The Israel Competition Authority (ICA) recently published amended versions of two block exemptions: (i) The Antitrust Rules (Block Exemption for Restraints Ancillary to Mergers) 2009 (also known as the Block Exemption for Ancillary Restraints in Mergers); and (ii) The Antitrust Rules (Block Exemption for Joint Ventures) (Temporary Provision) 2006 (also known as the Block Exemption for Joint Ventures).
The Economic Competition Law (5748-1988) (the Competition Law) prohibits engagement in a restrictive arrangement unless such an arrangement: (i) has been exempted by the competition commissioner; (ii) has been approved by the Competition Tribunal; or (iii) falls within the scope of a statutory or block exemption.
The amended block exemptions are intended to:
- lower the regulatory burden imposed on businesses; and
- enable the speedy implementation of more efficient arrangements by expanding the use of block exemptions.
The transition to the self-assessment regime has already started with a gradual implementation thereof for vertical arrangements and arrangements in the aviation and shipping sectors. With the current amendments of the above-mentioned block exemptions, the ICA has expanded the self-assessment regime further to include certain horizontal agreements and restrictions which are ancillary to the merger transactions. This move is part of a broader reform of the Competition Law (for further details please see "Major overhaul of Restrictive Trade Practices Law proposed").
Amended block exemptions
In Israel the block exemptions were traditionally based on the fulfilment of specific conditions and market share thresholds. The amendments add a layer of substantive analysis which applies the block exemptions even if the market share requirements are not met, provided that:
- the arrangement is not aimed at harming competition and the restraints included in it are required to fulfil its purposes; and
- the restraints in the arrangement will not result in a significant adverse effect on competition.
The current requirements for the application of the block exemptions including the market share thresholds, will serve as safe harbours. When these requirements are met, parties will be able to apply the block exemptions without conducting a substantive analysis of the impact on competition.
Block Exemption for Restraints Ancillary to Merger Transactions
Under certain conditions, the Block Exemption for Restraints Ancillary to Merger Transactions allows the inclusion of common commitments which aim to maintain the financial value of the acquired business, including:
- an engagement to not compete with the acquired business; and
- a commitment not to solicit employees of the acquired business.
Prior to the amendment, the Block Exemption for Restraints Ancillary to Merger Transactions was invalid (among others) if certain market share thresholds were exceeded. This is no longer the case; therefore, parties to a merger agreement can now evaluate the legitimacy, necessity and competitive effect of such restraints themselves.
Block Exemption for Joint Ventures
The Block Exemption for Joint Ventures deals with collaborations between competitors relating to (among others) the manufacturing or purchasing of products. It also enables parties to the joint venture to include certain restraints in the joint venture agreement (eg, a non-compete clause with the joint venture's business) and set areas of specialization.
Prior to the amendment, the Block Exemption for Joint Ventures set rigid market share thresholds and additional conditions which practically required parties to many legitimate and competitively benign joint ventures to seek an exemption from the competition commissioner. The process for obtaining these exemptions was long and costly and discouraged parties from entering into these desired collaborations. Under the new regime, parties can enter into a contract without obtaining a specific permit from the commissioner, based on a self-assessment of the arrangement's impact on competition.
The amended Block Exemption for Joint Ventures excludes any joint ventures relating to a product's marketing, unless the parties combined all of their business activities relating to the production or import of that product into the joint venture.
The transfer to a more coherent self-assessment regime is welcomed. However, the transition may carry significant risks for entities operating in Israel. First, the self-assessment regime applies only to certain kinds of arrangements and is subject to certain conditions. Relying on self-assessment where this is prohibited may expose the parties to penalties, even if the arrangement has no adverse effect on competition. Second, a mistake in a self-assessment itself could have severe implications. Such a mistake could stem from (among others) insufficient market information or a flawed analysis. Parties should thus evaluate their arrangements carefully in order to mitigate these risks as much as possible.