January 22, 2024
In two recent rulings, the Supreme Court and the Competition Tribunal have supported and increased the enforcement and punishment powers of the Competition Authority against monopolies – by rejecting appeals by Bezeq and Ashdod Port Company Ltd. against the Director General’s decisions to impose financial sanctions of 30 and 9 million NIS (respectively) on the two companies, alongside significant personal sanctions against each of the companies’ respective officers.
The Competition Authority continues to target additional monopolies in Israel, and has reached an agreement with Meta Platforms (Facebook) on a 25 million NIS sanction for failure to report notifiable mergers, which Meta carried out without the Director General’s approval contrary to the requirements of the law.
On the criminal level – in a groundbreaking precedent for Israel, an external compliance monitor will be appointed to supervise a company’s adherence to competition law provisions, instead of continuing criminal proceedings.
The Supreme Court rejected Ashdod Port Company Ltd.’s appeal and accepted the counter-appeal filed by the Director General – Ashdod Port Company Ltd. will pay 9 million NIS for abuse of dominant position.
In 2015 the Director General declared Ashdod Port Company Ltd. a monopoly in unloading vehicles imported to Israel from the US and Europe, and determined that the discounts it provided to car importers amounted to abuse of dominant position.
According to the Director General’s determination, which was just affirmed by the Supreme Court, retroactive target discounts – meaning, discounts tailored to suit each individual importer in order to cover their entire import volume and which were only provided retroactively if the importer met the entire quota – may be anti-competitive and constitute abuse of dominance. The Supreme Court even establishes a rebuttable evidentiary presumption whereby a discount policy that reviews a customer’s transactions retroactively is a tailored discount rate (and hence, presumptively invalid).
The Supreme Court upheld the Director General’s decision that Ashdod Port Company Ltd.’s discount policy – which was set retroactively, annually, in relation to all vehicles imported that year and according to each importer’s specific level of activity – constituted abuse of dominance. Accordingly, the Supreme Court overturned the Competition Tribunal’s decision, which had reduced the sanction imposed on Ashdod Port Company Ltd. from 9 million NIS to 3.5 million NIS, and restored the amount of the sanction to its original sum of 9 million NIS. The Supreme Court opined that there were no grounds for the Tribunal’s intervention in the Director General’s decision where it is reasonable, strengthens the Competition Authority’s hand in determining the amount of financial sanctions in future enforcement proceedings, and establishes a high bar for intervention in the level of sanction determined by the Tribunal.
According to competition law, a monopoly holder is one whose market share exceeds 50%, or one with “significant market power” – even if its actual market share is less than 50%. Moreover, declaring a company as having a monopoly is not a prerequisite for having such status, and the Director General may enforce against any monopoly meeting the statutory definition and in amounts up to 100 million NIS per violation – even without declaring it a monopoly holder.
The Competition Tribunal rejects Bezeq’s appeal – Bezeq will pay 30 million NIS for abuse of power and its former CEO will pay a personal sanction of 0.5 million NIS
The Competition Tribunal has published its reasons for its judgment from last October, rejecting the appeal of Bezeq and its former CEO, leaving intact the Director General’s decision to impose sanctions of 30 million NIS on Bezeq for two violations of abuse of dominance and refusal to supply, and 0.5 million NIS on the office holder.
In a 2019 decision the Director General held that Bezeq abused its monopolistic status in the field of passive telecommunications infrastructure, and engaged in practices that hampered its competitors in the internet sector who sought to deploy a landline telecommunications network over Bezeq’s infrastructure. Among the improper practices – Bezeq blocked its competitors’ access to the last mile segment connecting the infrastructure to the end customer and thus forced competitors to deploy additional independent infrastructure in that segment, and also refused its competitors’ request to deploy the telecommunications network in fiber optic cables. According to the Director General, these practices raised competitors’ costs and delayed their market entry.
Bezeq appealed the Director General’s decision and the amount of the sanction but its arguments were unanimously rejected by the Tribunal. In its decision, the Tribunal made several substantive determinations, including: even though the designated regulator – the Ministry of Communications, dealt in parallel with infrastructure deployment issues, this does not detract from the Director General’s concurrent jurisdiction to enforce in this case; Israeli competition law may require a monopoly to provide access to an essential resource under its control to its competitors as well, without discrimination; refusal to supply by a monopoly may arise from the very existence of a refusal policy – even absent a specific request from a customer to receive the service or product coupled by actual refusal of the monopoly to do so; when each practice has its own anti-competitive effect, they can be enforced as two separate violations – and impose for each violation a separate sanction.
The 9 million NIS sanction, which the Tribunal reinstated, was imposed at a time when the maximum penalty for a single violation of competition law was about 24 million NIS. Since the Bezeq decision, this amount has been increased to 100 million NIS.
Meta (Facebook) will pay 25 million NIS for breach of merger reporting obligation – and has undertaken to report to the Competition Authority any merger transaction it is party to in the future
The Competition Authority and Meta have reached an agreement whereby Meta will pay the State Treasury a 25 million NIS sanction for failure to report to the Director General mergers it executed, including acquisition of RedKix Inc. in 2018 and acquisition of Service Friend Ltd. in 2019.
As part of the agreement, Meta has undertaken to report to the Director General any merger transaction to which it or any entity under its control is party (under the reporting obligation of monopoly holders), and the Director General has undertaken not to take enforcement measures against Meta and its officers for the 2018 and 2019 mergers. As part of the agreement, Meta does not admit to violations of the Competition Law.
This is a relatively low sanction amount for a company the size of Meta – partly because the Director General treated the failure to report in this case as a violation that was not likely to harm competition (a “technical” violation). This is because there was no concern of harm to competition as a result of these mergers, which would likely have been approved without conditions had they been submitted as required.
Generally, the definition of a “merger of companies” in competition law is broad and encompasses a wide range of transactions. However, not every transaction deemed a “merger of companies” under competition law requires reporting and preapproval by the Director General. The reporting obligation arises only where the merger transaction meets one of the criteria enumerated in law – for example, where the merging companies have sales turnover exceeding a certain amount, or where one of the merging companies is a monopoly holding over 50% of the relevant market.
The agreed order is subject to public review and approval by the Competition Tribunal.
A first in Israel – Amisragas will appoint an external monitor to ensure company compliance with competition law provisions instead of criminal proceedings
The Competition Authority and Amisragas have reached an agreed order whereby instead of continuing criminal proceedings against the company for suspected violations of competition law, Amisragas will pay a 3 million NIS sanction and appoint an external monitor who will audit the company’s and its employees’ adherence to competition law provisions.
Under the terms of the agreed order, the external monitor will supervise Amisragas for three years, and will examine the company’s and its employees’ adherence to competition law provisions and implementation of the company’s internal enforcement program. The external monitor has broad powers to fulfill its duties, including obtaining documents and information from Amisragas and its employees, conducting surprise audits and interviewing employees at all levels, reporting to the CEO and more. Failure to comply with the external monitor’s requirements constitutes a violation of the agreed order – and hence competition law.
Appointing an external monitor to supervise a company and its adherence to competition law provisions is unprecedented, and has never been used before in Israel for competition law violations.
While an external monitor is appointed after an ostensible violation has been uncovered, a similar function may be fulfilled, as a preventative measure, by an internal compliance officer or corporate counsel, as well as external counsel specialized in competition law; these may ensure existence of a compliance program tailored to the company, employee training, auditing the company’s routine conduct regarding competition law issues, and advice on competition law matters encountered by the company during its business activities – thereby reducing and even preventing violations of competition law by the company or its employees ahead of time and providing legal cover for company officers.
The purpose of this newsletter is to convey recent developments and innovations in the law and it does not constitute legal advice regarding a course of action in a specific incident. We would be happy to provide clarification and/or further explanation upon request.
Competition & Antitrust Law Practice.