The Israeli Antitrust Authority ("IAA") published a memorandum of law to amend section 26 of the Restrictive Trade Practices Law, 1988 (the "RTPL"). The amendment, if enacted, shall constitute a dramatic change in Israel's monopoly laws, basing them on market power rather than market share.

The Israeli Antitrust Commissioner (the "Commissioner") will still have the power to proclaim monopoly based on market shares higher than 50%, but absent such proclamation, for better or for worse, monopoly will be defined by market power.

This memorandum is a revised version of a memorandum published on April 30, 2015 (see our client update about that memorandum here), but with major changes.

The usual procedure is for a memorandum to become a government bill, which shall be presented to the Israeli Parliament, the Knesset, and to its committees. Comments to the memorandum may be filed with the IAA until July 29, 2015.

Here are some further details about the coming changes.
 
The Current Situation: A "Monopoly" Defined as a Market Share over 50%. 

The RTPL defines a "monopoly" as having over one half of the total supply or purchases of an asset or service. In other words, if a person has over 50% market share, then a monopoly exists regardless of whether it has been proclaimed as such by the Commissioner.

This definition raises some issues. Since it is based solely on market share, it is technical in nature and ignores the economic issue the RTPL was promulgated to address: market power. Under the current monopoly regime, a person with over 50% market share is a "monopolist" whether or not they have any ability to influence the market or enjoy supracompetitive pricing. Such person will be subject to the strict rules and behavior standards of a monopoly, even if they have no market power.

This problem has a mirror image: a market participant may have market power, but the Israeli monopoly law does not apply to it, since its market share is lower than 50%.[1]
 
Proposed Change: Monopoly Definition Will Be Based on Market Power 

The proposed memorandum is meant to change the above-mentioned situation. According to the memorandum, the monopoly laws will apply to a person or an entity in one of two cases:

  • They have market power, regardless of their market share; or
  • Their market share is over 50% and the Commissioner issued a proclamation to that effect. 

Current monopoly proclamations will remain in force unless revoked by the Commissioner.

The proposed amendment also sets a formal procedure for revisiting monopoly proclamations, which has not existed to date. The proposed procedure will also allow a person to appeal the Commissioner's decision not to revoke a proclamation. 

Comment

The current memorandum represents a significant change in Israeli monopoly law, which will require some adaptation, particularly on the part of any company hovering on the verge of 50% market share.

Two issues may be noted.

The proposed amendment means that a 50% market share is not enough to prove monopoly in court. It is, however, enough to prove monopoly if accompanied by the Commissioner's administrative factual finding to the very same effect. In other words – the Commissioner's decision seems to add nothing on the substantive level. This creates an easily administrable (for the IAA) but legally peculiar situation. It is not an erroneous idea that, high market shares are highly indicative of market power. However, this idea would be better served by creating a rebuttable presumption that a person with very high market shares has market power.

The other issue will probably be resolved with the passing of time: the memorandum, including both the legal text and the explanations, sets no indications of market power other than market shares. Once the amendment is accepted, this may create some uncertainty for certain market participants.

Over time though, the Commissioner, the Antitrust Tribunal and the courts shall probably develop clearer indications of market power.
 
What Shall be Considered Market Power?

The following indications of market power are familiar from international decisions, and may be used in the future by the IAA. They may be of use to those who wish to consider the relevance of the proposed legislation to their business:
 

  • A high market share as mentioned, is an indication of market power, but alone – it does not suffice;
  • High entry barriers stemming from costs, regulation, vertical integration or other reasons;
  • High switching costs for customers who wish to replace one provider for another;
  • High profitability over time;
  • Independent market behavior – over time, the relevant entity conducts itself independently from competitors or consumers;
  • Preferred access to sources of supply;
  • The existence of few competitors, especially if such competitors are not strong;
  • The inability of customers or consumers to restrain the conduct of the firm in question.

Naturally these indications are but examples and each of them on its own is far from enough to prove market power. The existence of market power will be determined according to the particular circumstances of each individual case.

To clarify its position, the IAA will do well to publish guidance on market power indications.

All in all, the new memorandum is a significant improvement over the former version. It represents a true shift from technical, market share based monopoly tests to ones that address the core issue of competition law, namely market power.