Introduction

On December 21 2015 the antitrust commissioner declared Ashdod Port Ltd a monopoly under Section 26(a) of the Restrictive Trade Practices Law 1988 in each of the three shipping lines used to import motor vehicles to Israel from Europe and the United States. The commissioner further determined that Ashdod Port had illegally abused its dominant position by extending illegal retroactive discounts. The commissioner imposed a $2.3 monetary payment on Ashdod Port and monetary payments on its chief executive officer and vice-president of customer service. These were the first monetary payments to be imposed on the executives of an infringing corporation.

In addition to the unprecedented imposition of monetary payments, the determination also provides insight into the Israel Antitrust Authority's (IAA) policy regarding discounting practices employed by dominant firms, which have come under increasing IAA scrutiny.

Background

Motor vehicles imported from the United States, Europe and Asia can be unloaded in three commercial ports in Israel: Ashdod Port, Haifa Port and Eilat Port. Vehicle imports from Europe and the United States are shipped on one of three trade lanes – none of which have reasonable access to Eilat Port. They are therefore unloaded in Haifa or Ashdod.

According to the commissioner's determination, Ashdod Port had entered into agreements with a majority of Israel's motor vehicle importers, under which the latter were provided discounts for reaching unloading targets. The unloading targets were tailored individually to each importer in accordance with its expected import volume and adjusted occasionally. IAA analysis found that Ashdod Port's unloading targets for 2013 represented – on average – over 85% of the total number of vehicles imported by each importer, and in some cases constituted de facto exclusivity. Further, the discounts were provided retroactively, such that if an importer reached the target amount, the discount covered the total number of vehicles unloaded at Ashdod Port (ie, a roll-back discount). If the target was not reached, no discount was provided for vehicles already unloaded.

Conditional discounts and rebates and abuse of dominant position

The IAA concluded that each of the three trade lanes constituted a separate relevant market and that over half of the motor vehicles imported into Israel between 2010 and 2014 on each of the three trade lanes were unloaded at Ashdod Port, thus establishing it as a monopoly for each of these markets under Section 26(a) of the Restrictive Trade Practices Law.

As a monopoly, Ashdod Port is bound by certain obligations and prohibitions, including a prohibition on abusing its dominant position in a manner that may decrease competition or harm the public. The use of exclusionary mechanisms by way of retroactive discounting practices may constitute such an abuse.

Drawing on Israeli and EU case law, the commissioner explained that the use of individually-tailored discounting schemes – namely, loyalty and target discounts – creates an elevated risk of harming competition. By leveraging monopoly market power, target-based, individually-tailored discounts create a strong economic incentive to reach the target amount, while reducing customer choice and significantly reducing or eliminating competition. Since they are tailored to each customer's demand and apply retroactively once the target has been reached, such discounts foreclose a significant portion of customer demand on the monopolist's competitors and leave only a small portion of the market open to competition.

The commissioner determined that Ashdod Port's discounting practices were a significant barrier to the expansion of Haifa Port and ensured that a decisive portion of the yearly demand from vehicle importers for unloading services went to Ashdod Port. This was achieved by creating an incentive scheme that determined a personalised target for each individual importer, which represented a significant portion of its forecasted demand (on average greater than 85%), as opposed to a general and non-discriminatory discount (eg, a general volume-based discount). Once an importer achieved its personalised unloading target, the discount was provided retroactively and applied to every vehicle unloaded by Ashdod Port for that importer.

The incentives created by Ashdod Port's practices prevented Haifa Port from competing in the three relevant markets. Without the ability to compete for the demand from each vehicle importer, Haifa Port needed to compensate importers for losing the discount if they chose to use its unloading services for a portion of their demand. This made deals between Haifa Port and vehicle importers economically impractical and barred it from competing with Ashdod Port. It also limited the freedom of vehicle owners to choose with which party to do business.

Monetary payments

The commissioner imposed a $2.3 million monetary payment on Ashdod Port and payments of approximately $5,000 on each of the port executives involved in the violation. This constituted the first instance of monetary payments being imposed on corporation officeholders.

The decision sets out the commissioner's policy on imposing monetary payments on company officeholders. It states that such payments will generally be imposed in cases where the violation created potential for real harm to competition and it is possible to identify clearly the persons who carried out or were responsible for the violation. The decision further detailed that the factors taken into account when deciding monetary payments are similar to those considered when imposing such payments against corporations (eg, severity of violation, extent of harm caused, duration of infringement and previous offences). However, exceptional personal circumstances may also be considered.

Comment

The IAA has previously voiced concerns over retroactive target discounting schemes (eg, in IAA decisions rendered over a decade ago regarding relations between food suppliers and retailers). The Ashdod Port determination further emphasises the difficulty with individually-tailored discounts given by a monopoly that are applied retroactively to a client's entire sales base.

Discounting practices are common and generally welcome. However, when undertaken by monopolies, some schemes may contravene antitrust laws. Dominant firms are advised to check their pricing practices to avoid potential liability in an area that appears to be of increased interest to the regulator.

For further information on this topic please contact Shai Bakal, Nava Karavany or Itai Cohen at Tadmor & Co Yuval Levy & Co by telephone (+972 3 684 6000) or email (shai@tadmor-levy.com, nava@tadmor-levy.com or itaic@tadmor-levy.com). The Tadmor & Co Yuval Levy & Co website can be accessed at www.tadmor.com.

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