Since 1988 competition law in Israel has been governed primarily by the Restrictive Trade Practices Law (5748-1988) – renamed the Economic Competition Law – which replaced the previous law of 1959. While the Economic Competition Law underwent several amendments in the intervening years, many of its original concepts and procedural rules remained unchanged. A recent comprehensive change to the law represents the most significant overhaul since its enactment.
Overview of Amendment
Parliament passed the amendment to the Economic Competition Law on a bipartisan basis on 1 January 2019 as a government-sponsored bill, advocated by the Israel Antitrust Authority (now renamed the Israel Competition Authority (ICA)). The amendment covers nearly all of the Economic Competition Law's substantial chapters and affects:
- the regulation of restrictive arrangements;
- the merger control regime;
- the regulation of monopolies; and
- criminal and administrative enforcement measures.
Major Changes in Regulation of Monopolies
Prior to the amendment, a dominant position (monopoly) was defined solely through a market share test. Any undertaking that controlled more than half of a specified product market was deemed a monopoly and was thus subject to certain prohibitions aimed at preventing anticompetitive unilateral behaviour (similar to Article 102 of the Treaty on the Functioning of the European Union). Any firm whose market share was below 50% was immune from the application of the monopoly chapter and exempt from the special duties that applied to monopolies.
The amendment has retained the market share-based definition of a monopoly, such that any firm possessing a market share exceeding 50% is deemed a monopoly. However, it has expanded the definition by introducing a market power test. According to the amendment, an undertaking may be considered a monopoly even if its market share falls below 50%, provided that it possesses "significant market power" in a specified product market.
On 3 February 2019 the ICA published draft guidelines regarding the definition of 'significant market power', providing a list of indications in that regard, including:
- the actual market share of an undertaking;
- the number of competitors active in the same market;
- the significance of a specific product or brand for retailers' inventory;
- the existence of entry and expansion barriers in the relevant market; and
- the significance of such barriers.
The ICA further clarified that it will not pursue enforcement measures based on unilateral behaviour by undertakings which may be subject to the provisions of the monopoly chapter following the amendment until after a final version of the guidelines has been published.
The introduction of the market power test will require a reassessment of business strategies and conduct (especially pricing behaviour) by many firms – particularly, those with a significant market position.
Further, the ICA's guidelines provide for situations of "collective dominance", facilitating the application of monopoly restrictions on market participants in oligopolistic markets.
Major Changes to Merger Control Chapter
The Israeli merger control regime applies, among other things, to:
- the acquisition of a company's principal assets; or
- the acquisition of more than a quarter of:
- a company's outstanding shares;
- a company's voting rights;
- rights to appoint company directors; or
- rights for a company's profits.
The requirement to notify and receive approval to a merger transaction is subject to certain notification thresholds and the amendment has introduced major changes in this regard, as well as to the merger control review procedure.
The turnover threshold was raised to account for gross domestic product growth since 1999 (the last time the turnover threshold was revised). The merger filing requirement is now triggered if the aggregate turnover of the merging parties (on a group basis) is NIS360 million (approximately $100 million). This is a significant increase from the previous NIS150 million (approximately $41 million) threshold. The additional requirement that the separate turnover of at least two of the merging parties will be at least NIS10 million (approximately $2.7 million) has been left unchanged; however, the ICA has indicated that this amount might also be raised in the future.
The merger control regime was expanded to include registered non-profit associations.
The ICA commissioner has been provided with the authority to unilaterally extend the current 30-day statutory timeframe for merger control review up to 150 calendar days. Such an extension requires a reasoned administrative decision by the commissioner. The merger control regime was expanded to include registered non-profit associations. The ICA commissioner has been provided with the authority to unilaterally extend the current 30-day statutory timeframe for merger control review up to 150 calendar days. Such an extension requires a reasoned administrative decision by the commissioner, obviating the need for the ICA to obtain the consent of the merging parties or an approval from the Competition Tribunal (previously, the Antitrust Tribunal). While this change is most likely to have little effect on complicated merger transactions – which merited lengthy review periods and extensions under the previous rules – it remains to be seen how it will affect uncomplicated transactions which were usually reviewed in a relatively expedited manner.
Major Changes to Regulation of Restrictive Arrangements
Arrangements made between undertakings that could result in harm to competition (as well as some form of horizontal arrangements) are classified as restrictive arrangements. It is prohibited to enter into a restrictive arrangement unless it:
- falls under a statutory exemption;
- falls under a block exemption; or
- is approved by the Competition Tribunal or is exempt by the ICA commissioner from the approval requirement.
Traditionally, exemptions for restrictive arrangements were drafted narrowly, resulting in a significant number of specific exemption applications from the ICA commissioner.
Together with the recent amendment to two fundamental block exemptions rules (the Block Exemption for Restraints Ancillary to Mergers and the Block Exemption for Joint Ventures), the amendment has introduced far-reaching changes in this regard with a shift to a substantive selfassessment regime of most forms of restrictive arrangements.
The first phase of the transition into a self-assessment regime was marked by the introduction of new block exemption rules in November 2018. Merging parties and joint venture partners were provided with a more flexible self-assessment framework for otherwise legitimate arrangements which did not meet the formal requirements and technicalities previously required for the utilisation of most block exemption rules (for further details please see "Transition to self-assessment regime: ICA publishes amended block exemptions"). Along with the welcome removal of the unnecessary regulatory burden on legitimate business practices, the amendment seeks to improve the ICA's ability to prevent and punish parties to anticompetitive arrangements. To this end, the amendment provides the ICA with increased powers to impose administrative penalties (see below). Further, the maximum prison sentence for entering into an unlawful restrictive arrangement has been increased from three to five years, regardless of circumstances. Previously, the five-year sentence applied only to violations conducted under aggravating circumstances.
Major Changes Concerning Enforcement Measures
Any breach of the Economic Competition Law is considered a criminal offence. However, the ICA generally conducts criminal investigations and seek indictments only with regard to significant or clear violations of the law (especially serious violations such as cartel arrangements and bid-rigging schemes). Other breaches of the law are usually enforced through administrative measures (primarily administrative fines since 2012). The maximum cap for financial administrative penalties on corporations has been substantially raised from approximately NIS24.5 million (approximately $6.7 million) to NIS100 million (approximately $27.5 million), while the turnover-based cap of 8% of a group's turnover has been left unchanged. In past cases, the ICA commissioner exceeded the formal cap on financial penalties by combining several offences arising from the same factual grounds. Thus, financial penalties amounting to hundreds of millions of New Israeli shekels are not a remote scenario for future administrative enforcement proceedings.
Mandatory Compliance Programme
The amendment has introduced a new type of criminal liability for corporate officers (including active managers, general partners and corporate officials in charge of the field in which a violation has occurred), who must now undertake measures to supervise and prevent violations of the Economic Competition Law by the company. The maximum penalty for failing to comply with this duty is one-year imprisonment. Further, corporate officers may now be found criminally liable even if no violation of the law has taken place, which is why this unique provision was titled by local practitioners "a mandatory compliance programme clause".