1. If the merger creates a monopoly – if, as a result of the merger, the share of the merging companies in the total manufacturing, selling, marketing or purchasing of a particular good and of a similar good, or the provision of a particular service and of a similar service, exceeds one half, or a smaller share if the Minister, pursuant to § 26(c), provides for such with respect to monopolies.

2. If the combined sales turnover of the parties to the merger is higher than NIS 150,000,000 – if the combined sales turnover of the merging companies together exceeded NIS 150 million during the balance sheet year preceding the merger, and the sales turnover of each of the companies is at least NIS 10 million. The Minister may, with the approval of the Knesset’s Committee on the Economy, change this amount.

3. If one of the parties to the transaction is a monopoly – if one of the merging companies is a monopoly, as that term is defined in § 26.

What are the practical obligations regarding a restrictive arrangement?

Israeli law imposes an absolute prohibition on the creation of a restrictive arrangement without obtaining approval from the Antitrust Tribunal or without obtaining temporary permission from the Chief Judge of the Antitrust Tribunal, or without an exemption from the need to obtain approval which has been granted by the Israel Antitrust Authority’s General-Director. The following are additional obligations that are imposed on restrictive arrangements:

Duty to register: Any restrictive arrangement, including all its details, must be registered in the Restrictive Arrangements Register, which is maintained by the Israel Antitrust Authority’s General-Director.

Duty to publish: Any application for approval of a restrictive arrangement must be publicized after its registration, prior to its being brought before the Antitrust Tribunal for deliberation.

Duty to prove that the restrictive arrangement is for the public benefit: The parties must prove that the arrangement will contribute to the public benefit or at least that its advantages for the public outweigh its possible disadvantages.

Duty to obtain approval from the Antitrust Tribunal, or a temporary permit from the Chief Judge, or an exemption from the need to obtain approval from the Israel Antitrust Authority’s General-Director, prior to the restrictive arrangement being put into operation in any form at all.

The Israel Antitrust Authority’s General-Director may, pursuant to § 43, determine that a particular existing arrangement, or one that the parties are seeking to reach, is in fact a restrictive arrangement. A party disputing such a determination may appeal it to the Tribunal. The General-Director’s determination will be prima facie evidence, in any legal proceeding, of whatever is established in such determination.

The Israel Antitrust Authority’s General-Director may exempt the parties to an arrangement from the duty to obtain the approval of the Antitrust Tribunal, when the General-Director is persuaded that the arrangement’s restraint on competition in the market is only minimal. The General-Director may revoke an exemption that has been granted. The General-Director’s decision to grant or revoke an exemption may be appealed to the Chief Judge of the Antitrust Tribunal. Decisions regarding exemptions will be published in Reshumot [the Government Gazette].

How does the Law define a companies merger?

A companies merger includes an acquisition by one company of the main part of another company’s assets, or the acquisition of shares by another company which grants the acquiring company more than one quarter of the par value of the acquired company’s issued share capital or of the voting rights, or the power to appoint more than a quarter of the acquired company’s directors or participation in more than a quarter of the acquired company’s profits. The acquisition can be direct or indirect or through rights that are granted by contract.

What is a restrictive arrangement?

The general framework is as defined in § 2(a) of the Law:
A restrictive arrangement is an arrangement entered into by persons conducting business, according to which at least one of the parties restricts itself in a manner liable to eliminate or reduce the business competition between it and the other parties to the arrangement” . . . unless there is an exemption pursuant to the Law or approval of the restrictive arrangement has been sought and obtained from the Antitrust Tribunal or the General-Director.

The narrow framework is as defined in § 2(b) of the Law:
An arrangement involving a restraint relating to one of the following issues shall be deemed to be a restrictive arrangement: the price to be demanded, offered or paid; the profit to be obtained; the division of all or part of the market, in accordance with the location of the business or in accordance with the persons or type of persons with whom business is to be conducted; the quantity, quality or type of goods or services in the business.

Form of the arrangement:

Horizontal arrangement – an arrangement between competitors who supply the same goods or provide the same service.

Vertical arrangement – an arrangement between entities that have either a supplier-customer or a supplier-distributor relationship, along the chain of production.

What is the Restrictive Trade Practices Law’s definition of a monopoly?

a.  Control of more than one half of the market – a concentration of more than half of the supplying or purchasing of a particular good, or of more than one half of the provision or purchasing of a particular service, in the hands of one person.

b.  Regional monopoly – a monopoly can be in a particular region.

c.  A monopoly that controls less than one half – the Minister may, at the General-Director's recommendation, determine that with regard to particular goods or particular services, a concentration of less than one half will be deemed to constitute a monopoly, if the Minister sees that a party holding such a concentration has a determinative influence on the market regarding such goods or services.

d.  Concentration Group – when a concentration such as is described in sub-section (a) above, or which has been determined pursuant to sub-section 26(c) of the Restrictive Trade Practices Law, is held by two or more persons who do not compete with each other or who compete only minimally with each other, such concentration will be viewed as a monopoly.

What is the meaning of the definition of the relevant market?

The "relevant market" is a fundamental concept in antitrust law. The definition of the relevant market delineates the variety of goods or of services between which there is a certain degree of substitutability, and the analysis of the market powers operating in a certain sector therefore requires that reference be made to the manufacturers of such goods or to the providers of such services. In other words, the delineation of the relevant market allows for an examination of who are the relevant players, for a mapping of the power relationships between them and of their significance in the context of the market's characteristics, and for a determination of whether there are impediments and obstructions that are preventing the efficient flow of goods and services. One of the prevailing legal definitions of the concept of “the relevant market” is: it consists of the smallest group of products in the given geographic region, which, if their sellers were to hypothetically join together – either through a merger or through a restrictive arrangement – they could raise the prices of the products beyond the competitive price, or limit the manufacture of their products, while still increasing their profits.

This is not at all a simple definition, and from a substantive perspective it suffers from a certain artificiality. It is apparently difficult and sometimes impossible to distinguish between separate markets, and it would seem to be possible to place all of the goods and services in a multidimensional continuum. There are relatively few products for which demand is completely inflexible. In most cases, the consumer’s choices are made in relation to a basket of goods which include a variety of goods and services components, and the importance of any particular good for the consumer is therefore minimized.

There are two common tests for defining the relevant market: one – the demand substitutability test –defines the group of products to be included in the market from the perspective of the consumer; the other – the supply substitutability test – defines the scope of the supply for the same group of products. In choosing between these two tests, there will be primary emphasis on demand substitutability, since it is mainly through this test that it is possible to define the supply substitutability, as it is only after the group of products to be included in the market is defined that it is possible to determine the actual and potential supply of this group of products.

Moreover, the relevant market is by its nature defined for a particular geographic region, because the distance between manufacturers becomes more significant in terms of supply as transportation costs increase. Generally, the issue of the geographic market is less relevant in Israel, in light of its small geographic size.

What are restrictive trade practices?

The Restrictive Trade Practices Law-1988 entered into force at the end of 1988. It replaced the old Restrictive Trade Practices Law of 1959. The 1988 Law distinguishes between three types of restrictive trade practices. These are the practical definitions of these practices:

A restrictive arrangement: an arrangement between different persons conducting business, the purpose of which is to enable them to collaborate in matters of prices, manufacturing methods, marketing areas, etc, or any other arrangement which is capable of reducing competition in the market.

Monopoly: the supply of a good or service by a single business owner who is the party with exclusive control in a significant portion of the market.

Companies merger: the acquisition of more than one quarter of the shares of a company or of most of its assets by another company, if – as a result of such acquisition – the merging companies become a monopoly, or if the combined sales turnover of the merging companies exceeds an amount established, by law or if one of the merging companies is a monopoly.

What are the legislative exemptions from the restrictive arrangement section of the Law?

Statutory arrangement – An arrangement in which all of the restraints are established by law.

Intellectual property – An arrangement in which all of the restraints relate to the right to use one of the following types of assets: a patent, sample, trademark, copyright, performer's right or developer's right.

Use of real property – An arrangement between a party granting a right in real property and a party acquiring such a right, in which all the restraints relate to the type of goods or services in the supply or provision of which the party acquiring the right will engage on such real property.

Agricultural produce – An arrangement in which all of the restraints relate to the growing and marketing of locally grown agricultural produce of the following types: fruits, vegetables, plants, milk, eggs, honey, cattle, sheep, poultry or fish, if all the parties to the arrangement are growers or wholesale marketers. This does not apply to products created from such agricultural produce.

Related companies – An arrangement in which the only parties are a company and its subsidiaries.

Mutual exclusivity – An arrangement between the purchaser of a good or service and a supplier, in which all of the restraints consist of the supplier’s undertaking not to supply particular goods or services for the purpose of marketing other than to the purchaser, and the purchaser’s undertaking to purchase such goods or services only from the supplier, provided that neither the supplier nor the purchaser is engaged in the manufacture of such goods or in the provision of such services. Such an arrangement can apply to the territory of the entire country or to a part thereof.

Air or sea transportation – An arrangement in which all of the restraints relate to international shipping by sea or air, or to international shipping through a combination of sea, air and land transportation, provided that all the parties to the arrangement are shippers by sea or air, or all the parties are shippers by sea or air and an international organization of airlines or maritime shipping companies, which has been approved for this matter by the Minister.

Sale of a business – An undertaking of a party selling a business in its entirety, given to the the party acquiring the business, in which the selling party agrees not to engage in the same type of business, if such undertaking conforms to reasonable and standard norms.

Workers' or employers' association – An arrangement to which a workers' or employers' organization is a party, and in which all of the restraints relate to the employment of workers and to terms of employment.

What does the Antitrust Tribunal consider in granting an approval for restrictive arrangements?

Efficiency – the increased efficiency of the production and marketing of goods or services, the guarantee of their quality or the reduction of prices for consumers.

Assurance of supply – guaranteeing sufficient supply to the public of goods or services.

Fair competition – The prevention of unfair competition, which can lead to the reduction of competition in the supply of goods or services in the supply or provision of which the parties to the arrangement are engaged, from the perspective of a person who is not a party to the arrangement.

Facing a monopoly – Providing the parties to the arrangement with the opportunity to obtain the supply of goods or services under reasonable terms, from a person who controls a significant portion of the supply, or to provide goods or services under reasonable terms to a person who holds a significant portion of the purchasing power regarding such goods or services.

Preservation of an economic sector – preventing serious harm to a sector which is important to the country’s economy.

Preventing unemployment – maintaining the continued existence of factories as a source of employment in a region in which significant employment could develop as a result of the closure or reduction of production at such factories.

Balance of payments – the improvement of the country's balance of payments by reducing imports or making imports cheaper or by increasing exports or increasing the feasibility thereof.

Who is an antitrust offender based on an explicit provision?

1.  A party to a restrictive arrangement which has not been properly approved and for which no temporary permit or exemption has been granted.

2.  A person who violates a condition pursuant to which a restrictive arrangement was approved or pursuant to which a temporary permit or exemption was granted.

3.  A person who did not submit a notice regarding a companies merger or who committed an act which amounts to either a full or partial merger without submitting such a notice.

4.  A person who violates a condition established in the approval of a merger.

5.  A monopoly that abuses its market position, provided that the offender's intention to reduce competition in the market or to harm the public has been proven.

6.  A monopoly that does not comply with an instruction given to it by the Antitrust Tribunal, or which violates a monopoly divestiture order or a divestiture order regarding companies that have merged without following legal requirements.

7.  A person violating a temporary order given by the Antitrust Tribunal's Chief Judge or by the Antitrust Tribunal, or any other order that was given by the Antitrust Tribunal for the purpose of assuring compliance with a Tribunal decision.

Penalty:
Imprisonment of three to five years, depending on the circumstances of the case, or a fine of up to NIS 2,020,000 and an additional fine of up to NIS 13,000, for each day that the offense continues. If the offender is a corporation, the said fine or additional fine, whichever is relevant, is doubled.

Who is, in a general sense, an antitrust offender?

A party that violates any of the other provisions in the Restrictive Trade Practices Law.

Penalty:
A one year prison sentence or a penalty of up to NIS 673,000, and an additional fine of up to NIS 13,000, for each day that the offense continues. If the offender is a corporation, the said fine or additional fine, whichever is relevant, is doubled.

Defendants:
Includes any person who at the time that the offense was committed was an active manager, partner – other than a limited partner, senior administrative employee responsible for the relevant area in the incorporated entity that has committed the offense, unless it is proven that the offense was committed without such person's knowledge and that all reasonable measures were taken to ensure compliance with this law.

An employee or agent of the defendant may raise a defense against a violation of this law if such employee or authorized party proves that he or she was acting in the name of his or her employer or principal and in accordance with the employer's or principal instructions, and that he or she believed, in good faith, that his or her acts did not constitute a violation of this law.

Remedies available in the event of a violation of the Restrictive Trade Practices Law:

1.  Suit by an injured party, pursuant to the Torts Ordinance.

2.  The granting of an injunction against an act that constitutes a violation of the Restrictive Trade Practices Law, and requiring the giving of a bond against the commission of such an act.

3.  The granting of an order to carry out an act which prevents the violation of the Restrictive Trade Practices Law.

Demand substitutability

The economic test for defining demand substitutability is the cross elasticity of demand, which examines the substitutability of products according to the change in the quantity of a single product which is demanded in response to a change in the conditions of the supply of a different product, or to a change in the first product's price. If there is a high level of cross elasticity of demand between two products, the products are good substitutes for each other, and it is therefore appropriate to see them as part of the same market.

The opposite is also true: if there is a low level of cross elasticity of demand between two products, there is a low level of substitutability between them, and it is reasonable to see them as not being part of the same market. The legal application of this test is the reasonable interchangeability of use test. This test is seemingly, a functional test and it distinguishes between products on the basis of their objectives.

Standard auxiliary tests for determining demand substitutability:

1.  Functional similarity

2.  Differences in quality and type

3.  Price differences

4.  Product price trends

Supply substitutability

As stated, demand substitutability defines who the players in the market are. The concept of supply substitutability establishes that the players in the market are not just those who are currently active in it, but that potential players are also to be included. Supply is not necessarily the amount which is actually or potentially produced in a particular market; instead, it is the amount which is supplied to the market. In certain instances, these amounts could be different. If there are manufacturers who could quickly and easily transfer to the production of product X, the market for product x will be characterized by competitive discipline. The manufacturers of product X will be afraid to deviate from competitive conditions, since by doing so, they would invite players from outside their market to enter into it.

The inclusion of potential competitors in the relevant market is not a simple matter in terms of Israeli law. This is because, in a number of situations, the law establishes a quantitative measurement for some purpose or another. A reference to potential competitors is expected, in many cases, to render impossible the quantitative measurement of market share.