Introduction
Previous case law
ACUM decision
Comment
Extraterritorial application of the law is an exception to the basic premise that the law applies to entities and actions that occur within the boundaries of local jurisdictions only. In the past, this premise was in line with the nature of competition in the markets, which mainly occurred between local entities and was affected by local arrangements.
However, the trend towards globalisation in recent decades has brought about a material change to this practice. Nowadays, many market participants are local subsidiaries or local branches of multinational firms. Accordingly, actions and transactions that are concluded by these multinational firms may have far-reaching implications on the state of competition, regardless of where the contract was signed or where such multinational firms were incorporated.
Subsequently, antitrust regimes around the world have developed legal standards to counter anti-competitive actions that take place outside their jurisdictions. In the field of restrictive arrangements, many jurisdictions have applied the so-called 'effects doctrine', which applies the antitrust laws to offshore arrangements that may adversely affect competition in a local jurisdiction.
The legal standard that governs the extraterritorial application of antitrust law in Israel was somewhat unsettled. A recent decision of the Antitrust Tribunal seems to have cleared up any ambiguity, stating that the effects doctrine is the only reasonable standard for the extraterritorial application of antitrust law in the area of restrictive arrangements. The rules that apply to the extraterritorial application of the law in the area of international mergers are very different.
The Restrictive Trade Practices Law was enacted in 1988. The extraterritorial application of the law was first analysed, though briefly, by the district court in 1994 in Nesher v Magrizo.
Magrizo, an Israeli cement distributor, claimed that it was subject to price discrimination by Nesher, an Israeli cement monopoly. Magrizo claimed that this discrimination was the direct result of a restrictive arrangement between Nesher and a Palestinian cement corporation.
The district court held that the law did not apply to restrictive agreements between an Israeli firm and a foreign entity (in this case a Palestinian entity), regardless of the harmful effect they might have on a local entity, because the law is "territorial in scope".
A few years later, in James Richardson, the antitrust commissioner adopted a different approach. James Richardson, an Israeli firm running a duty-free store at Israel's international airport, entered into agreements with international perfume manufacturers, restricting the prices of perfumes sold to non-duty-free stores elsewhere in Israel. The parties argued, much in line with Magrizo, that since the manufacturers were not Israeli entities, the law did not apply. The commissioner rejected this view, stating that it would be unreasonable to interpret the law in a way that excluded practices that could significantly harm competition in Israel solely because the arrangements were agreed overseas or involved foreign entities.
The commissioner embraced the 'effects doctrine' as a basis for the extraterritorial application of the restrictive practices regime, claiming that the law will apply to foreign firms "when their actions are meant to generate and do in fact generate substantial anti-competitive effect in Israel". As an administrative decision, the James Richardson decision was of lower hierarchical status than the Magrizo decision. However, in practice, James Richardson was soon perceived by many as the relevant legal standard - whereas in Magrizo there were no evident effects on competition in Israel and extraterritorial application of the law was only briefly analysed, the issue was at the core of the James Richardson case and was explicitly and elaborately analysed by the commissioner.
ACUM is Israel's leading licensing agency, engaged in the provision of copyright licences that allow licensees to broadcast, publicly play, record, copy, film, rent out or lend any piece in its repertoire. ACUM is also engaged in collecting royalties for these licences, distributing them to its members and enforcing members' rights in the relevant courts.
In 2005 ACUM was declared a monopoly by the antitrust commissioner, who also determined that ACUM was engaged in restrictive agreements with the artists it represented, as well as with international licensing agencies. ACUM applied to the Competition Tribunal seeking an approval to these restrictive agreements. The commissioner supported the application, but required that certain conditions be imposed in order to reduce ACUM's market power. In the course of these proceedings, ACUM argued that its agreements with foreign licensing agencies were excluded from the law and therefore should not be subject to the conditions that would apply to its domestic activity.
The Antitrust Tribunal rejected this argument based on the effects doctrine, referring to the James Richardson decision. The tribunal added that "it is difficult to think of a different interpretation to the antitrust law". Like many practitioners, the court ignored the Magrizo decision.
The Antitrust Tribunal is of the same hierarchical status as the district court, which applied a different standard in Magrizo. However, it seems that, given the tribunal's expertise in the interpretation of antitrust law, the unequivocal language that it used to reason its decision and the antitrust commissioner's longstanding position, it may reasonably be assumed that the effects doctrine will be the prevailing legal standard going forward.
For further information on this topic please contact David E Tadmor or Shai Bakal at Tadmor & Co by telephone (+972 3 684 6000), fax (+972 3 684 6001) or email ([email protected] or [email protected]).