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The Law of Economic Competition 1988 – Significant "small changes"

30.11.20 | 11:43  

In January this year "The Antitrust Law, 5748-1988" disappeared from the jurisprudence of Israel along with "The Antitrust Authority", "The Antitrust Commissioner" and "The Antitrust Tribunal"… in their stead we now face "The Economic Competition Law, 5748-1988", "The Competition Authority", "The Competition commissioner" and "The Competition Tribunal".

Amendment no. 21 of the Antitrust Law ("Amendment 21") brought with it a number of changes; among such changes the legislator saw fit to amend the name of the law and the basic terms mentioned above, since the legislator found it necessary to "create clarity in the general public regarding the nature and the purpose of this law, and the main function of the Commissioner and the Antitrust Authority… the purpose of the Antitrust Law is to promote free competition and to prevent any restraints on the competition. This is also the mission of the Antitrust Authority, being the entity in charge of enforcing this law. This should be clearly reflected in the law, first and foremost in the name of the law…" (Government Bill No. 1221, April 30, 2018 page 890 explanatory note to Sec.1).

In this article we shall focus on three of the main changes introduced by Amendment 21 - 

The first change is in the definition of the term "Monopoly". Until the Amendment a "Monopoly" was defined by the Law as "the concentration of more than half of the total supply of assets or their purchase, or of more than half of the total provision of services, or of the total purchase thereof, by a single person (hereinafter – "The Monopolist")".

Amendment no. 21 added that a "Monopolist" is not only "a person whose share of the total provision of assets or the purchase thereof, exceeds half"; but also a person "who has significant market power in relation to the supply or purchase of assets or in relation to the provision oracquisition of services"(Sec. 26 of the Law)

In other words, while the old law focused on the market share and provided a relatively clear definition of a Monopoly with a market share of 50 percent or more, the definition in the Amendment to the law is expanded and also uses the vague concept of "significant market power ." In the explanatory notes to the law (ibid., P. 894), it is clarified that  "the central economic phenomenon that the laws of monopoly seek to curb is the abuse of significant market power, which is a term customary in the antitrust laws ." It is also clarified that in an exceptional manner, the Israeli law established Monopoly status solely on "market share" and therefore it was not possible to restrain entities with "significant market power" that exploited it when their market share was lower than 50 percent. This is no longer the case.

Now the question arises, how can we identify what is a "significant market power"?  The explanation given in the explanatory notes is that consideration of this issue should take into account the "market share" as well as other relevant indicators, such as whether market power is temporary or whether it is not naturally of a short-term effect, whether there are barriers to entry and expansion in a specific field, and other indicators that the Authority has not published yet. Given the ambiguity of the term "significant market power" we assume that the courts shall enrich our case-law regarding the boundaries of this definition.

In this context, it should be noted that the addition of the alternative of a "significant market share" to the definition led to the cancellation of the provision in the law (section 26 (c)), which allowed the Minister of Economy to determine that for certain assets or services a concentration of less than 50% will be regarded as Monopoly where a person enjoys "a decisive influence on the market."

The second change is the determination (Section 17 of the law) that the merger of companies whose aggregate sales turnover in the year prior to the merger did not exceed NIS 360 million, and none of which is a monopoly, does not require the Commissioner's prior consent. This threshold replaces the previous one (NIS 150 million). This sum will be updated in the future in accordance with the mechanism determined by law. The Amendment left the additional condition for exemption from receiving the Commissioner's consent to the merger, namely that the merging companies will not form together a Monopoly.

A third significant change deals with liability for an offense under the law: Whereas the previous wording of the law states that "In case an offense under this Law is committed by an incorporated entity, any person who at the time of the commission of the offense was a member an incorporated entity, an active officer, partner (with the exception of a limited partner) or a senior administrative employee in charge of a specific field, shall be charged with committing such offence, if he did not prove that the offense was committed without his knowledge and that he has taken all reasonable measures to ensure the observance of this law" (Section 48 of the Law).

In the new law, the section was amended and now states that: "(a) An officer of a corporation must supervise and do everything possible to prevent an offense under this Law by the corporation or by any of its employees; Violation of this provision is subject to one year imprisonment and a fine set for this offence by law; (B) If an offense under this Law is committed by a corporation or by any of its employees, it is presumed that the officer of the corporation violated his obligation under subsection (a), unless he proves that he did everything possible to fulfill his duty. (C) In this Section the term "Officer" shall be an active manager of a corporation, a partner other than a limited partner or an officer responsible within the corporation for the field in which the offense was committed".

Where is the difference? It is now incumbent on an officer seeking to exempt himself from this responsibility to "supervise and do everything possible" to prevent violations of the Law. If in the past it was sufficient that the violation of the provisions of the law was committed without the knowledge of the officer and that he took "all reasonable measures" to ensure the maintenance of the law, thereby absolving himself of liability, the law now states that the officer must prove that he has committed a real act to prevent an offense, The law further states that if a violation of the law is committed, it is presumed that the officer violated this duty, unless he proves that he has "done everything" to fulfill his duty. In other words, we have before us a "strengthened" reversal of the presumption of innocence that applies to an officer in a company, in whose definition the legislator did not include the directors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought for specific circumstances.