Israel: Antitrust Authority

The Israel Antitrust Authority (IAA) is an independent government agency, which was established in 1994. Its mandate includes enforcement against anticompetitive restrictive arrangements and monopolies abusing their dominant position, merger control, regulation of collectively dominant firms, as well as market research and competition advocacy roles. The IAA has the power to prosecute criminal cases and its director general can impose administrative financial fines upon certain violations of the Antitrust Act. An antitrust tribunal, residing within the District Court of Jerusalem, has exclusive jurisdiction over non-criminal administrative antitrust proceedings. The District Court of Jerusalem has exclusive jurisdiction over criminal antitrust matters. Both criminal and civil antitrust rulings are subject to appeal before the Supreme Court of Israel.

Using its authority, the IAA strives to assume a pivotal role in making Israel's markets more competitive.

Recent years have brought a shift in the IAA's mission and purpose. From focusing almost solely on the enforcement of the Antitrust Act, preventing and eliminating anticompetitive practices by businesses, the IAA has increasingly focused on taking more proactive measures to improve competition in the markets and promoting pro-competitive policies and regulation.

For carrying out its mandate, the IAA employs approximately 125 personnel. Its professional staff includes 42 lawyers, 36 economists and 28 investigators in its criminal investigations department. The IAA prioritises enforcement in areas which affect the consumer and the market; and where it believes the impact of the IAA's involvement through enforcement or advocacy on the sector will produce a substantial effect. In recent years, the IAA has focused its efforts on financial markets, telecommunications and the food industry. In the coming year, the IAA will continue its mission and plans to focus, in addition, on abuse of dominance by monopolies, the energy sector, reducing barriers to parallel imports, and transportation.

Advocacy and market studies

During 2014, the Antitrust Act was amended to enable the IAA to conduct market studies. This provided the director general with the authority to conduct market studies in various sectors of the economy, and to examine the existence of market failures or other barriers to competition. The director general may submit its reasoned conclusions and recommendations to the minister relevant to the study and to the treasury minister, and - in a sector that is regulated by another agency - to the head of that agency. Headed by a deputy to the chief economist, a dedicated division in the economic department conducts these market studies. In 2016, the IAA conducted three such market studies: on fresh meat, quarry licensing and market definition in dairy products. In January 2017 the IAA published an additional report on cooking gas.

During 2016, the IAA continued to invest considerable efforts in advocacy work and indeed achieved substantial accomplishments. The IAA continuously takes an active role in the work of government committees aimed at removing competitive barriers. In particular, the IAA was an active member in a number of government committees and inter-ministerial teams concerning competition in common financial services, with a focus on the consumer credit market (households and small businesses) and electronic payment services. The IAA initiated and advocated, together with other government agencies, new legislation concerning these issues.

In addition, regulators and policymakers turn to the IAA for advice because of its expertise and professional reputation, and give serious weight to the IAA's opinions and recommendations.

Another aspect of the IAA's advocacy work is the Law for Promotion of Competition and Reduction of Concentration, enacted in December 2014. This provides that the allocation of economic rights which may raise competitive concerns (eg, licences, permits, government franchises and privatisations) must take into account competition considerations. When the director general decides that the allocation of rights may have a significant effect on competition, the regulators must consult with the director general regarding the competitive assessment of the allocation.

In addition, the Law for Promotion of Competition formed the Committee for Reduction of Economy-Wide Concentration (headed by the IAA's director general), which advises the government on the ramifications of the allocation of essential facilities regarding overall economic concentration in the economy (i.e, the threat of excessive bargaining power of large business groups in relation to government agencies and the legislator). In 2016, the Committee for Reduction of Economy-Wide Concentration developed and published a draft policy paper for public hearing, regarding the methodology for examining market-wide concentration in the Israeli economy. This policy paper specifies the conditions under which the Committee for Reduction of Economy-Wide Concentration will advise a regulator to refrain from allocating rights in an essential infrastructure to a corporation considered a ‘concentrated entity'. The document specifies that the committee will focus on concerns arising from the potential of a concentrated entity with significant bargaining power to exert this power towards policymakers, in order to gain advantages that are not derived from its economic efficiency, while undermining public interests. The methodology presented offers an original conceptual framework for this phenomenon with no similar work existing around the world.

Furthermore, during 2016, the Committee for Reduction of Concentration published four opinions in essential facilities right allocation cases. including an opinion opposing the allocation of an exploration licence for oil-shale in the Rotem Area to Israel Corp. Israel Corp is one of Israel's largest and most influential business groups, a dominant player in various areas of natural resources and energy industries.

Enforcement

During 2016, the IAA continued to vigorously perform its primary role as a law enforcement agency. The IAA constantly invests in updating the available enforcement tools - through cooperation with other law enforcement units and legislation.

The Antitrust Act includes three types of enforcement measures against antitrust violations:

• criminal sanctions carrying a prison sentence, mainly used for cartel violations;
• administrative fines, up to approximately US$7 million per violation, which are implemented mainly in monopolistic anticompetitive behaviours or vertical agreements; and
• civil steps - mainly aimed at assisting the public in private enforcements.

Administrative fines

Substantial efforts were invested this year in laying the groundwork for enforcement actions against monopolistic anticompetitive practices. As such, three enforcement cases were published in which administrative fines were imposed (one is still subject to a hearing) and 14 consent decrees were reached on different violations of the Law that did not require criminal enforcement. The IAA continues to invest its efforts in enforcement against anticompetitive monopolistic behaviours; these efforts have already brought results in 2017.

Criminal sanctions

When it comes to anti-cartel activity, the IAA has an investigations and intelligence department authorised to conduct criminal investigations. The findings of the investigations are transferred to the legal department of the IAA, which is comprised of expert antitrust prosecutors authorised to indict suspects and prosecute them in court.

IAA investigators implement sophisticated interrogation skills and forensic IT procedures, and work in cooperation with other law-enforcement agencies. Intelligence agents are trained in gathering techniques, including recruitment of informants and meetings with intelligence sources. The IAA's investigations have had considerable success in uncovering cartels, with and without information emanating from leniency applicants.

In recent years, the IAA has brought forward indictments against several high-level corporations and directors in Israel's prominent companies, resulting in verdicts of high penalties and imprisonment.

A model case for a successful cartel investigation - which included vast intelligence capabilities, IT forensics, sophisticated interrogations and cooperation with the Israeli police - is the investigation of the suspected Holocaust memorial educational tours cartel organised by the Israeli Ministry of Education through local travel agencies. During 2015 the IAA gathered evidence indicating the existence of a cartel between the travel agencies handling these delegations. The covert intelligence-gathering stage was followed by dawn raids, arrests and interrogations, which were conducted at the very beginning of 2016. The investigation continued all through 2016 and remains ongoing. Police collaboration brought about enhanced enforcement, as it seized monies that were part of money laundering crimes, and investigated corruption crimes that were exposed during the investigation, such as fraud and breach of trust by public officials.

In 2016, the IAA has continued its anti-cartel efforts, opening an investigation into a suspected cartel between local cooking gas companies. This investigation involved numerous dawn raids throughout the country, including the investigation and arrests of several officials in two of the main companies in this market. This effort is part of the combined efforts of all IAA departments to remedy competition failures in this market.

In the coming years, the IAA intends to continue investigating suspects and prosecute them in appropriate cases. One of the aims is to convince the courts to increase prison sentences for hard-core violations.

In 2015, following an investigation, the IAA decided to prosecute six companies and 11 defendants for being a part of a cartel between six major distributors of textbooks in Israel. The distributors divided the market via bid rigging and coordinated boycotts with regard to schools, municipalities and the ministry of education. In 2016, the Jerusalem District Court approved a plea bargain, convicted and sentenced three book distribution companies and their executives. The CEOs were sentenced to 9, 8 and 6 months in prison respectively and fined a total of 240,000 New Israeli shekels; the three companies were fined a total of 1.2 million New Israeli shekels. The case against the rest of the defendants is ongoing.

In 2015, the IAA indicted four companies engaged in bid-rigging, regarding an asset belonging to the Jewish Agency. In 2016, the Tel Aviv District Court convicted a lawyer on charges of assisting a cartel, and acquitted a defendant from being part of a cartel.

The District Court sentenced the lawyer to three months in prison and a fine of 50,000 New Israeli shekels. Another defendant was found guilty in a plea bargain and was sentenced to four months of community service and a fine of 50,000 New Israeli shekels. The case is pending against two more defendants.

Legislation and guidelines

As mentioned, during 2016 the IAA, with other government agencies, invested intensive advocacy efforts in promoting the enactment of several bills concerning financial services. In March 2016, the Israeli parliament passed the Credit Information Act (2015), which intended to expand and improve the access of consumers' credit history by potential credit and loan providers. The proposed Act provides that the assimilation of the information will be performed by a Credit Registry operated by the Bank of Israel, and the dissemination of relevant information will be done through independent credit bureaus. The IAA views the current lack of access to such information as a serious barrier on competition in consumer credit and loans.

In 2016 the IAA was substantially involved and provided input in 13 legislation proceedings in Parliament. Inter alia, the IAA participated in legislation proceedings of the Credit Data Law, 5776-2016; the Supervision of Financial Services (Regulated Financial Services) Law, 5776-2016; and the legislation proceedings of the Economic Plan Law (Statutory Amendments for the Implementation of the Economic Policy for Budget Years 2017-2018) (the chapters concerning energy, telecom, obligatory standard-setting and transportation-sharing services).

In addition, the IAA restated a group of block exemptions for restrictive arrangements that were up for renewal in 2016, including block exemptions for:

• arrangements between subsidiaries;
• arrangements causing immaterial harm to competition;
• joint ventures;
• research and development agreements;
• exclusive dealing;
• exclusive distribution;
• franchise arrangements; and
• the general rules concerning definitions and the interpretation of all block exemptions.

The restatement procedure included certain amendments to some of the block exemptions, most significantly a clarification that the block exemption for arrangements between subsidiaries generally does not apply to state-owned corporations, and a clarification with respect to the effect of market shares that grew to exceed the thresholds stated in the rules after the arrangement was initiated.

New guidelines

In 2016, The IAA published Guidelines 1/16: the General Director's Considerations in Determining the Amount of Administrative Fines. These guidelines replace previous ones on the same subject from 2012. The current guidelines describe the methodology used in calculating the sum of administrative fines to be imposed in a given administrative enforcement proceeding. In essence, the Guidelines provide for the following four stages of analysis:

• determination of the potential maximum administrative fine;
• evaluation of the severity of the violation and determination of the base sum of the fine accordingly;
• adjustments to the base sum based on the violating party's behaviour; and
• adjustments to the base sum based on factors external to the violation.

The guidelines also allow for the consideration of other relevant factors.

In addition, the IAA instituted a fast track for the review of ‘ultra-green' mergers - mergers that clearly do not pose a threat to competition. Mergers that are internally classified as ‘ultra-green' are reviewed in a reduced and expedited fashion. In order to increase the chance that the IAA would classify a merger as suitable for the fast track, parties to mergers are asked to supply the most detailed information possible in their merger notices and accompanying documents. During its first six months, the average time it took to clear a merger in the ‘ultra-green' track was 4.2 days, compared to the average time of 26 days for clearing mergers that were reviewed in the regular manner and were not considered to raise significant competitive concerns.

During 2016, the IAA conducted a re-evaluation of Guidelines 1/14 on the Prohibition of Excessive Pricing by a Monopoly. These guidelines, which were published in 2014, reflected a significant change in the IAA's interpretation of the legislative prohibition on abuse of monopoly position through unfair prices. Until the 2014 guidelines, the IAA's policy regarding this prohibition was to focus on exclusionary unfair prices, such as predatory prices. The 2014 guidelines established that the IAA also views the charging of excessive prices by monopolies as a forbidden abuse of monopoly position, and provided a framework for enforcement. In April 2016 the General Director announced that the IAA would re-evaluate its policy on excessive pricing and submit the guidelines to a public consultation. The re-evaluation process included extensive public hearings, consultations with international experts and a seminar that the IAA organised, which presented speakers of various viewpoints. Following this process, in February 2017, the IAA published a new set of guidelines on the subject: Guidelines 1/17: the General Director's Considerations in Enforcing the Prohibition against Unfairly High Prices. The new guidelines state that, in principle, the charging of excessive, unfair prices may constitute an abuse of monopoly position; however, according to the enforcement principles in the 2017 guidelines, the IAA's enforcement against excessive prices will take place only in exceptional circumstances, and as a last resort when competition cannot be restored.

Government proposals for new legislation

The IAA published for public hearing in 2016 Proposed Amendments to the Antitrust Law, in relation to inspection of the IAA's investigative file and confidentiality of information. The main goal of the proposed amendments is to clarify and improve the procedure for granting access to an appellant on IAA's decisions to confidential documents provided by third parties. The proposed amendments provide that the general director may allow an appellant access to a third party's confidential information, under a default rule of access to outside counsel and experts only. The general director may decide to divert from this default rule, and allow greater or lesser access to the information, in circumstances where such a diversion is justified. The proposed amendments are clear that the provider of information will be granted an opportunity to present its arguments to the director general before a document is made available for inspection. In addition, both the appellant and the provider of the information have a right of appeal to the antitrust tribunal on the general director's decision concerning access to the information.

Ex ante prevention of anticompetitive transactions

The IAA continued to carry out the important task of merger control, reviewing a total of 192 mergers in 2016. Four out of the mergers reviewed for approval were objected by the director general due to anticompetitive considerations: a merger in the envelopes market; a merger between two companies that operate online indexes for restaurants; a merger between competing mobile telephone operators Cellcom Israel Ltd and Golan Telecom Ltd; and a merger between Electra-Bar, a company that produces water dispensers, and Mei Eden.

Of these four decisions, two were appealed to the antitrust tribunal. The tribunal upheld one decision, and the other one was withdrawn by the merging parties.

Moreover, to facilitate and assist the private sector in 2016 the IAA promoted a ‘fast track' for mergers that clearly do not raise any competition concerns. It is worth noting that in 2016, there were 24 mergers examined in this ‘fast track' (about 13% of all mergers), which were cleared after 3.6 days!