Israel Parliament Approves A Major Reform to The Antitrust Law

January 3rd 2019

On January 1st, 2019, the Israeli parliament – the Knesset, passed a major reform to the Restrictive Trade Practices Law, 5748-1988 (the “Amendment” and the “Law”). In the framework of the Amendment, the name of the Law was changed to the “Economic Competition Law”, the name of the Israeli Antitrust Authority was changed to the “Competition Authority” (the “ICA”) and the name of the Antirust Tribunal was changed to the “Competition Tribunal”. The reform, which was advocated by the ICA, introduces extensive and significant changes to the three main chapters of the Law – restrictive arrangements, monopoly and merger control. The Amendment also increases further the ICA’s enforcement powers and the scope of criminal and administrative sanctions for violations of the Law. The reform is based on ‘a carrot and a stick’ concept – decreasing unnecessary regulatory burden on business practices which are legitimate and competitively benign, while at the same time improving the ICA’s ability to combat anticompetitive behavior.

The following is a summary of the main amendments introduced by the Law:

Key Amendments to The Mergers Chapter

Turnover threshold revised – the turnover threshold has been increased, such that the joint sales turnover of the merging parties which triggers merger notification obligation has been increased from ILS 150 million (approximately USD 40 million) to ILS 360 million (approximately USD 98 million). The requirement that the turnover of at least two of the merging parties will be at least ILS 10 million (approximately USD 2.7 million) is unchanged. The ICA stated, that an increase of this threshold to roughly ILS 20 million (approximately USD 5.4 million) is being considered. The other two filing thresholds, which are based on market share tests, did not change. Thus, mergers falling below the new turnover threshold would still be reportable if the combined market share of the parties exceeds 50% or if one of the parties has a market share exceeding 50% in any relevant market.

Granting power to the General Director to extend the merger review period from 30 days to 150 days, by a reasoned administrative decision. Currently, the General Director must render a decision within 30 days, which can be extended only by a judicial decree or the consent of the parties. The current regime led to very short review periods for uncomplicated mergers. It remains to be seen if this record is maintained under the new regime.

Applying merger control to not for profit associations by expanding the definition of ‘company’ in the Law to include an “association” as defined in the Associations Law 574-1980.

Key Amendments to the Monopoly Chapter

Currently, a firm possessing more than 50% market share is considered a monopoly. The Amendment stipulates that even firms with market shares below 50% will be deemed monopolies if such firms hold significant market power. This amendment will require many firms with a significant market position to reevaluate their business position and business strategy, especially their pricing behaviour. The ICA made clear that enforcement of this amendment will commence only after the ICA publishes guidelines on the definition of “significant market power”. We expect these guidelines to rely on similar tests that are used in EU competition law to determine a dominant position.

Imposing an Active Duty to Prevent Violations

The Amendment imposes an active duty, applicable to corporate officers, to supervise and prevent violations of the Law, by all means necessary, by the corporation or its workers. A breach of this duty is a criminal offence, subjecting the offender to a maximum one-year imprisonment. The definition of corporate officer, according to the Amendment, includes active managers; general (unlimited) partner; and corporate officials in charge of the field in which the violation has taken place (directors were not included in the definition). This is a dramatic change to the criminal liability that applies to corporate officers who were not personally involved in a violation of the Law. Under the Amendment, such corporate officers may now be found criminally liable even if no violation of the Law has taken place. The mere fact that they have not taken every measure to prevent violations is an offence in and of itself.

The question what are the measures that should be taken in order to fulfil this duty is a matter of legal interpretation. It could be deduced from general principles of criminal law that officers of a corporation that will act in good faith, relying on legal consultation, will likely be safe from criminal charges for this amendment.

Elevation of The Monetary Payments Cap

The Law currently allows the ICA to impose a monetary payment (which is an administrative fine) on corporations for violations of the Law in a maximum amount of 8% of the violator’s sales turnover, provided the monetary penalty does not exceed a sum of NIS 24,490,070 (approximately USD 6.5 million). As part of the Amendment, the maximum sum limit has been increased to the sum of NIS 100,000,000 (approximately USD 27 million). The percentage of sales turnover limit has remained unchanged. The rules regarding the calculation of turnover did not change either. Monetary payments will continue to be based on the violator’s group turnover – the request to link the payment only to the violator’s turnover in the impacted markets was rejected. The General Director may also practically exceed the cap by combining different violations, as she has already done in the past. Therefore, we may see in the future monetary penalties in sums of hundreds of millions of Shekels.

Increase of Criminal Sanctions For Restrictive Arrangements.

The Amendment stipulates that the sanction for entering into an illegal restrictive arrangement will be a maximum of five years, without regard to the circumstances in which the offence was committed. Previously, the maximum sanction was three years, unless the prosecution proved the existence of aggravating circumstances.

Key Amendments to the Restrictive Arrangements Chapter

Expediting exemption decisions – currently, the ICA is granted 90 days to decide on applications for an exemption of a restrictive arrangement, which can be further extended by additional 60 days for reasons to be noted. The Amendment sets an initial 30 days period (as in merger decisions), with the power to extend the period to additional periods that do not jointly exceed 120 additional days. In practice, this change alone is unexpected to result in a meaningful decrease of the review period. That said, the Amendment abolishes a section of the Law stipulating that the period elapsing between the time the General Director requests additional information and the time such requests are answered by the parties, shall not be counted. This abolishment may narrow, to some extent, the timeframe for review of requests.

Transition towards a substantive self-assessment regime – though this change is not made in the Law itself, it is an inherent part of the reform. As part of the reform, several block exemptions were amended, providing parties with the ability to conduct self- assessment for certain kinds of arrangements (mainly vertical arrangements and joint ventures) instead of seeking particular exemptions from the ICA. Generally, the self-assessment requires to show that (i) the arrangement’s objective is not to decrease or prevent competition; (ii) the restrictions are necessary to realize the legitimate objectives of the arrangement; (iii) the arrangement will not result in a significant adverse effect on competition.

This publication provides general information and should not be used or taken as legal advice for specific situations, which depend on the evaluation of precise factual circumstances.

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