The amendment rescinds section 3(6) of the Restrictive Trade Practices Law, which had exempted mutual exclusivity arrangements from the application of the Restrictive Trade Practices Law.

In other words, up until now, when two business managers engaged in a mutual exclusivity arrangement between them relating to distribution or purchasing, the arrangement had not been examined under the prism of the antitrust laws, regardless of its potential impact on competition. As soon as the rescission of section 3(6) of the Restrictive Trade Practices Law comes into effect, parties considering engaging in a mutual exclusivity arrangement of the type that had previously been included within the scope of section 3(6) of the Restrictive Trade Practices Law, will be required to undergo the proceedings prescribed in the Restrictive Trade Practices Law for approving a restrictive arrangement.

One example for an arrangement to be effected by the amendment is an arrangement whereby a given manufacturer engages with distributors for exclusive distribution of its products, each in relation to a different geographic region in Israel (so that none of the distributors will have competing distributors in its territory in relation to the same products, and the distributors undertook to not distribute products of competitors in that same territory.

Note that the rescission of section 3(6) of the Restrictive Trade Practices Law eliminates the deferential competitive treatment of mutual exclusivity arrangements and one-sided exclusivity arrangements. Both types are customary used by manufacturers and marketers and distributors in the market. Since these practices have the ability to promote competition, the Antitrust Commissioner instituted a number of block exemptions which exempt any party meeting the criteria set out therein from having to receive the Antitrust Commissioner’s specific approval. Upon the amendment coming into effect, these block exemptions would be the "first line of defense" for the parties wishing to engage in a mutual exclusivity arrangements. The two main block exemptions relevant to this discussion are:

a)    Restrictive Trade Rules       (Block Exemption for Exclusive Distribution Agreements) 2001; b)    Restrictive Trade Rules       (Block Exemption for Exclusive Purchasing Agreements) 2001.

The main disadvantage of these block exemptions is that the use thereof makes it compulsory for the parties to define the market in which they operate and to assess their market shares. Moreover, these block exemptions do not apply to any party commanding a market share of more than 30%.

Another block exemption that can assist parties seeking to include an exclusivity arrangement in their agreement is prescribed in the Restrictive Trade Rules (Block Exemption for Non-Horizontal Arrangements Containing No Price Restrictions) 2013. In order to be eligible for this block exemption, the parties must assess the impact of the arrangement between them on competition, an assessment that is not always easy and might require them to obtain economic and legal opinions.

Therefore, the rescission of section 3(6) of the Restrictive Trade Practices Law mainly impacts arrangements in which one of the parties to the arrangement (the manufacturer, the marketer or the distributor) is a key player holding a market share exceeding 30%, since such arrangements will require obtaining a specific exemption from the commissioner, while previously, they had not been deemed restrictive arrangements pursuant to the Restrictive Trade Practices Law.

We note that the amendment applies not only to agreements to be signed as of August 25, 2015, but also applies to all agreements previously signed and in effect on that date. Therefore, parties who customarily include mutual exclusivity arrangements in their agreements must review their agreements and amend them accordingly.