A recent draft amendment ("Amendment") published by the Israeli Antitrust Authority (“IAA”) proposes significant changes to the Israeli antitrust laws.1 The Amendment, entitled “Strengthening Enforcement and Reducing the Regulatory Burden”, touches on key issues in the application and enforcement of the Restrictive Trade Practices Law, 5748-1988 (the “Law”), to be renamed "the Competition Law" under the Amendment.

The intended main purpose of the Amendment is to reduce bureaucratic and regulatory burden, thereby enabling the IAA to focus its efforts on preventing and/or reducing harm to competition.

We shall set out below the principal proposed amendments to the Law, as well as a short reference to the IAA's proposal for changes to Block Exemptions:

Merger Transactions

  • Raising the turnover threshold for merger notification to NIS 360 Million

Section 17(a) of the Law and the Restrictive Trade Practices Regulations provide three alternative thresholds which establish a mandatory merger notification requirement, comprised of two market share thresholds and a turnover threshold. Parties to a merger transaction are required to notify the merger and await merger approval from the General Director of the IAA in each of the following instances: (i) as a result of the merger, the merging parties’ share in a relevant product market will exceed 50%; (ii) the combined sales turnover in Israel of the merging parties in the previous fiscal year exceeds NIS 150 million and the local turnover of at least two parties is no less than NIS 10 million; (iii) one of the parties is a Monopoly, defined as an undertaking with a market share of over 50%.

The parties’ combined turnover threshold, set at NIS 150 million, was determined in 1999 and has not been updated since then, disregarding Israel’s economic growth. The IAA's commentary of the Amendment suggests that as a result of the low and outdated threshold for the combined turnover, the number of merger notifications received by the IAA compared to foreign competition authorities is relatively high. The Amendment therefore proposes an updated combined turnover threshold of NIS 360 million.

The purposed turnover threshold will be subject to an adjustment mechanism according to the changes in the Consumer Price Index published by the Central Bureau of Statistics. The General Director of the IAA will publish the updated and adjusted turnover threshold on a yearly basis.

  • Expanding the merger control to foreign companies lacking a substantial Israeli presence

The pre-merger notification requirement discussed above applies to a "Merger of Companies" as defined in Section 1 of the Law. A "Company" is currently defined by the Law as a company registered in Israel either as a local or a foreign company, as well as a registered partnership or cooperative.

According to the IAA's Guidelines, a foreign company/corporation which is not registered in Israel will nevertheless be regarded as a "Company" for merger control purposes if it holds more than 25% of the rights in an Israeli company or if it has a "place of business" in Israel. For example, maintaining a sales office, agency or distributor in Israel, where the foreign company has the ability to determine their product prices, quantities, form of presentation or other competitive aspects, will be considered as establishing a place of business in Israel.

Under the Amendment, the term "Company" will be re-defined to include foreign corporations which are not registered in Israel. This definition will also apply to foreign corporations which do not hold more than 25% of the rights in an Israeli company or maintain a "place of business" in Israel. In other words, the merger notification requirement will apply to foreign corporations as per the three alternative thresholds mentioned above, with no additional requirement of establishing an Israeli presence on their part.

This proposed amendment to the definition of the term "Company" may obviously expand the scope of merger transactions which are filed with the IAA, noting that this was not the regulator's initial intention. The IAA addresses this concern in its commentary to the Amendment by explaining that the amended and increased sales turnover threshold is sufficient in order to screen out merger transactions which lack a material effect on the Israeli market.

This explanation is, in our view, only partially accurate since the Amendment does not change the monopoly market share thresholds for merger notification, or the individual turnover threshold of NIS 10 million. For example, a foreign company with no business activity in Israel may be required to notify a merger transaction if the other party to the merger is a Monopoly in Israel, as will a foreign company with an Israeli turnover of only NIS 10 million, if the other merging party has a turnover in Israel of over NIS 350 million. The end result may be that merger transactions that currently do not require notification to the IAA, will become subject to the mandatory notification requirement.

The General Director of the IAA will be authorised to extend the time period for merger approval

According to Section 20 of the Law, the General Director of the IAA is required to inform the parties of its decision regarding a merger transaction within 30 days. The 30-day timeframe is generally sufficient and most merger transactions are cleared by the IAA within 30 days or less. However, for merger transactions which raise competitive concerns and require gathering information from third parties, it is common for the IAA to request the parties' consent to extend the merger reviewing term. In cases where the parties do not give their consent, which are very uncommon, the IAA will generally apply to the Antitrust Tribunal to extend the reviewing term.

The Amendment grants the General Director the authority to extend unilaterally the 30-day timeframe for merger clearance by issuing a written and reasoned decision. The General Director may issue several

extension decisions, subject to the cumulative extension not being more than 120 days.

Restrictive Arrangements

  • Reducing the time period for granting specific exemptions to restrictive arrangements

Section 4 of the Law prohibits an entity from being a party to a Restrictive Arrangement unless (a) the arrangement has been approved by the Antitrust Tribunal, (b) if the arrangement is permitted under a Block Exemption, or (c) if the General Director of the IAA grants the said arrangement a specific exemption from the requirement for the Tribunal's approval pursuant to Section 14 of the Law.

Section 14a of the Law provides that the General Director will make his decision on a specific exemption for a restrictive arrangement within 90 days.

The Amendment reduces the timeframe for reviewing applications for exemptions to 30 days. In addition, the Amendment provides that the General Director may extend the 30-day period by issuing a written and reasoned decision, in a manner similar to the extension of the period for merger clearance, subject to the cumulative extension not being more than 120 days.

  • The IAA intends to expand the Block Exemptions

The commentary to the Amendment points out the IAA's intention to expand the applicability of the Block Exemptions for Restrictive Arrangements. This intention is part of the growing trend in Israeli antitrust law towards a "self-assessment" regime, under which the parties are encouraged to assess independently their arrangements and decide whether they are obligated to apply for a specific exemption.

Following the publication of the Amendment, the IAA has proposed amendments to three Block Exemptions. The main change proposed for all three Block Exemptions is a provision stating that the Block Exemptions will apply to restraints which do not harm competition in a significant part of the market, or that such harm will not be considered to be significant.

Monopoly

  • A revised definition of the term "Monopoly"

Section 26(A) of the Law defines "Monopoly" as an entity which supplies or acquires more than half of the products or services in the local market. As a result of this definition, the Israeli laws concerned with anti-competitive conduct by dominant undertakings are currently limited to entities having a market share over 50%, even though it is widely accepted that market share is only one indication for market power, and a dominant undertaking with a market share below 50% may abuse its market power to reduce competition.

The Amendment proposes (in Section 26(A)(2)) to supplement the definition of the term "Monopoly" by adding to the current definition that a Monopoly can be a "person possessing significant market power", even though such person [entity] does not hold a market share over 50%.

Note, that for the purpose of merger control and the market share threshold for notifying mergers, a Monopoly will continue to be defined only in accordance with Section 26(A)(1), namely that the entity holds over 50% of the local market.

Criminal and Monetary Sanctions

  • Longer imprisonment for parties to restrictive arrangements

The Amendment proposes to increase the criminal sanction for violation of Section 4 of the Law, which prohibits restrictive arrangements, from the current maximum period of three years (under non-aggravated circumstances) to five years imprisonment.

In addition, the Amendment proposes that for all other violations of the Law, the maximum period for imprisonment will be three years.

  • Monetary sanctions

On 2012 the General Director of the IAA was granted the authority to impose monetary sanctions for infringements of the Law, of up to NIS 1 million for an individual and up to 8% of a corporation's turnover in the year prior to the infringement but not to exceed NIS 24 million.

The Amendment now proposes the annulment of the NIS 24 million ceiling in order to allow the General Director to impose substantial monetary fines on corporations which have a high turnover in Israel. In other words, the maximum fine for such corporations will be 8% of their turnover in Israel without any ceiling.

It should be noted that the Law does not limit the turnover for imposing monetary sanctions to the sales turnover of the product concerned by the infringement, rather it relates to the entire local turnover of the corporation. Furthermore, the General Director has already in one case announced its intention to impose a monetary sanction higher than NIS 24 million, by identifying several violations preformed by the same corporation.

In light of the IAA's expanding use of monetary sanctions and their increased level, companies should be more alert to potential violations of antitrust laws.