"One of the great mistakes is to judge policies and programs by their intentions rather than their results". These words, spoken by Milton Friedman in 1975, remain appropriate today.
Recently, the Israeli Antitrust Authority ("the IAA") published an opinion ("the Opinion") regarding the activities of trade associations, defined in section 1 of the Israeli Restrictive Trade Practices Law, 1988 ("the Law") as "a body of persons, whether or not incorporated, all or some of whose purposes involve the promotion of the business interests of its members". The Opinion deals with the effect of such associations on market competition.
The analysis, as presented in the Opinion, states that establishing a trade association is not prohibited and does not, prima facie, constitute a restrictive arrangement. On the contrary: in many cases, the trade association contributes to competition, as it combines the know-how and professional experience of its members, in order to improve the relevant market or field, and increase the demand for the products or services supplied.
However, the Opinion argues that collaboration within the framework of trade associations does nevertheless give rise to a significant, particular, concern as to harm being caused to competition. Inter alia, the Opinion raises concerns that a trade association might serve as a cover for co-ordinated activity, either as a cartel, or as a means for establishing or providing recommendations to its members, about a certain course of action which could ultimately harm or reduce competition. Additionally, it could create dependence of the members on one another and could also lead to the exchange of sensitive information amongst the members.
Indeed, the current legal framework deals specifically with trade associations: in addition to the general restrictions on restrictive arrangements as set out in section 2 of the Law and which apply also to trade associations, a specific provision applicable to trade associations appears in section 5 of the Law. Pursuant to said section, every course of action which is recommended or determined by a trade association and which is liable to restrict or prevent competition, will be deemed a restrictive arrangement and subject to regulation.
In light of such provision, the IAA has, in the Opinion, set out some proposed guidelines, viewed by the IAA as "best practices", aimed at assisting trade associations and their members in refraining from contravening the relevant provisions of the Law. Included in the matters covered in the guidelines are meetings of the association; recommendations and instructions given by the association; the exchange, holding and distribution of sensitive information from a competitive perspective; the joint representation by the association in addressing a public authority; terms of membership of an association, the setting of standards and more.
The guidelines, while addressing several legitimate concerns about the activities of trade associations, are not without issue, and it seems like it contains an attempt to push the boundaries of supervision over trade associations beyond the desired equilibrium.
Firstly, assuming it is accepted that trade associations are generally a lawful activity, any restrictions placed on them, such as ensuring that information published by the association will not permit for there to be inferred any specific sensitive information by way of "back tracking", could result in significant costs being imposed on the associations. In addition, it is likely to assume that in order to comply with the provisions of the guidelines, it will be necessary for the trade association to obtain legal and economic consultations on a regular and on-going basis. These costs might discourage what would otherwise be a beneficial activity and constitute a negative incentive to operate through, or to even form, a trade association.
Secondly, the suggested interpretation by the IAA seems to be a rather broad interpretation of its authority, as stemming from sections 2 and 5 of the Law. For instance, the guidelines regarding membership terms in the association, including the requirement for equality amongst potential and current members or the guidelines regarding the setting of standards and self-regulation, seem designed to create a more competitive market, and may be associated with special duties imposed on dominant firms, rather than to prevent a restrictive arrangement or a specific course of action which has been determined or recommended by the association. The foregoing is an example of the manner in which the guidelines digress from the original legal framework upon which the Opinion is based. In addition, the IAA states that the aforesaid guidelines equally apply, mutatis mutandis, to a collaboration of competitors, ad hoc, for a specific purpose, which does not qualify as a trade association. This type of collaboration does not derive from provisions in the Law regarding trade associations, and once again raises questions as to the scope of the IAA's authority, as presented in the Opinion.
Thirdly, the Opinion brings to light tension between the ever growing body of Israeli antitrust legislation, and its effect on other legal fields. For example, imposing restrictions on trade associations in such a way so as to create the disincentive to act through such type of body, by default, places a practical limit on the freedom of association. Similarly, by restricting the manner of representation in addressing a public authority, the IAA, while acknowledging that common representation might help the regulatory process, is actually restricting it in order to prevent possible harm being caused to competition. This balance between antitrust laws and other legal rights or values seems to reflect a process in which the equilibrium in recent years appears to have gradually shifted towards antitrust law.
Fourthly, in general, the issuance of such guidelines by a government authority constitutes desirable practice, thanks to its contribution in providing legal clarity and transparency in enforcement of the law. However, in Israel, this practice raises two principal issues. First, the guidelines themselves are phrased in a general and amorphous manner, so they do not successfully clarify and interpret the Law as they ought to. Second, guidelines are designed to clarify a specific provision of law. However, neither these specific guidelines nor those regarding the exchange of information during a due diligence process (opinion 2/14 "Disclosure of Information between Competitors Prior to a Transaction" issued on May 19, 2014), interpret or clarify a specific provision of law. Rather, the IAA has created a codex of provisions related to legal fields that do not fall within the scope of the Law and the relevant regulations thereunder. Moreover, the guidelines constitute some type of norm which is not, and cannot be, considered as law or a binding decision, so it is not quite clear what its legal stand is and how it can be undermined, if at all.
Fifthly, there are a few possible ways in which the abovementioned guidelines might affect market competition: The first possibility is that the guidelines reflect existing law and that there should therefore be no behavioral change following the enforcement of such guidelines. However, this does not seem particularly likely. The second possibility, which appears to be the IAA's working assumption, is that, as a result of the publication of the Opinion, members of trade associations will begin to behave in a way that will reduce harm or improve market competition. There is also a third possibility: since a trade association is a relatively equal and transparent form of collaboration (by virtue of (usually) large volume of members and, in some cases, publicized meetings), placing restrictions on these organizations might actually encourage their members to use other platforms, less equal and not as transparent, for the same activity. According to this analysis, the Opinion is in fact a recipe for over-regulation, in a way that might actually produce contrary results to those initially intended by the IAA. Although this third possibility is not an inevitable outcome, it is one that should be taken into account when analyzing the Opinion.
Regardless of the outcome of such policy guidelines, it remains to be seen how they will be judged in practice.