The Israeli Antitrust Authority ("IAA") published last week a memorandum of law to amend section 26 of the Restrictive Trade Practices Law, 1988 (the "RTPL"). The memorandum seeks to include a new market-power based monopoly proclamation, in addition to the existing market-share based definition of monopoly.

In other words, the Israeli Antitrust Commissioner (the "Commissioner") will have the authority to proclaim a person or entity a monopoly where such person has market power, even if its market share is less then 50%, instead of the current situation where a monopoly exists only if its market share exceeds 50%.

This is the third memorandum published within a short period: the IAA recently published two additional memoranda of law, one concerning the merger chapter of the RTPL, and the other concerning parallel import (to read more about these memoranda of law please click here).

The usual procedure is for a memorandum to become a government bill, which shall be presented to the Israeli Parliament, the Knesset and its committees. Comments to the memorandum may be filed with the IAA until July 1st, 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. It is technical in nature, being based solely on market share, and ignoring 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 it has 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.

The IAA is concerned with the mirror image of this problem: the IAA points to situations where a market participant has market power, but the Israeli monopoly law does not apply to it, since its market share is lower than 50%.[1]

The Main Change in the Proposed Memorandum: Power to Proclaim a Monopoly Based on Market Power.

The proposed memorandum is meant to change this situation, but only partially so. According to the memorandum, the Commissioner shall have the power to proclaim a monopolist a person who has market power with regard to the supply of products or services.

Unlike the "regular" declarative proclamation, which can also serve as prima facieevidence as to the past, such market power based proclamation will only have prospective effect.

The Main Concern with the Proposed Memorandum: One-sided Amendment to a Two-Sided Problem

As mentioned, the memorandum seeks to amend the existing situation, but only from one direction. If the memorandum becomes law, the problematic situation where a person with no market power whatsoever is defined as monopoly will remain. Hence, certain business entities will still be exposed to all the risks of being considered "monopoly" owners, without having market power.

Undoubtedly, market share can be an indication, even a strong one, that market power does exist, but it is not necessarily so. There can be situations where a large market share does not imply market power. For example – a company whose market share is hanging on the edge – sometimes above 50%, sometimes below, in a market open to import, may not be dominant. 

The current law and the memorandum entirely ignore this aspect.

To summarize, the real problem lies with the technical definition of "monopoly" in the current law, and the memorandum does not solve it. It is noted in the memorandum, that the Israeli monopoly laws were inspired from the EU law on dominant position, which is based on market power. Unfortunately, the memorandum does not reach the natural conclusion that a monopolist must be defined according to market power and not market share in all cases, with market share being part of the analysis rather than a decisive factor.