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30 May 2019
On 1 January 2019 Parliament passed a comprehensive amendment to the Economic Competition Law 1988 (the Competition Law). Among other things, the amendment introduced an alternative definition of 'monopoly' based on a market power test rather than market share and significantly increased the maximum cap of monetary administrative penalties on corporations (for further details please see "Major competition law reform comes into force").
To put these new rules into practice, the Israel Competition Authority (ICA) recently published draft guidelines on both matters. The first set of draft guidelines concern the definition of 'significant market power' in the context of the Monopoly Chapter, providing a list of indications for the existence of significant market power. The second set of draft guidelines concern the proposed revision of the ICA Guidelines 1/16 regarding the competition commissioner's considerations in determining the size of financial penalties.
Under Israeli competition law, the term 'monopoly' roughly resembles the concept of a dominant undertaking under EU competition law. Prior to the recent amendment, the definition of a monopoly was exclusively based on market share threshold (ie, exceeding the threshold of 50% in a defined product market). Undertakings which met this threshold would be automatically subject to certain prohibitions on their business conduct and an obligatory merger control filing for any merger transactions. On the other hand, other undertakings active in the same product market were immune from the monopoly presumption and essentially free to engage in potentially anti-competitive unilateral conduct.
Following the amendment, the definition of a monopoly was broadened to include a market power test, such that an undertaking possessing significant market power in a defined product market will be deemed a monopoly, regardless of its market share. This change is of great significance to many businesses active in Israel, since its stated goal is to extend the grasp of the monopoly regulation rules to include undertakings which were previously exempt from restrictions on their unilateral conduct.
Given that the term 'significant market power' was not defined by the legislature prior to the amendment coming into force, the ICA announced its intention to provide the public with formal guidelines regarding its interpretation. It further announced that it would not initiate enforcement actions against dominant firms based on the new market power test until after such guidelines were published.
In the draft guidelines, published on 3 February 2019, the ICA referred to the traditional definition of 'significant market power' as an undertaking's ability to set or adjust commercial terms which are inferior to those that would have been set in a competitive market (ie, setting a market price which is significantly higher than the competitive market price). Such power can also be directed towards a specific type of customer or exercised in a specific geographic area.
According to the draft guidelines, the margin between the economic cost of the product or service in question and its price, as well as the firm's profitability, cannot serve as proof of the existence of significant market power. However, it may serve as a supplementary factor for the determination of market power.
In order to assess the existence of significant market power and its extent, the ICA will focus on the effectiveness of supply-side and demand-side restraints imposed on the undertaking in question by its customers and competitors. A company will be deemed to have significant market power only if it is not restrained by supply and demand.
When assessing the demand-side restraints, the ICA will examine if customers have substantive alternatives to the product or service provided by the undertaking in question. To this end, the ICA will examine, among other things:
When assessing the supply-side restraints, the ICA will examine if the undertaking in question is likely to be restrained by existing or potential competitors in a timely and sufficient manner. In this respect, the ICA will focus primarily on whether there are barriers to entry and expansion in the relevant sector and the level of such barriers. The ICA provides several factors which may negatively affect the ability of existing and potential competitors to commence or expand operations in the relevant product market. These include:
In line with the approach adopted by the EU courts, a previous history of market foreclosure and other forms of abusive behaviour by the undertaking in question may serve as an indication of the existence of market power.
As a final note in the draft guidelines, the ICA also acknowledges the concept of 'collective dominance' for situations in which competitors consistently avoid competing with each other and take simultaneous actions which do not reflect a competitive market. This position, which was mentioned in the guidelines almost as a side note, may carry significant consequences for market participants operating in oligopolistic markets.
Since 2012 the competition commissioner's primary method of public enforcement has been administrative fines. The amendment quadrupled the maximum cap for administrative penalties for corporations from approximately NIS24.5 million (approximately €6 million) to NIS100 million (approximately €24.8 million).
Following this dramatic increase, on 20 February 2019 the ICA published draft guidelines on a revised methodology for determining the size of administrative fines. On completion of the public hearing, the new guidelines will replace the existing guidelines and methodology of October 2016.
The ICA draft guidelines set a seven-stage methodology for calculating the size of administrative fines:
The ICA is expected to publish the final guidelines following a call for public comment in the coming months.
For further information on this topic please contact Shai Bakal or Alexander Wolf at Tadmor & Co Yuval Levy & Co by telephone (+972 3 684 6000) or email (email@example.com or firstname.lastname@example.org). The Tadmor & Co Yuval Levy & Co website can be accessed at www.tadmor.com.
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