Like other countries across the globe, Israel is dealing with the Coronavirus pandemic which, inter alia, creates an unprecedented business-related challenge which is constantly evolving. The Israeli Competition Authority (ICA) published several clarifications regarding the application of the Economic Competition Law 5748-1988 (the Competition Law) in light of the coronavirus pandemic.
It is a core principle of competition law that a state of emergency or business distress does not necessarily exempt a cooperation arrangement between competitors. However, the current state of emergency may impact the way the law is applied. The ICA recognizes that the consumers are also currently facing challenges and that this is by no means a time to harm or exploit consumers. Therefore, while it adopts a somewhat pragmatic approach due to the challenges faced by businesses, it warns that it will not hesitate to take enforcement measures against exploitive cooperation arrangements and unilateral practices, which may harm competition.
The ICA's clarifications refer to three main issues: collaborations between competitors, gun jumping rules in merger cases, and postponement of reports required under the Law for the Advancement of Competition in the Food Sector, 2014.
Collaboration arrangements between competitors addressing the state of emergency
The ICA clarifies that collaborations between competitors that would allow businesses to keep their activities on-going during this time, may be beneficial to ensure the existence of effective competition in the long run. The main legal instrument that enables collaborations between competitors is the Antitrust Rules (Block Exemption for Joint Ventures) 5766-2006 which is a self-assessment-based block exemption. Subject to certain circumstances, this block exemption permits a collaboration between competitors in the manufacturing, purchasing and marketing of goods. One such condition is that the main purpose of the arrangement is not "to decrease or prevent competition" and its restrictions are "necessary for the fulfillment of its purpose" (i.e. that the agreement is not "naked"). Another requirement is that the arrangement does not limit competition in a substantial part of a market or does not substantially harm competition in such a market.
The covid-19 crisis may influence the legal analysis both with respect to the legitimacy of the cooperation, and with respect to the effect on competition assessment. The Competition Commissioner has clarified that if an arrangement is necessary for maintaining business activity during this challenging period, it would not be considered naked. This may be the case, for instance, when a competitor, whose activity is disrupted by crisis-related circumstances, seeks backup, or would like to source equipment or input from competitors.
The parties must also always examine the potential effect of the arrangement on competition in accordance with the regular methodology. In case the cooperation is vital to allow both competitors to keep their on-going business running, an arrangement which in ordinary times may have been deemed to harm competition, may be viewed as pro-competitive now.
Lenient "gun-jumping" rules
Under competition law, it is generally strictly prohibited to execute a merger, in whole or in part, during the waiting period for the Competition Commissioner's clearance of the merger. In special circumstances, whereby during the waiting period one of the merging parties may suffer irreversible harm, the ICA has been known to be attentive and attempted to find interim solutions and expedite the review. This was occasionally the case when the acquired company was under bankruptcy proceedings. The ICA clarified that a similar policy will be adopted now in adequate cases. The ICA invites parties to approach it if they face such threats. The ICA will endeavor to find interim solutions to difficulties that might arise in the face of the exceptional state of the economy, until the Commissioners reaches a decision regarding the merger at hand. We assume that such measures may include, expediting the review procedure and allowing certain actions that would normally be viewed as gun-jumping, including for instance transfer of funds to the seller and allowing the acquirer to participate in certain discussions at the acquired business, pertaining to the steps taken to respond to the current crisis, which may have future implications. It is important to note, however, that this does not mean that the parties to a merger may "cut corners" and the ICA does not intend to clear merger transaction that may harm competition. The special treatment is reserved to cases where the regulation may cause impediment which will be decisive to the merger in light of the situation. We thus estimate that the ICA will apply the more lenient approach mainly if the following accumulative conditions are met: (a) there is a special need to deviate from the waiting period rules that is linked to the covid-19 crisis AND (b) there is a reasonable probability that approval will be granted to the transaction once the review is complete.
Postponement of the deadline for submission of reports to the ICA in accordance with the Food Law
The Promotion of Competition in the Food Sector Law, 5774-2014 (the Food Law), and the Regulations of Promotion of Competition in the Food Sector Law (Reports of Major Suppliers and Major Retailers), 5774-2014, stipulate that “Major Suppliers” and “Major Retailers”, as defined in the Food Law, are obliged to submit an annual report to the Competition Commissioner. The 2020 annual report was due to be submitted by March 31st, 2020.The ICA has postponed the deadline for the submission of annual reports to April 30th, 2020.
The ICA has already implemented some of these clarifications
As the economic situation becomes more and more challenging, new examples of creative solutions are implemented each day. Some solutions are carried out independently by the parties to an arrangement based on a self-assessment; others, with the engagement of the ICA.
One such solution the ICA implemented relates to the acceleration of a merger transaction review. In a recent case, the ICA cleared a merger within a day after the parties to the merger informed the ICA of their difficulties maintaining the gun jumping rules due to the Covid-19 crisis. In light of the Covid-19 situation, the government allows employers to release employees to a temporary unpaid leave, so the employee could receive unemployment payments from the state. Employers wanting to do so, must declare that they intend to rehire the employee after the economic instability is over. However, in a merger transaction the employees would eventually be transferred to the buyer, thus the current employer (the seller) cannot declare the employee will be rehired by him.
The current regulation regarding unemployment payments during unpaid leave did not address such a merger situation. In order not to jeopardize the employees’ ability to receive unemployment payments, the ICA decided to finalize the review in an expedite manner and clear the transaction, so as to facilitate the immediate transfer of the employees to the acquirer. In doing so, the ICA enabled the parties to safeguard the employees' ability to enjoy the state benefits.
In these challenging times, it is important that regulators are demonstrating flexibility in order to make sure that economic damage to businesses would be kept to the minimum. At the same time, it is important not to subject customers to the perils of anticompetitive behavior. The ICA guidance is a step in the right direction, but more concrete and comprehensive guidance is needed. The ICA's clarifications provide only a glimpse into the application of local competition rules during the Covid-19 pandemic, but parties should carefully self-assess whether an intended action or contemplated transaction are indeed permissible. It is advisable for parties foreseeing that they may need to collaborate with competitors or otherwise engage in arrangements which may be deemed to be restrictive, to prepare the legal contingencies beforehand.