facilitation of correlated equilibrium in the supplier or the distributor segments, a reduction of the incentive of distributors to restrict the supplier’s market power and harming the ability of small suppliers to compete.

Among other things, the ICA held that, in general, minimum RPM arrangements should not be allowed unless the market features indicate a strong degree of competition, and only for the purpose of achieving a clear and proven pro-competitive benefit.

In April 2023, the ICA also published a draft amendment to the block exemption for exclusive distribution or franchise, so that the block exemption shall not apply to distribution agreements that restrict the distributor’s sales outside the territory of the agreement. In the explanatory notes of the draft amendment to the block exemption, the ICA explained that these kinds of restrictions allow the supplier to restrict the sales of a foreign distributor to Israel, and therefore might create a barrier to parallel importers who wish to purchase the goods from foreign distributors.

Another development regards the form of behaviour that may amount to a restrictive arrangement. Since late 2021, the ICA has been conducting an ongoing criminal investigation regarding possible restrictive arrangements between food suppliers and retailers. The investigation became public after several food retailers allegedly went public in a coordinated fashion, declaring their views about level of prices. During the last ICA annual conference, the Director General mentioned these investigations, addressed the question of whether public announcements may amount to coordinated prohibited behaviour and concluded that, even though sunlight is said to be the best of disinfectants, it cannot legitimise restrictive arrangements.

Merger control regime

Definition

The Law defines the term ‘merger of companies’ broadly by providing a non-exhaustive list that includes the acquisition of a company’s main assets by another company or the acquisition of shares in a company by another company by which the acquiring company is accorded more than a quarter of the nominal value of the issued share capital, or of the voting power, the power to appoint more than a quarter of the directors or participation in more than a quarter of the profits of the company. The acquisition may be direct or indirect or by way of rights accorded by contract.

Owing to the broad definition of merger under the Law, even the acquisition of less than a quarter of any of the above-mentioned rights may constitute a merger, under certain circumstances.

Mergers involving foreign parties

The Law will apply to a merger involving a foreign party if at least two of the merging parties meet the conditions of the nexus test, set forth in the ICA’s Merger Guidelines (the Guidelines), namely:

  • the foreign company is registered in Israel, in which case the Law applies explicitly;
  • the foreign company has a ‘merger affiliation’ with an Israeli company; or
  • the foreign company maintains a place of business in Israel (ie, if it holds significant influence over the conduct of a local representative).

In respect of point (2), according to the Guidelines, a merger transaction between a foreign company (affiliated with an Israeli company) and an Israeli company creates an indirect merger between the two Israeli companies. The Guidelines provide that when a foreign company holds more than a quarter of any of the above-mentioned rights in an Israeli company (ie, the nominal value of the issued share capital, the voting power or the power to appoint more than a quarter of the directors or participation in more than a quarter of the profits), it will be viewed as a party to any merger transaction involving the foreign company.

Thresholds for filing

The Law requires all merging companies to file a merger notification with the ICA when at least one of the following thresholds set under the Law is met:

  • the aggregate sales turnover of the parties to the merger is greater than 387.35 million shekels in the fiscal year preceding the merger and the sales turnover of at least two of the merging companies exceeds 21.06 million shekels, in which case the parties will be required to receive advance approval from the Director General; or
  • as a result of the merger, the combined market share (in any market) of the merging companies in the total supply or acquisition of particular goods or similar goods, or the provision or acquisition of a particular service or a similar service, exceeds 50 per cent of the market; or
  • one of the parties has a monopoly (ie, holds more than 50 per cent of the total supply or acquisition in a certain market in Israel, which may be either a product or a service market, including markets not relevant to the transaction); however, according to the Law, while significant market power is sufficient for establishing a monopoly, it will not be considered a trigger for the submission of notices of merger to the ICA unless the 50 per cent market share threshold is met.

The market share and turnover calculations must take into consideration all the entities controlling or controlled by each party.

The requirements set forth above apply solely with regard to a company’s turnover and market share in Israel.

Merger evaluation process

The Law provides that the Director General is required to notify the merging companies of his or her decision in respect of the merger within 30 days of the date on which the completed notification forms were received from all the merging parties.

A time extension may be granted to the Director General without the need to request the consent of the parties to the merger or without the need to approach the Tribunal. He or she is permitted to extend the timeline for the evaluation of a merger transaction (30 days) by two additional 30-day periods and to extend the evaluation period by an additional 60 days after consulting with the Exemptions and Mergers Advisory Committee. Thus, cumulatively, the Director General has up to 150 days to review a merger transaction.

As a practical matter, when cross-border merger transactions require approval in multiple jurisdictions, the ICA will sometimes consider the decisions made by other authorities in different jurisdictions (primarily the US Federal Trade Commission, the US Department of Justice, the UK Competition and Markets Authority and the European Commission) if there are no unique circumstances concerning the Israeli market. It is also possible that parties in those circumstances waive their right to confidentiality in respect of the information provided to competition authorities, to enable the ICA to seek information from those authorities in respect of the merger.

The Director General is mandated to object to a merger of companies, or to stipulate conditions for the merger, if he or she finds that there is reasonable likelihood that, as a result of the merger, competition in the relevant sector would be significantly harmed or that the public would be harmed by:

  • the high price level of an asset or a service;
  • the low quality of an asset or of a service; or
  • the available quantity of the asset, the scope of the service supplied, or the constancy and conditions of supply.

Recent developments in the merger control regime

In March 2022, turnover filing threshold for mergers were updated so that the minimum sales turnover threshold for filing merger notices of at least two of the merging companies increased to 20 million shekels instead of 10 million shekels.

In addition, commencing from May 2022, the merger notice forms that the parties to a merger are required to file with the ICA were changed and replaced by one uniform form to be submitted for all merger types (including mergers that are not horizontal, vertical or complementary). The new form is much more comprehensive than the forms that the parties previously had to submit and requires a significant amount of additional information. In the new form, the parties are required to provide the ICA with extensive and detailed information on their activities, their holding structures (including the ultimate controlling shareholder) and on the transaction. In addition, a new definition of ‘conglomerate merger’ is provided in the new form, so that it refers to a merger between companies that manufacture, market, distribute or supply complementary products. The new forms were binding as of 20 May 2022.

In January 2022, the ICA published a call for public comments regarding the analysis of conglomerate mergers and the aspects that should be considered. In the call, the ICA explained that while many conglomerate mergers do not raise any competitive concerns, recently there has been an increase in theories about harm to competition that may occur owing to these mergers (which mainly include physical or economic tying practices and the market power of one of the parties).

In November 2022, the ICA hosted its first conference since 2019, in which, among other things, the new Director General set forth her main guidelines as the head of the Israeli merger control regime. The new Director General has publicly taken a more careful approach towards mergers, and the average schedule for clearance has indeed increased substantially. The Director General also expressed her concerns about gun-jumping prior to the actual closing of the merger and her strict approach regarding the exchange of sensitive information between the merging parties before closing. She then emphasised the ICA’s focus on the enforcement against such behaviours.

Monopoly control regime

Definition

According to section 26(a) of the Law, the definition of monopoly is any of following:

  • the concentration of more than half of the total supply or acquisition of an asset, or more than half of the total provision or acquisition of a service, in the hands of one person (or entity); or
  • anyone who has significant market power in relation to the supply or purchase of an asset or service (even if the person or entity does not hold a market share of more than 50 per cent).

Under the current regime, the declaration of a monopoly by the Director General is of declaratory validity only, meaning that a monopoly is a matter of status; therefore, the obligations and limitations applied to a monopoly owner exist regardless of the Director General’s declaration or lack thereof.

Limitations

In general, a status of monopoly is not prohibited. Nonetheless, monopolists must abide by several strict standards of conduct; namely, a monopoly owner may not:

  • unreasonably refuse to deal (supply or purchase) goods or services in a market in which it holds a monopolistic market share; or
  • act in a manner that constitutes abuse of its dominant position in the market, in a manner likely to reduce competition in business or harm the public.

An abuse of a dominant position by a monopoly owner includes, among other things:

  • charging unfair prices for products or services;
  • reducing or increasing the quantity of products or services that the monopoly owner offers in a manner that is not in the framework of a fair competitive action;
  • applying dissimilar contractual conditions to similar transactions, which might grant certain customers and suppliers an unfair advantage over their competitors (discrimination); and
  • subjecting a transaction with regard to an asset or service of the monopoly to conditions that are unrelated to the subject matter of the transaction (tying).

In this regard, 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.

The Tribunal may, upon application by the Director General, instruct the monopolist to sell an asset in its possession if it has found that this may prevent harm or the risk of significant harm to competition or to the public.

Recent developments in the monopoly control regime

Excessive pricing

In July 2022, the Israeli Supreme Court rendered a precedent decision in the Central Bottle Company (Coca-Cola Israel) case (Permission for Civil Appeal Gafniel v Central Bottle Company Ltd) regarding excessive pricing. The Supreme Court recognised that the excessive and unfair prices cause of action is indeed part of Israeli competition law and can amount to an abuse of a dominant position. However, the Supreme Court emphasised, inter alia, that this cause of action should be limited to extreme cases, where the price significantly exceeds competitive prices and where the price is unfair. The Court held that the examination of an excessive unfair pricing claim is a two-stage test in which it first had to evaluate whether the price of the product was significantly higher than the market price. Only if the answer is positive, should the court determine whether the price was also fair.

In December 2022, the Director General determined that MBI Pharma was a monopolist in the supply of a certain medication for an incurable disease in Israel, and that it set an excessive price for it. The price that MBI Pharma set was, according to the ICA, hundreds of times higher than the price of medication that was used for the same purpose until a few years before. As a result of these findings, the Director General imposed an administrative fine of 8 million shekels on MBI Pharma, and individual fines of 614,000 shekels on each of its senior executives. This is the first time that the ICA enforced prohibition on excessive pricing.

In March 2023, the Israeli Supreme Court rendered another landmark decision in the Cottage Cheese case, granting Tnuva’s appeal and denying Naor’s appeal (the plaintiff), as it was not proven that Tnuva set an excessively unfair high price for cottage cheese. Following the Coca-Cola decision, the Court emphasised that courts must take a restrained and cautious approach with respect to the excessive and unfair prices cause of action, particularly within a class action. This is necessary owing to: the significant difficulties involved in examining such a claim; the possibility that applying the grounds will ultimately harm competition and the public; the concern of an error when applying the cause of action; and the absence of a legal test that provides certainty in this regard.

These recent developments already have implications on other pending cases. Recently, petitioners withdrew from two other major motions to certify class actions based on the excessive pricing cause of action – the Arkia case (regarding prices of Arkia Tel-Aviv-Eilat flights) and the Milky/Strauss Group Ltd case (regarding prices of Milky and other milk delicacies). In both cases, one of the main reasons for withdrawal was the Supreme Court’s restrained approach towards an excessive pricing cause of action.

Other issues

In September 2022, after a hearing in front of the Supreme Court, the Israel Electric Corporation (IEC) and two of its officeholders withdrew their appeals to the Supreme Court, against the Tribunal decision confirming the Director General’s (acting) determination that the IEC had abused its monopoly status in the segments of transmission and distribution of electricity. According to the Director General’s findings, which are now final, the IEC refused to provide essential services to large business customers that started buying electricity from private electricity producers, rather than from the IEC. The administrative fines imposed by the Director General remained also unchanged in appeal (13 million shekels on the IEC, an individual fine of 165,000 shekels on the deputy CEO and an individual fine of 110,000 shekels on his replacement).

Another important case still pending before the Supreme Court, and now awaiting judgment after a hearing in May 2022, is an appeal filed by the Israeli Port of Ashdod (IPA) and two of its officials against Tribunal decision confirming the Director General’s findings that the IPA employed a system of tailor-made retroactive and secret rebates for vehicle importers that were likely to harm competition with the port of Haifa. On 9 May 2022, the Supreme Court recommended the IPA and its officials withdraw their appeals, but as of now, the case is still pending.

Concerted group control regime

Definition

According to the Law, the Director General may determine that a limited group of persons conducting business and possessing a concentration of more than half of the total supply or acquisition of an asset or provision or acquisition of a service constitutes a concerted group, if the Director General determines that the following conditions are met:

  • there is limited competition or there are conditions for limited competition between the group’s members or within the market in which they operate; and
  • instructions imposed by the Director General are expected to prevent 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 market competition.

In addition, the Law lists several barriers to entry to a market. A combination of two or more of those barriers is regarded as a condition for limited competition.

The determination of a concerted group by the Director General has a constitutional validity.

Implications

The Director General may order a concerted group to take steps that will prevent harm or concern for harm to competition, or to the public, or steps that are expected to significantly increase the competition between the members of the concerted group or create conditions for such an increase.

In addition, the Tribunal, upon the request of the Director General, may order the sale of holdings (entirely or partly) of members of the concerted group under certain circumstances.

Enforcement

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

Criminal enforcement

In general, all the provisions of the Law are criminal offences. However, criminal sanctions are not often imposed and are reserved, mostly, for significant violations of the Law (eg, cartels or bid-rigging). Nonetheless, in the coming years, an increase in criminal enforcement alongside greater sanctions – owing to developments of the Law and the ICA’s influence – is expected.

Recent criminal enforcement

In January 2023, the Central District Court confirmed a plea agreement between the ICA (the prosecutor) and Al-Red Elevator’s deputy CEO (the defendant). As part of the plea bargain, the defendant confessed his part in a cartel between several elevator companies and agreed to a prison sentence of 6.5 months and to an individual fine.

This case is in line with other cases from recent years, in which prison sentences were imposed on defendants in cartel offences. For example, in September and December 2021, the Jerusalem District Court imposed prison sentences of five-and-a-half months and seven months, following plea agreements regarding a computerisation cartel case, where two of the accused were convicted of involvement in the coordination of competitive procedures for the purchase of computer products by Israel Aerospace Industries. In its decision of September 2021, the court held that the starting point for sentencing for violation of the law must be prison sentences with actual time served. In addition to the prison sentences, the accused were fined sums of 100,000 shekels and 45,000 shekels.

Responsibility of a corporation

An independent duty is imposed on officers in a corporation to supervise and do everything possible to prevent any violation of the Law by the corporation or its employees (the supervision duty). A violation of the supervision duty may result in the imposition of a criminal sanction of imprisonment for up to one year and a fine.

It is also established that if the corporation or a corporation’s employee carries out an offence, then there will be a presumption that the officer breached the supervision duty, unless the officer proves that he or she did everything in his or her power to fulfil the supervision duty.

Maximum fine

The maximum fine against a person in a criminal procedure is approximately 2.26 million shekels for every violation of the Law and an additional fine of up to approximately 14,000 shekels for each day the offence continues. In the case of a company, the fine or the additional fine is doubled.

Maximum punishment

The maximum punishment for an individual is three years’ imprisonment or, if the offence has been committed under aggravated circumstances, up to five years. Aggravating circumstances include factors that are likely to harm competition. The maximum criminal penalty for the offence of a restrictive arrangement is five years’ imprisonment, without the need to establish aggravating circumstances.

Leniency programme

The ICA’s leniency programme provides that every person, including a corporation, a director or an employee of a corporation, will be granted full immunity from criminal prosecution relating to a restrictive arrangement offence, if it is the first to come forward to the ICA and provide all information known to it in connection with the restrictive arrangement to which it was a party. The leniency programme is not considered to be successful in Israel as it has only been applied a few times since its initiation.

Administrative enforcement

Administrative determination (decision)

The Director General may issue an administrative determination declaring that a certain violation has occurred. The Director General’s determination serves as prima facie evidence in court.

Administrative fines

For every violation of the Law, the Director General may impose administrative fines of up to 8 per cent of the sales turnover of a corporation’s revenue in the year preceding the violation. The maximum amount that can be imposed must not be greater than approximately 111 million shekels (for each violation). For individuals or corporations that, in the year preceding the violation, had a sales turnover of less than approximately 10 million shekels, the Law sets a maximum fine of approximately 1.1 million shekels.

The Law contains a non-exhaustive list of circumstances and considerations for the Director General to weigh when determining the amount of the administrative fines to be imposed, including:

  • the duration of the offence;
  • the harm that the offence was liable to cause to competition or to the public;
  • the offender’s share in the offence and its level of influence over its commission;
  • the existence or absence of prior offences and the date of their commission; and
  • actions taken by the offender to prevent repetition of the offence or to terminate the offence, including reporting the offence on its own initiative, or actions taken to repair the effects of the offence.

In addition, the ICA published a public statement with additional clarification on calculating the amounts of fines. It also published guidelines to clarify when it will impose administrative fines as the primary enforcement measure (instead of seeking criminal sanctions). This includes, among other things, non-horizontal restrictive arrangements, gun-jumping violations, information exchange of non-secret information, abuse of dominant position and failure to comply with requests for information.

Recent administrative enforcement

In July 2022, the Director General imposed an administrative fine close to 5.5 million shekels on Makita’s Israeli importer, and imposed individual fines ranging from 250,000 to 320,000 on three of its officeholders.

An examination carried out by the ICA indicated that Makita’s importer imposed minimum resale prices for consumers on retailers and acted to increase the prices for consumers of Makita’s products. It is the first time that the Director General in Israel imposed administrative fines related to RPM minimum arrangements.

Consent decree

The Law authorises the Director General and third parties to agree to a consent decree that provides for, among other things, an amount of money to be paid to the State Treasury in lieu of other enforcement measures.

In many cases, the administrative fine procedure ends in a consent decree. This is not surprising, as the ICA usually grants a significant reduction of the administrative fine (approximately 50 per cent) if an agreement is reached.

Recently, in December 2022, ENERGYM Sport signed a consent decree, in which it confessed dictating minimum resale prices and agreed to pay an administrative fine of 1.65 million shekels.

Private enforcement

Class actions

Any violation of the Law is deemed a tort under the Torts Ordinance (New Version) 5728-1968. The Class Action Law enables the submission of a motion to certify class actions in antitrust cases.

In recent years, an increasing number of motions to certify class actions based on alleged global cartels have been filed with the Israeli district courts. The typical petitioners in those cases are Israeli private consumers or private consumer organisations, and the respondents are global companies that allegedly were parties to (alleged) global cartels.

Often, the trigger for private enforcement in the past was based on criminal or an administrative enforcement action taken by the ICA. However, the new trend has seen more enforcement actions taken by competition authorities in other countries, as well as copying class actions initiated worldwide. Other motions to certify class actions are based on claims against monopolists regarding excessive pricing.

Recently, Israeli courts have rendered ground-breaking decisions that have the potential to significantly affect the follow-on class actions based on alleged global cartels.

In a decision in the Trucks case, the District Court deliberated on the extraterritorial application of the Law and held that to apply the effects doctrine – through which the Law can be applied extraterritorially under certain circumstances – the applicant must establish that the restrictive arrangement had a significant, direct and deliberate effect on competition in Israel and that demonstrating a negligible and incidental effect was not sufficient. An appeal of this decision was submitted to the Supreme Court of Israel, in the framework of which, a position paper was submitted by the Attorney General, stating that the Law applies to conduct that has a significant, direct and foreseeable impact on competition in Israel and does not require an element of intent. In October 2021, the Supreme Court held that at the current stage of the case – the document discovery stage – it was not necessary for the Court to render a decision on the application of the effects doctrine. However, the Supreme Court held that the decision of the European Commission, together with the significant market share of the respondents’ trucks in Israel, constituted an initial evidentiary foundation that was sufficient for the document discovery stage. The Court emphasised that it was sufficient initial evidence, inter alia, owing to the inherent difficulty of exposing prohibited connections between large companies, especially when they acted outside of Israel. Therefore, the appeal was allowed in part, and the hearing was sent back to the District Court.

On the other hand, in a decision to grant motions to dismiss (in the LIBOR case), that was rendered before the Supreme Court rendered its decision in the appeal regarding the Trucks case, the judge referenced the District Court’s decision in the Trucks case and affirmed the court’s holding in that decision, that if harm to competition in Israel was not substantial and direct, the effects doctrine should not be applied. The judge further held that it is necessary to examine with great caution motions for importing to the courts in Israel, which in any event are overloaded, global issues that are being adjudicated in foreign courts and where enormous costs have been imposed on the defendants along with criminal sanctions with significant implications. An appeal on this decision is pending before the Supreme Court.

Recently, in March 2023, the Supreme Court ruled in the Cottage Cheese case (mentioned above), that the restrained and cautious approach towards excessive unfair pricing claim is highly important in class action cases and must be applied also at the certification stage. The court will not certify a class action unless there is reasonable chance that it will be determined that: (1) the monopoly has set a high price that is significantly higher than the price that would have been set in a competitive market; and (2) the price is unfair.

Requests for information

One of the essential working tools of the ICA is its authority to request information. To establish a uniform and clear policy regarding request for information, the ICA published a draft policy paper on this issue in September 2022. In general, the draft policy paper addresses the right manner to respond to its requests for information, the legal implications of a failure to respond and the right to inspect information in the possession of the ICA. The ICA does not hesitate to use its enforcement powers in circumstances of failure to properly respond to requests for information and, in recent years, administrative fines under these circumstances have been increasing.

Pro-competitive developments

The past couple of years have seen many significant and influential developments in Israeli competition law and in the enforcement authorities of the Director General. For example, the ICA published a call for comments on the promotion of regulation between providers of online intermediation services and business users, pursuant to relevant European regulations. This is consistent with the Director General’s approach, expressed on several occasions recently, that Israeli consumers are entitled to at least the same standards established for foreign consumers.

In addition, the Privacy Protection Authority, the ICA and the Consumer Protection and Fair Trade Authority recommend the adoption of the right to data portability in Israeli law.

In 2022, the Minister of the Economy and Industry was advancing a proposed amendment to the law, which aims to protect competition that stems from parallel import. The proposed amendment aims to prevent harm to competition caused by actions of direct importers that could reduce or prevent competition arising from parallel import. The proposed amendment, inter alia, would prohibit direct importers from acts that could result in harm to parallel or individual import, which could harm the competition in the relevant sector. In addition, it is proposed to add a prohibition on direct importers from doing anything whose principal objective is to prevent or reduce competition from parallel or individual import that is not necessary for the essence of the importation. In contrast to the first prohibition under the proposed amendment, in the second prohibition, the essence of a direct importer’s act would be evaluated, without evaluating the substance of the possible result of the act on competition in a given sector.

For violations of the above-described proposed prohibitions, the Director General would be able to impose administrative fines of up to 8 per cent of the sales turnover of a corporation’s revenue in the year preceding the violation. The maximum amount that can be imposed must not be greater than approximately 102.1 million shekels.

It is proposed that the amendment would be in force as a temporary order for six years.

The Food Law

The Food Law, enacted in 2014, deals primarily with vertical relationships between food suppliers and retailers and regulates the commercial relationships between them. The Food Law imposes criminal, administrative and civil liability on corporations and their officers. The Law also empowers the Director General to instruct a large retailer that is selling the products of a large supplier in respect of sale slots and to give instructions to a retailer that is selling private label products.

Under the Food Law, large suppliers must not, inter alia, recommend, dictate or intervene in any manner in physically arranging products in the stores of a large retailer. Recently, the Director General announced that a block exemption to the Law – which allowed a large supplier to physically arrange products in accordance with the retailer’s planogram – has been cancelled, effective from 1 January 2024.

During 2022 and 2023, the ICA has been exercising its enforcement measures against large suppliers that, according to the ICA, breached the Food Law.

The Concentration Law

The purpose of the Concentration Law, enacted in 2013, is to reduce economy-wide market concentration and to promote competition in various sectors of the Israeli economy. The Concentration Law poses limitations on, among other things, cross-holdings in a significant non-financial entity with a significant financial entity and the control of public corporations through a pyramidal ownership structure. The Concentration Law also requires consultation with the Director General regarding, among other things, the advancement of competition in a specific sector.

The ICA’s advisory capacity

In addition to its role as a regulator and enforcer, the ICA performs competitive market analysis of various sectors and advises other regulators. In recent years, it has published reports on, among other things:

  • information gaps in the Israeli mortgage market;
  • the connection between the price of a car to the price of its spare parts;
  • peer-to-peer payment applications and the network effect that was created in this field; and
  • the effect of financial incentives on sales of agents in the health insurance market.

Notes

[1] See the translation of the Law at: www.gov.il/en/departments/legalInfo/competitionlaw.

[3] Section 9 of the Law.

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