New legislative amendments proposed by the Israel Antitrust Authority: merger control reform and protection of competition from parallel imports

1.            Introduction

On March 31, 2015, the Israeli Antitrust Authority ("IAA") published two proposed legislative amendments to the Restrictive Trade Practices Law, 5748-1988 ("the Law") regarding merger control and official importers who harm competition from parallel imports. Following is a brief outline of the proposal and its potential implications on merging companies and on manufacturers and importers.

2.            Proposed Reform to Merger Control

Reform in Merger Control Regime: General prohibition on mergers which raise reasonable concern of substantially harming competition; Introduction of voluntary merger notifications; and an Increase and change in the Turnover Threshold for a mandatory filing in Israel

The proposed reform to merger control stipulates a general prohibition of mergers which raise a reasonable concern of substantially harming competition. Such mergers will be prohibited regardless of whether or not they are subject to prior notification according to the threshold criteria set out in Section 17 of the Law.

Consequently, parties to a merger that falls short of the thresholds for a mandatory filing will be required to exercise self-assessment in order to decide whether the merger would give rise to such reasonable concern or not and, accordingly, whether it may be performed or not. If the parties decided to proceed with a merger which is not subject to a mandatory notification duty, the Director General of the IAA ("the Director General") might challenge the merger and the parties' decision retrospectively on the ground that it does give rise to a reasonable concern of harming competition, and violates Section 19 of the Law (a violation which might result in criminal proceedings against the parties). This is a major change in Israel merger control regime, since up until now merger transactions that fell short of the thresholds for a filing could have been performed with no need to examine their actual effect on competition.

In light of the above, and in order to increase certainty in the market, parties to a merger which does not fulfill the thresholds for a mandatory filing may decide to submit a voluntary notification. The Director General will then notify the parties within 15 days whether he intends to examine the merger. If the Director General shall not issue such a notification, or notify the parties that he does not intend to examine the merger, the merger will be deemed to be approved. This provision is in the form of a temporary order with three years' duration, which may be extended for additional periods of three years each.

The proposed reform also seeks to amend the "turnover" threshold criteria as set out in Section 17 of the Law by raising the minimal combined sales turnover that requires mandatory notification. Thus, a merger will be subject to prior notification if the combined turnover of the merging companies in Israel in the fiscal year preceding the merger exceeded NIS 250 million – instead of NIS 150 million which is the current threshold in this regard - and, in addition, at least two of the parties had a minimal turnover in Israel of NIS 10 million each (same as the threshold today). However, the individual NIS 10 million turnover thresholds shall not apply where a company with a global turnover exceeding NIS 1 billion is a party to a merger with another company (or companies) with a turnover in Israel exceeding NIS 250 million, and such a merger will be subject to a mandatory notification duty in Israel.

Change of Definition of "Company" and "Merger of Companies"

Along with the above reform to merger control, the IAA proposed amending the definition of "company" to also include foreign companies and partnerships regardless of whether or not such entities are incorporated or registered in Israel in accordance with the Israeli Companies Ordinance or the Israeli Partnerships Ordinance. This change would prove mostly relevant to cross-border merger transactions between foreign companies.

The IAA further proposed that the definition of "merger of companies" shall be broadened to apply to both body corporates and persons, even if such persons hold no means of control in any body corporate.

Extensions of the waiting period during the IAA merger review period

The current review period of mergers in Israel in accordance with the Law is 30 calendar days. This period may only be extended by the parties' consent or by an order issued by the Restrictive Trade Practices Tribunal ("the Tribunal") upon an application of the IAA. The IAA now proposes to significantly change this review period. According to the proposal the Director General will be authorized to extend the review period (with no need for the parties' consent or the Tribunal order) by additional reasonable periods of time each, and up to additional 120 days. The proposed change might thus increase the total review period to a maximum of 150 days.

Increased Transparency of Discussions by the Advisory Committee

According to the amendment the minutes published by the Exemptions and Mergers Advisory Committee will be extended to include not only the list of documents received by the Advisory Committee and its decisions, but also a summary of its internal discussions. The minutes will nonetheless not include information which may harm competition, or information subject to limitations on its publicity according to section 9 of the Freedom of Information Act in Israel.

3.            Protection of Parallel Imports

The purpose of the proposed amendment is to reduce the barriers to entry for parallel imports in light of its benefits in promoting competition, by preventing official importers from engaging in anti-competitive practices. The amendment aims, therefore, to impose restrictions onofficial importers in similar fashion to those applicable to dominant firms ("monopolies") as set out in Section 29A(a) of the Law. According to the amendment an official importer shall not abuse its position in the market in a manner liable to reduce business competition emanating from the parallel imports. The amendment authorizes the Director General to give instructions to an official importer in order to prevent substantial harm being caused to competition, should the official importer seek to thwart the parallel imports.

The amendment does not regulate the relations between the official importer and the manufacturer and therefore does not in itself prohibit an exclusivity agreement being reached between them, provided that its terms do not breach other relevant provisions of the Law.

4.              Conclusion

The IAA seeks to tighten the prohibitions under the Law and to increase its control over certain commercial practices by stipulating a general prohibition of mergers which raise a reasonable concern of substantially harming competition and prohibiting an abuse of a dominant position by official importers even in case they are not deemed to be monopolists according to Section 26 of the Law.

The proposed amendments are still in their early stages, are subject to public debate, governmental consultations and legislation proceeding before the Israel parliament, a process which may take a year or more, and it is advisable to keep apprised of their developments and final version.