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05/11/18
 

Public Statement 1/18
In the matter of the interpretation of section 14(a)(2) and section 15A(a)(2)
of the Antitrust Law, 5948 - 1988
and similar sections in the block exemption rules

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WORD:
Date of Publication:
05/11/2018

 

 

Public Statement 1/18

 

In the matter of the interpretation of section 14(a)(2) and section 15A(a)(2)

of the Antitrust Law, 5948 - 1988

and similar sections in the block exemption rules

 

I.              Preamble

Section 14 of the Antitrust Law, 5948 - 1988 (hereinafter: the “Law”) authorizes the General Director of the Antitrust Authority to exempt the parties to a restrictive practice from the duty to obtain the approval of the tribunal for such arrangement, when certain conditions are fulfilled. One of the conditions for granting an exemption is set forth in section 14(a)(2) as follows:

The objective of the arrangement is not to reduce or eliminate competition, and the arrangement does not include any restraints which are not necessary to fulfill its objective.

A similar provision is set forth in section 15A(a)(2) as a condition to the authority of the General Director of the Antitrust Authority to determine a block exemption rule:

The objective of the arrangement is not to reduce or eliminate competition, and the arrangement does not include any restraints which are not necessary to fulfill its objective.

 In addition, the vast majority of the block exemption rules include provisions that are similar to the provisions of the Law mentioned herein above, and they condition the application of the block exemption on the objective of the arrangement not being to reduce or eliminate competition, and the arrangement does not include any restraints which are not necessary to fulfill its objective.[1]

In the same way that section 14(a)(2) of the Law is central in the process of determining as to an exemption application to the General Director, the parallel provisions in the various antitrust block exemption rules are central to determining as to the application of block exemption rules. The significance of these provisions increased in recent years with the publication of new block exemption rules based upon self-assessment.[2]  The block exemption rules based upon self-assessment essentially rely upon provisions that are parallel to the two elements set forth in section 15A(a) and allow the parties to inspect by themselves whether they are in compliance with the requirements of these provisions. In the application of block exemption rules based upon self-assessment past interpretation of these terms in practice and studies should be relied upon. As to the parallel provisions set forth in section 15A(a)(1), there are judgments and decisions of the General Director that add contents to this condition and allow the users of the block exemption rules based upon self-assessment to apply this component in the self-assessment of the arrangement between them. As to the parallel provisions set forth in section 15A(a)(2), there is very little reference in case law and the decisions of the General Director. Currently certain amendments were adopted for the two block exemption rules, that add a track that is based upon self-assessment.[3]  A draft for comments of the public of an amendment to another block exemption rule, that also proposes to add a track based upon self-assessment is in the last stages of amendment.[4] Because block exemptions based upon self-assessment rely predominantly upon the provisions that are parallel to section 15A(a), the importance of section 15A(a)(2) to the analysis of the application of a block exemption on a specific transaction increases significantly. In view of this, I see it fit to publish this public statement, the presents the interpretation of the Antitrust Authority of these provisions. For convenience this public statement will focus upon section 14(a)(2) of the Law, but the statements herein should be viewed as relevant to section 15A(a)(2) as well and to the parallel provisions in the block exemptions, mutatis mutandis. When the parties to the arrangement apply block exemption rules, those based upon self-assessment included, they must take extra care that the provisions parallel to the provisions of section 14(a)(2) are fulfilled. If those provisions are not fulfilled, the block exemption rules do not apply, and the parties may find themselves violating the Antitrust Law.

As previously mentioned, section 14(a)(2) of the Law is only one of two cumulative conditions, and only when both are fulfilled an exemption for a restrictive arrangement becomes possible. The other condition is provided in section 14(a)(1), that discusses the extent of impairment that the arrangement may cause to competition. As already noted, the same rule applies to section 15A(a)(2), which is cumulative with section 15A(a)(1).[5] We will discuss the relation between these two conditions in page 13 herein below. Nevertheless, it must be emphasized already at this point that compliance with the requirements of section 14(a)(2) (or of the parallel requirements in the block exemption rules) is insufficient to determine that an exemption to a restrictive arrangement may be granted; For that purpose, compliance with the requirements of section 14(a)(1) (or with the relevant requirements of the block exemption rules) is necessary. On the other hand, non-compliance with the requirements of section 14(a)(2) (or with the parallel requirements in block exemption rules) is sufficient to determine that the arrangement may not be awarded a particular exemption and is not covered under any of the block exemption rules.   

Obviously, section 14(a)(2) and its parallels are relevant to arrangements that are restrictive arrangements pursuant to section 2 of the Law. The discussion in this public statement does not pertain to the question when an arrangement may be defined as a restrictive arrangement pursuant to section 2 of the Law, and the presumption is that the arrangements which it discusses - are restrictive arrangements.

II.           Section 14(a)(2) of the Law - beginning and ending

Section 14(a)(2) is comprised of a beginning (“the objective of the arrangement is not to reduce or eliminate competition”), and an end (“and the arrangement does not include any restraints which are not necessary to fulfill its objective”). As set forth herein below, the beginning of section 14(a)(2) requires that the arrangement has an “objective”, which in itself does not reduce or eliminate competition. In other words, it is required that the arrangement would have an “objective” that is a transaction of legitimate cooperation, for example a joint venture to streamline production processes. The end of section 14(a)(2) requires that any restraint [6]included in the arrangement would be necessary to carry out the objective of the arrangement; According to the example of a joint venture to streamline production processes, the end requires that any restraint included in the arrangement would be necessary for the success of such joint venture to streamline production processes, which is “the objective of the arrangement”.

Section 14(a)(2) was added to the law as part of a wider amendment to section 14 that was carried out in the framework of the Antitrust Law (amendment no. 6), 5960 - 2000.[7]  In its decision the matter of Thetis Sea from that year, the General Director was required to discuss the essence of the amendment to section 14 and inter alia wrote thus:[8]

Section 14(a)(2) of the Law anchors an important principle into the Antitrust Law: The distinction between ancillary restraint to naked restraint and the unlawfulness of the latter. Ancillary restraints are those that are considered essential for carrying out the arrangement, their purpose is not to reduce competition, and their results are unavoidable in business reality. Naked restraints are those underlying an arrangement that is not essential to carrying out the transaction. . .

. . .

Indeed, section 14 clarifies very will that naked restraints cannot be exempted under the authority of the General Director. . . .

In the decision in the matter of the Workshops Association in Israel, the General Director wrote thus:[9]

The second condition set forth in the section [that is to say, in section 14(a)(2)] expresses the well-established distinction ancillary restraint and naked restraint, a distinction that is also found in judgments of Israeli courts.

Even prior to the amendment of section 14 in the year 2000, the tribunal and the General Director pointed out to the importance of the distinction between ancillary restraints and naked restraints in the matter of granting an exemption to a restrictive arrangement.[10] The tribunal discussed the importance of this distinction also in the context of the application to approve a restrictive arrangement.[11]

Of the importance of the distinction between ancillary restraints and naked restraints see also the statements of scholars Areeda & Hovenkamp:[12]

The most useful classification scheme for antitrust analysis segregates so-called "naked" and "ancillary" agreements.  This all-important classification largely determines the course of subsequent legal evaluation of any restraint.

In the presentation of the interpretation of the Authority to section 14(a)(2) herein below we refer also to legal sources from abroad that discuss the distinction between ancillary restraints and naked restraints, this alongside Israeli judgments and the decisions of the General Director.

III.        The beginning of section 14(a)(2) - “the purpose of the arrangement”

As set forth herein above, the beginning of section 14(a)(2) requires that the arrangement has an “objective”, which in itself does not reduce or eliminate competition. In the presentation of amendment no. 6 of the Antitrust Law before the Israeli Knesset for second and third voting, the chair of the Economics Committee, Knesset member Avraham Poraz discussed a legitimate arrangement: The cases that are worthy of an exemption are agreements in which the restriction of competition is ancillary, adjunct to a legitimate arrangement that is beneficial to business and competition”.[13] The intention here is to a transaction of combining to business forces to streamline, increase production, develop new products and so forth. Further on in his presentation Knesset member Poraz provided an example to such a case: “A partnership to develop a new product between two communications companies”. Additional examples are provided in the decisions of the General Director and in judgments in Israel as well as abroad: Collaboration between pharmaceuticals company and a pharmaceuticals inventor, for the purpose of inventing and developing new pharmaceuticals;[14] An engagement between a publisher of a daily newspaper and a distribution company in order to distribute the paper to subscribers;[15] An engagement between a music company and a distributor to distribute records and CDs;[16] An arrangement between a power producer for own use and another power producer in the matter of sale of power surplus;[17] An arrangement between a foods manufacturer and a foods marketer in the matter of production of Tofu for marketing under the brand of the marketer;[18] A collaboration between records companies in order to offer blanket licenses to play their creations;[19] An engagement between two store networks to establish a joint commercial center;[20] An engagement between transportation companies to create a national network for transportation of contents of apartments;[21] Cooperation between television companies and communications companies to establish a satellite television channel;[22] Renting out a store in a commercial center;[23] R&D cooperation between manufacturers of electronics products;[24] Cooperation between software companies to develop an open operating system;[25] Cooperation between football clubs to establish a national league.[26] It is not necessary that such cooperation be particularly complex or in a large financial scope. Case law and literature indicate the simple and common example of cooperation between lawyers to establish a law office.[27] These examples are for illustration purposes only and each case must be examined according to its circumstances.

In all the examples set forth above, the purpose of the business collaboration was streamlining, increase of production, improvement of the product and so forth. The Canadian Competition Bureau described it thus: "a legitimate collaboration, strategic alliance or joint venture".[28] The United States Antitrust Law Enforcement Authorities explained the matter thus:[29]

In an efficiency enhancing integration, participants collaborate to perform or cause to be performed (by a joint venture entity created by the collaboration or by one or more participants or by a third party acting on behalf of other participants) one or more business functions, such as production, distribution, marketing, purchasing or R&D, and thereby benefit, or potentially benefit, consumers by expanding output, reducing price, or enhancing quality, service, or innovation. Participants in an efficiency-enhancing integration typically combine, by contract or otherwise, significant capital, technology, or other complementary assets to achieve procompetitive benefits that the participants could not achieve separately. The mere coordination of decisions on price, output, customers, territories, and the like is not integration, and cost savings without integration are not a basis for avoiding per se condemnation.

Therefore, “the purpose of the arrangement” is that business collaboration for the purpose of streamlining, increase of production, improvement of the product and so forth. Thus, in the decision of the General Director in the matter of Lev Group Media and Helicon, under the heading “the purpose of the arrangement”, it was stated that “the arrangement was intended to allow Lev Group to distribute the products covered by the arrangement”.[30] In the decision of the General Director in the matter of General Mills Israel and Noga Ice creams it was stated that “the arrangement before me is an arrangement the purpose of which is distribution of products.” . .".[31] The decision of the General Director in the matter of Tnuva and A.I.N. Food Industries stated that “the purpose of the arrangement is to manufacture Tofu products by A.I.N Industries for Tnuva”. . .".[32] Similarly, in the judgment in the case of Los Angeles Memorial Coliseum it was stated that “the purpose” of the arrangement is the operation of a football league: "main purpose of producing NFL football".[33] In the matter of Addyston, the court described to arrangement “the purpose of which” was to consolidate capital, act and invigorate for the purpose of good and beneficial business management:[34]

. . . the main purpose of a union of their capital, enterprise, and energy to carry on a successful business, and one useful to the community.

As opposed to all these, there are arrangements the main purpose of which is to reduce or prevent competition. See for example the decision of the General Director in the matter of not granting an exemption to the Workshops Association:[35]

Once I have made these statements as to the current state of affairs of the market, I can inspect the expected impact of the agreement for joint negotiations on the market. In the description herein above of the current state of the market lies also the explanation for classifying the agreement as an agreement the main purpose of which is to reduce or prevent competition: The workshops wish to centralize the entire matter of individual negotiations in one body that will negotiate centrally with the insurance companies and thereby will increase the power of the workshops against the insurance companies, and will allow them to raise their prices. In other words: The association wishes to allow it to “overcome” the market forces by creating an (artificial) monopoly force of service providers.

. . .

The purpose of the arrangement is, therefore, a decrease in existing competition among workshops, and therefore the second (cumulative) condition for granting an exemption is not fulfilled, and I am not authorized to grant an exemption from the duty to obtain the approval of the Antitrust Tribunal for the arrangement.

Thus in the case of a restraint that stands alone so that the arrangement does not have any “purpose” other than the restraint.[36] The same rule applies even if the parties to the arrangement claim that benefit will arise from a reduction or prevention of competition; This, because in the absence of “a legitimate transaction” “the purpose of the arrangement” is the reduction or prevention of competition.[37] Thus, the purpose “to prevent the deterioration of the market” cannot justify coordination of tenders between competitors;[38] A “survival” motive in view of the claim of loss prices does not justify coordination of prices or market division among competitors;[39] The wish to ensure “stability” in view of huge losses does not justify coordination of prices between competitors;[40] The purpose to “rationalize” the sector cannot justify coordinated closing of part of the competitors against compensation by the remaining competitors;[41] Thus, the purpose to prevent unbridled competition cannot justify coordination of tenders between competitors;[42] in such cases there is no “legitimate transaction” of combining business forces to streamline, increase production, improve the product and so forth, and therefore the beginning of section 14(a)(2), that is to say “the purpose of the restrictive arrangement is not to reduce or prevent competition” is not fulfilled. To the contrary, in the absence of “a legitimate transaction” as set forth above, the purpose of the arrangement is indeed “a reduction in competition or its prevention”, even if it is claimed by the parties that such reduction or prevention of competition will lead to a certain desirable result. 

IV.         The end of section 14(a)(c) - the requirement that any restraint in an arrangement is necessary to fulfill its purpose

Even if the purpose of the arrangement is a legitimate transaction of combining business forces in order to streamline, increase production, improve and so forth - that is to say even if the beginning of section 14(a)(2) is fulfilled, so that “the purpose of the restrictive arrangement is not to reduce or prevent competition” - this alone is not enough to comply with the requirements of section 14(a)(2). In order to complies with the requirements of section 14(a)(2), one has to comply with the requirements of the end of the section as well: “and [the arrangement] does not include restrains that are not necessary to fulfill its purpose”.  This requirement includes three components. Firstly, that all the restraints in the arrangements will be “necessary to fulfill its purpose”; Secondly, that the restraints will not be wider than is necessary; Thirdly, the restraints will be secondary to such legitimate cooperation that is “the purpose of the arrangement”. We will elaborate on each one of these components of requirement of necessity.

IV.a    Requirement of necessity

The basic component of the requirement of necessity is, as mentioned herein above, that the restraints in the arrangement are indeed necessary to realize such legitimate cooperation that is “the purpose of the arrangement”. The extent of the necessity required was described in case law in various ways.

In the Arad Case, in the framework of the application to approve a restrictive arrangement, the tribunal defined the requirement thus:[43]

Essential or at the very least clearly required to carry out an arrangement with legitimate commercial purposes.

In its judgment in the matter of the IEC, in which an application to approve a restrictive arrangement was discussed, the tribunal ruled:[44] 

The question . . is not only whether the restraint the subject of the hearing may promote the purposes of the arrangement, but whether it is essential for such purpose, or at the very least, according to a more lenient test, whether it promotes the legitimate purposes of the arrangement in a significantly better way that the other alternatives which impair competition less.

In the Iscoor Case, an appeal on granting an exemption prior to the amendment of section 14 in the year 2000, it was stated thus:[45] 

Restraints that are essential in order to establish the joint venture and to ensure its operation, the absence of which may risk the existence of the joint venture.

The Authority will deem a restraint as compliant with the necessity requirement if it is directly related and reasonably required for the realization of the purpose of the arrangement.[46] In the matter the Authority will focus upon the question of existence of practical alternatives the probable harm of which in competition is considerably smaller than the restraint selected by the parties. The existence of alternatives that are merely theoretical or that impair competition in a minutely smaller degree, will not lead to the conclusion that the restraint selected by the parties is not necessary.[47] The application of the test is according to the relevant facts of each case.[48] If the arrangement includes a restraint that is not necessary for the realization of the legitimate purpose of the arrangement, the arrangement will not fulfill the requirement of the end of section 14(a)(2) of the Law, which provides “and does include any restraints which are not necessary to fulfill its objective”. 

IV.b   Prevention of free riding and the necessity of the restraint

There are cases in which the necessity of the restraint for the realization of such legitimate cooperation, which is the “purpose” of the arrangement, lies in the need to prevent the risk of free riding that is created ancillary to the legitimate cooperation.[49] Sometimes, cooperation exposes each party to a risk that another party may try to benefit from as a free rider at its expense. The apprehension from this kind of risk, that is created ancillary to the cooperation, may deter the parties from cooperation with one another ab initio, or deter them from fully engaging in the success of the cooperation which may impair its efficiency. In order to alleviate the apprehension and allow full and efficient cooperation, many times the parties to the cooperation undertake (expressly, implicitly or by virtue of the law) not to compete independently against the joint activity.[50]

When the existence of the legitimate cooperation or its efficiency require the removal of apprehension of free riding, then a restraint that is intended to serve this purpose will be deemed necessary to realize the purpose of the arrangement (this, of course, under the condition that it complies with the other components of the necessity requirement, that is to say that it is not wider than is necessary and is also ancillary to the legitimate purpose of the cooperation).

Nevertheless, it is important to mention that the expression “free riding” is not a magic expression the mere reference to which suffices to allow restraining. Notwithstanding the phenomenon of free riding is considered a source of inefficiency under certain circumstances, is a very side phenomenon that is usually not considered a problem that requires any correction.[51] Sometimes what is presented as “free riding” is merely an expression of competition itself.[52]

The important point in this matter is this: Restraint that is intended to remove an apprehension of free-riding may be considered necessary to the realization of the purpose of the arrangement only when the apprehension of free-riding raised is ancillary to the legitimate cooperation which is the purpose of this arrangement, and the removal of such apprehension is indeed necessary for the success of such cooperation. On the other hand, an arrangement between competitors to refrain from free-riding at the expense of one another, not in the framework of the cooperation for a legitimate purpose - is an arrangement the purpose of which is to reduce or prevent competition.[53]

IV.c    The requirement that the restraint is not wider than what is necessary

In order for the restraint to comply with the requirement of the end of section 14(a)(2), it may not be wider than what is necessary to realize the legitimate cooperation that is the purpose of the arrangement.[54] In this matter see the statements of the chair of the Economics Committee of the Knesset before the plenum:[55]

The cases that are worthy of an exemption are agreements in which the restriction of competition is ancillary, adjunct to a legitimate arrangement that is beneficial to business and competition, and in addition, it must be proportional to what is required by the essence of the agreement in question. For example, a partnership to develop a new product between two communications companies sometimes justifies a provision that the partners will not compete with the partnership outside of it, but does not justify in any way coordination between the partners as to the pricing of other products marketed by these two companies in another sector, that is unrelated to the field of development.

This excessive broadness may be manifested in various parameters, for example a period of time that is longer than what is necessary,[56], a geographical deployment that is more extensive than what is necessary,[57] application to products or markets that the restraint should not apply to, [58] application to people or corporations that the restraint should not apply to,[59] as well as any other parameter, pursuant to which the restraint is broader than what is necessary to realize the legitimate cooperation that is the purpose of the arrangement.

In considering whether a restraint is too broad, the authority will take into consideration that in many cases there may be several reasonable alternatives as to how broad the restraint should be. In taking this into consideration, the Authority will inspect whether the restraint as determined between the parties is within reason in view of the circumstances of the case.[60]

IV.d   The requirement that the restraint would be ancillary to the legitimate cooperation

In order for a restraint to comply with the requirement set forth in the end of section 14(a)(2), it must be secondary to the legitimate cooperation which is the purpose of the arrangement.[61]

On the other hand, when the restraint is not secondary to the legitimate cooperation in the arrangement, then it is the purpose itself, and the arrangement will not be compliant with the requirements of section 14(a)(2), even if the arrangement has aspects that may have been considered legitimate if independently considered.[62]

V.            Restraints that apply after the termination of the cooperation

There are cases in which the parties agree on a non-competition clause that continues to apply after the cooperation between them is terminated. Similarly, to restraints that apply during the life of the legitimate cooperation between the parties, also restraints that apply after the termination of the cooperation are required to comply with the necessity test pursuant to the end of section 14(a)(2), including its sub-tests.[63]

In considering the necessity of a non-competition clause that applies after the termination of the cooperation, the timing of entering into such non-competition clause is important. In principle, the concept of necessity is that if not for the restraint the parties would have refrained from cooperation, or from fully committing to the success of the cooperation. Accordingly, it is to be expected that a non-competition clause would be entered into prior to the commencement of the cooperation, or at the latest during the cooperation period. If the parties first enter into a non-competition clause, which applies after the termination of the cooperation, only upon the dissolution of the cooperation, such timing would be an indication that the stipulation was not necessary for the purpose of the cooperation.[64]  A possible exception for this would be a case in which the dissolution of the cooperation will be carried out so that it entails the sale of the business, in such event a non-competition clause may be necessary not to realize the cooperation but to realize the sale of the business.[65]  However, not every dissolution of a cooperation will be deemed a sale of a business.[66] (on non-competition clauses ancillary to the sale of a business see the following chapter below).

VI.         A non-competition clause as a necessary restraint to realize the sale of a business

A restraint may be necessary to realize the sale of a business. Thus, a seller of a business may undertake not to compete with the sold business for a defined period of time after such sale. It is customary that the justification for a non-competition clause on behalf of the seller arises from the need to ensure to the buyer that competition be the seller would not impair the value of the goodwill that is being sold as part of the business, as well as the need to protect the know-how and the commercial secrets that are being sold as part of the business.[67] 

Obviously, a non-competition clause on behalf of a seller of a business, in order to comply with the end of section 14(a)(2), must comply with the various components of the necessity requirement, all as set forth herein above. The same considerations should be central also in cases where it is considered whether a non-competition clause complies with the conditions set forth in section 3(8) of the Law.[68]

Sometimes the question arises whether an obligation of a purchaser of a business (or of the business being purchased) not to compete with the business of the seller of such business is a necessary restraint in order to realize the sale of the business. As a general rule, the answer to this question is in the negative. An undertaking of the purchaser (or of the business being purchased) not to compete with the business of the Seller is irrelevant to the protection of the value of the purchased business, and therefore would not be considered a restraint that is necessary for the realization of the sale of such business.[69] 

Nevertheless, when only part of the shares of a company is sold and the seller of such shares (that continues to hold part of the shares in the company) and the purchaser of such shares become joint owners of the company and cooperate in its management, it is possible that also the purchaser of such shares may undertake restraints that may be deemed necessary fort the realization of the joint venture of the management of the company (and not as necessary for the realization of the shares sale transaction) if all the requirements set forth above are fulfilled in these undertakings.[70]

VII.      Inspection of the true essence of the arrangement

When considering whether the requirements set forth in section 14(a)(2) are fulfilled, the essence of the particular arrangement will be considered, and not the label or the heading under which the parties wish to classify the arrangement. Thus, for example, an arrangement between competitors with the heading “joint venture for marketing”, the main purpose of which is a joint determination of prices for the products of the competitors is an arrangement the purpose of which is to reduce or prevent competition despite of the allegedly legitimate heading.[71] Inspection of the true essence of the arrangement is not limited to the confines of the written agreement; If the true arrangement between the parties is different from the written agreement then the true arrangement and not the written agreement should be inspected.[72] The inspection is carried out pursuant to the individual circumstances in fact of each case, and not according to the type of arrangement only.[73]

VIII.      The relation between section 14(a)(2) and section 14(a)(1)

This public statement pertains to the interpretation of section 14(a)(2) of the Law. It is important to reiterate that a determination that an arrangement complies with the requirements of section 14(a)(2) is insufficient for its approval. The authority to grant an exemption vested in the General Director is subject to the fulfillment of the provisions set forth in section 14(a)(1) of the Law, which pertain to the extent that the arrangement impairs competition.

The restrains in a restrictive arrangement do not restrict the competition in a considerable part of the market affected by the arrangement, or that they may restrict the competition in a considerable part of such market, but they do not have any real impact on the competition in such market;

The meaning of a determination that the arrangement complies with the requirements of section 14(a)(2) is merely that such arrangement may be eligible for an exemption if it complies with the requirements of section 14(a)(1) as well.

Sections 14(a)(1) and 14(a)(2) provide two different and separate tests. compliance with the provisions of section 14(a)(1) is insufficient to lead to the conclusion that also the requirements of section 14(a)(2) have been fulfilled.[74] The matter of fulfillment of the requirements set forth in section 14(a)(2) must be inspected separately. If during such inspection it is determined that the requirements of section 14(a)(2) are not fulfilled then there is no point in advancing to consider the fulfillment of the requirements of section 14(a)(1). This also because an arrangement that does not comply with the requirements set forth in section 14(a)(2) cannot in any case be lawful. The same rule applies to section 15A(a)(2) and the relation between it and section 15A(a)(1), and the same applies to the parallel sections in the various block exemptions.

 

 

 

Michal Halperin

the General Director of the Antitrust Authority

Jerusalem, 27 of the month Heshvan, 5979

November 5, 2018

 

 

 

 

 

 


[1] See: Antitrust Rules (block exemption for joint ventures)(temporary order), 5966 - 2006 sections 9(5), 9(6) and see also section 6; Antitrust Rules (block exemption for restraints ancillary to mergers), 5959 - 2009, section 1 (definition of “restraint ancillary to a merger”, the beginning of the definition as well as subsection (4) of the definition); Antitrust Rules (block exemption for exclusive purchase agreements)(temporary order), 5961 - 2001 sections 3(6), 3(7); Antitrust Rules (block exemption for exclusive distribution agreements)(temporary order), 5961 - 2001 sections 3(7), 3(8); Antitrust Rules (class exemption for franchise agreements)(temporary order), 5961 - 2001 sections 3(10), 3(11); Antitrust Rules (class exemption for agreements to carry out research and development)(temporary order), 5966 - 2006 sections 8(c)(1), 8)(c)(2); Antitrust Rules (block exemption for arrangements of minor impairment to competition)(temporary order), 5966 - 2006 sections 5(1), 5(2); Antitrust Rules (block exemption for operational arrangements in the matter of international marine shipping), 5973 - 2012, sections 3(2), 3(3); Antitrust Rules (block exemption for arrangements between air carriers in the matter of marketing of flight capacity to destinations subject to open sky agreements), 5973 - 2012, section 2(3); Antitrust Rules (block exemption for arrangements that are not horizontal and do not contain certain price restraints), 5973 - 2012, section 2(2); Antitrust Rules (block exemption for joint ventures for marketing and supply abroad of security equipment), 5975 - 2015, section 5; Antitrust Rules (block exemption for arrangements the matter of which is export of security equipment outside of the State of Israel)(temporary order), 5977 - 2017, section 2(1); Antitrust Rules (block exemption for joint loans arrangements)(temporary order), 5978 - 2018 sections 2(5), 2(6).

[2] For example, Antitrust Rules (block exemption for arrangements between air carriers in the matter of marketing of flight capacity to destinations subject to open sky agreements), 5973 - 2012; Antitrust Rules (block exemption for arrangements that are not horizontal and do not contain certain price restraints), 5973 - 2012; Antitrust Rules (block exemption for arrangements the matter of which is export of security equipment outside of the State of Israel)(temporary order), 5977 - 2017.

[3] Antitrust Rules (block exemption for joint ventures) (temporary order), 5966 - 2006, 2018 Antitrust 501590 (5.11.18); Antitrust Rules (block exemption for restraints ancillary to mergers) (temporary order), 5969 - 2009, 2018 Antitrust 501591 (5.11.18). These amendments will enter into force after their publication in the official records.

[4] A proposed amendment to the Antitrust Rules (block exemption for arrangements between air carriers) (no. 2), 5974 - 2013, 2018 Antitrust 501555 (6.8.18).

[5] The same applies to block exemption rules, practically all of which include conditions the deal with extent of propensity to impair competition as a result of the arrangement, be it according to the self-assessment method, for example the Antitrust Rules (block exemption for certain arrangements that are not horizontal and do not contain certain price restraints), 5973 - 2013, section 2(1); or be it pursuant to the method of determining maximum market segments, for example as set forth in the Antitrust Rules (block exemption for exclusive purchase agreements)(temporary order), 5961 - 2001, section 3(2).

[6] It is not the purpose of this public statement to inspect the meaning of the expression “restraint”, appearing in various provisions of the Antitrust Law. For a discussion of the expression “restraint” see Criminal Appeal 5823/14 Shufersal v. the State of Israel (Nevo, 10.8.15), para. 38-42.

[7] Law Book 1728, section 113, 114 (20.2.00). In that amendment section 15A was added to the Law.

[8] Decision of the General Director as to not granting an exemption in the matter of the joint venture Thetis Sea - Granit Hacarmel Ltd., 2000 Antitrust 3008959 page 42.

[9] Decision as to not granting an exemption for a restrictive arrangement between the Workshops Association in Israel - the Bodywork and Paint Committee and the members of the association in the matter of joint negotiations, 2002 Antitrust 3014515, page 2.

[10] Appeal 1/97, Iscoor Steels Services v. the General Director (Nevo, 11.12.97) para. 50; A decision as to not granting an exemption for an arrangement between the Israel Lottery and the Association for Soldiers, 1999 Antitrust 3004184 pp. 5-6; A decision in the matter of an exemption for the cooperation between the Israel Lottery and Magen David Adom in Israel, 1998 Antitrust 3004188, p. 2

[11] Antitrust 8008/97, Arad Ltd. v. the General Director (Nevo, 24.1.05) para. 30; Antitrust 491/97, Israel Electrical Corporation v. the General Director (Nevo, 22.3.99) para. 47;

[12] P. Areeda & H. Hovenkamp, Antitrust Law (updated 9/2017), 1904

[13] Words of the Knesset, 9.2.00, p. 13. Here and in all the other quotes in this public statement, the highlights are not in the original.

[14] Decision pursuant to section 14 of the Antitrust Law, granting an exemption under certain conditions in the matter of Dynamics Pharmaceuticals Ltd. and Teva Pharmaceutical Industries Ltd., 5001358 Antitrust 5001358 (2009)

[15] A decision pursuant to section 14 of the Antitrust Law, granting an exemption in the matter of publication of Haaretz Newspaper Ltd. and Bar B2D Ltd., 2017 Antitrust 501233.

[16] Decision pursuant to section 14 of the Antitrust Law, granting an exemption under certain conditions in the matter of the arrangement between Lev Grof Media Ltd. and Helicon Ltd., 2015 Antitrust 500756.

[17] Decision pursuant to section 14 of the Antitrust Law, granting an exemption in the matter of Dead Sea Works Ltd. and Ramat Hanegev Ltd., 2018 Antitrust 501560.

[18] Decision pursuant to section 14 of the Antitrust Law, granting an exemption in the matter of Tnuva Cooperative Center for Marketing Agricultural Produce Ltd. and A.I.N. food industries Ltd., 2018 Antitrust 501498.

[19] Antitrust 3574/00 The Israel and Mediterranean Music Federation v. the General Director (Nevo, 30.4.04).

[20] Polk Bros. v. Forest City Enterprises, 776 F2d 185 (7th Cir. 1985).

[21] Rothery Storage & Van v. Atlas Van Lines, 792 F.2d 210 (D.C. Cir. 1986).

[22] Case T-112/99, Metropole Television v. Commission [2001] ECR II-2459.

[23] Civil Appeal 6343/11 Hollandia Sleep Engineering Center v. the General Director (Nevo, 24.12.13); Dunafon v. Delaware McDonald's Corp., 691 F.Supp. 1232 (W.D.Mo. 1988).

[24] Princo v. International Trade Commission, 616 F.3d 1318 (Fed. Cir. 2010).

[25] Addamax Corp. v. Open Software Foundation, 152 F.3d 48 (1st Cir. 1998).

[26] Los Angeles Memorial Coliseum v. National Football League, 726 F.2d 1381 (9th Cir. 1984).

[27] The judgment in the Polk Bros. Case, note 20 herein above, p. 190; R. Bork, The Antitrust Paradox (1993 ed.), p. 265-266.

[28] Canadian Competition Bureau, Competitor Collaboration Guidelines (2009), para. 2.5.

[29] U.S. Dept. of Justice, Antitrust Division, and Federal Trade Commission, Antitrust Guidelines for Collaborations among Competitors (2000), page 8. 

[30] Footnote 16 herein above page 2.

[31] Decision pursuant to section 14 of the Antitrust Law as to an exemption to an arrangement between General Mills Israel and Noga Ice creams limited partnership, 2018 Antitrust 501548, p. 4.

[32] Footnote 18 herein above page 2.

[33] Footnote 26 herein above page 1395.

[34] U.S. v. Addyston Pipe & Steel, 85 F. 271 (6th Cir. 1898), aff'd as modified 175 U.S. 211 (1899), p. 280.

[35] Footnote 9 herein above page 3-4.

[36] See The judgment in the Polk Bros. Case, note 20 herein above, p. 189; "If two people meet one day and decide not to compete, the restraint is naked; it does nothing but suppress competition."

[37] For example, Antitrust 1393/96 Adanim Bank v. The Israeli Consumer Council (Nevo, 27.1.97), para. 22.2, 29.6;  A decision pursuant to section 14 of the Antitrust Law as to not granting an exemption to an arrangement between Publicis Groupe Holdings BVP and Media Communications Links Ltd., 2018 Antitrust 501506; National Society of Professional Engineers v. U.S., 435 U.S. 679 (1978);  FTC v. Superior Court Trial Lawyers Association, 493 U.S. 411 (1990); Catalano v. Target Sales, 446 U.S. 643 (1980). See also in general Areeda & Hovenkamp, note 12 herein above, 1907b.

[38] Civil Appeal 2560/08 the State of Israel v. Wall (Nevo, 6.7.09) para. 210

[39] Civil Appeal 1656/16 the State of Israel v. Davidovitz (Nevo, 20.3.17) para. 96.

[40] Civil Appeal 201/96 the State of Israel v. Migdal Insurance Company (Nevo, 14.3.97) para. 15.

[41] Case C-209/07 Competition Authority v. Beef Industry Development Society Ltd. [2008] ECR I-8637.

[42] U.S. v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), p. 221.

[43] the Arad Case judgment, note 11 herein above, para. 30.

[44] Antitrust 491/97, Israel Electrical Corporation v. the General Director (Nevo, 22.3.99) para. 47;

[45] the Iscoor Case, note 10 herein above, para. 50.

[46] See Canadian Competition Act, § 45(4)(a)(ii); Collaborations Among Competitors, note 29 herein above, page 8.

[47] Collaborations Among Competitors, note 29 herein above, page 9; Canadian Competitor Collaboration Guidelines, note 28 herein above, page 14-15.

[48] the Hollandia Case, note 23 herein above, para. 36-37. For examples of the application of the necessity test see:  The Federation Case judgment, note 19 herein above, para. 82. The Arad Case judgment, note 11 herein above, para. 28-30.  The Polk Bros. Case judgment, note 20 herein above, p. 190; The Rothery Case judgment, note 21 herein above, pp. 212-213, 221-222; General Leaseways v. National Truck Leasing Association, 744 F.2d 588 (7th Cir. 1984), page 595; FTC, In the Matter of Polygram Holding, Docket No. 9298 (24.7.03), petition for review denied Polygram Holding v. FTC, 416 F.3d 29 (D.C. Cir. 2005).

[49] For example: The Hollandia Case judgment, note 23 herein above, inter alia in para. 51 onwards; The Shufersal Case judgment, note 6 herein above, para. 72; The Polk Bros. Case judgment, note 20 herein above, p. 190; The Rothery Case judgment, note 21 herein above, pp. 212-213, 221-224; Public Statement 2/17 in the matter of vertical price maintenance (RPM), on pages 9-10. 

[50] R. Bork, "Ancillary Restraints and the Sherman Act," 15 A.B.A. Antitrust Law Section 211 (1959), pp. 224-225. In the matter of implies undertaking or an undertaking by virtue of the law, see section 39 of the Partnerships Ordinance [new version], 5935 - 1975; Civil Appeal 415/88 the Economic Eilat (TKA) Ltd. v. Barton Planning and Manufacturing Ltd., case law 43(4) 672; M. Mizrahi “Joint Venture as a Restrictive Arrangement” Mishpatim 23 (5954) p. 213.

[51] For example, many business ideas do not enjoy any protection whatsoever pursuant to intellectual property law (Areeda & Hovenkamp propose several examples of this, including the marketing idea to add a toy to children meals in fast food stores). If the idea proves itself successful then other businesses can adopt it without compensating the person that invented the idea. Free riding under such circumstances is deemed legitimate and allowed. See P. Areeda & H. Hovenkamp, Antitrust Law, note 12 herein above, ¶2032b, ¶1613b; M. Lemley, "Property, Intellectual Property, and Free Riding," 83 Tex. L. Rev. 1031 (2005), pp. 1049-1050.

[52] The Polygram Case, note 48 herein above, p. 43:  "The sort of behavior that Respondents disparage as 'free-riding' – i.e., taking advantage of the interest in competing products that promotional efforts for one product may induce – is an essential part of the process of competition that occurs daily throughout our economy". See also the statements of the Court of Appeal in the Polygram Case 416 F.3d page 38: "The 'free-riding' to be eliminated by the moratorium agreement, however, was nothing more than the competition of products that were not part of the joint undertaking". 

[53] The Polygram Case, note 48 herein above, p. 43-44 (an agreement between competitors to refrain from free-riding on the publications of one another is per se prohibited); P. Areeda & H. Hovenkamp, note 12 herein above,  2032b.

[54] The Rothary Case, note 21 herein above, p. 224; The Metropole Case judgment, note 22 herein above, para. 106, 113. Canadian Competitor Collaboration Guidelines, note 28 herein above, para. 2.5.3.

[55] Footnote 13 herein above.

[56] the Hollandia Case judgment, note 23 herein above, para. 78. A decision as to granting an exemption to the arrangements between Aminach furniture and mattresses industries Ltd. and the owners of land, 2010 Antitrust 5001638 on page 6; Verson Wilkins v. Allied Products Corp., 723 F.Supp. 1 (N.D. Ill. 1989), on pages *10-*11; The Metropole Case judgment, note 22 herein above, para. 124.

[57] The Verson Wilkins judgment, note 56 herein above, pp. 12*-13*; The Metropole Case judgment, note 22 herein above, para. 113.

[58] The decision in the Aminach Case, note 56 herein above, p. 6; The Verson Wilkins Case judgment, note 56 herein above, p. 11*-12*; The Metropole Case judgment, note 22 herein above, para. 125; The Polygram Case, note 48 herein above.

[59] A decision to grant an exemption to an arrangement between Castro Model Ltd., Palo Retail Ltd. and Messrs. Yosef Gabizon and Eli Gabi, 2017 Antitrust 501153 on page 2.

[60] The Verson Wilkins judgment, note 56 herein above, pp. 10*-13*; Bork, Ancillary Restraints and the Sherman Act, note 50 herein above, on page 221-223.

[61] A decision as to not granting an exemption for an arrangement between Gat Givat Haim and Ganir, 2003 Antitrust 3018900 p. 6;  The Addyston Case, note 34 herein above, p. 286;  The Rothary Case, note 21 herein above, p. 224; The Metropole Case judgment, note 22 herein above, para. 105; Canadian Competitor Collaboration Guidelines, note 28 herein above, page 13-14. See also the statements of the chair of the Economics Committee of the Knesset, note 13 herein above: “The cases that are worthy of an exemption are agreements in which the restriction of competition is ancillary, adjunct to a legitimate arrangement that is beneficial to business and competition”. 

[62] The decision in the matter of Publicis Groupe, note 37 herein above, page 3. A decision as to not granting an exemption for a restrictive arrangement between the Israel Lottery and the Association for Soldiers, note 10 herein above, p. 5; A decision as to not granting an exemption for an arrangement between General Health Services et al., 2013 Antitrust 500325 pp. 3-4; Criminal Case 209/96 the State of Israel v. Ahalich Yaakov (Nevo, verdict 4.8.02 para. 6, 16, 25, 32; sentence 17.12.02 para. 2, 5); See also Bork, The Antitrust Paradox, note 27 herein above, on page 268.

[63] For example, Antitrust Rules (block exemption for joint ventures) (temporary order), 5966 - 2006 section 2(b)(8); Bork, Ancillary Restraints and the Sherman Act, note 50 herein above, on page 227-228.

 [64] Additional Civil Hearing 4465/98 Tivol v. Ocean Chef, Case Law 56(1) 56, on page 65, 102, which refers to Blackburn v. Sweeney, 53 F.3d 825 (7th Cir. 1995), on page 828 (a non-competition clause was made at a late stage of the dissolution of the partnership; a claim that it is an ancillary restraint was dismissed). Compare to Opening Motion in Arbitration (Center) 34150-09-14 Rubin v. Luz (Nevo, 12.2.15) (the non-competition clause was included in the partnership agreement; the clause was enforced).

[65] See Civil File (Rishon Lezion) 25699-07-12 Halfon v. Abu Rabia (Nevo, 4.9.16), para. 5, 67-70.

[66] The Tivol Case judgment, note 64 herein above, pp. 98-102;

[67] See the Tivol Case judgment, note 64 herein above, pp. 99-100; Antitrust Rules (block exemption for restraints ancillary to mergers)(temporary order), 5969 - 2009, section 3(1); Perception, Inc. v. Sensor Adaptive Machines Inc., 221 F.3d 913 (6th Cir. 2000) on pages 919-920; Lektro-Vend Corp. v. The Vendo Company, 660 F.2d 255 (7th Cir. 1981) on page 266; Case 42/84 Remia VB v. Commission [1985] ECR 2545 para. 19.

[68] Section 3(8) of the law provides that “An obligation by the seller of a business sold in its entirety, towards the purchaser of the business not to engage in the same type of business, provided such obligation is not contrary to reasonable and accepted practices”.

[69] A decision as to granting an exemption to the arrangement between Steimazki (2005) and Helicon and New Sound, 2008 Antitrust 5000739; The Verson Wilkins Case judgment, note 56 herein above, p. 8*-9*; 

[70] A decision pursuant to the provisions of section 14 as to granting an exemption to the arrangement between Oxygen and Argon Industries Ltd., Fimi Israel Opportunity Five, limited partnership and Fimi Opportunity Five (Delaware), limited partnership, 2016 Antitrust 500939, page 3; a decision pursuant to section 14 as to granting an exemption to an arrangement between T.B.N Holdings Ltd. and Femi Medical Services Ltd., 2012 Antitrust 500253, page 2.

[71] In re Sulfuric Acid Antitrust Litigation, 703 F.3d 1004 (7th Cir. 2012), page 1013; U.S. Guidelines for Collaborations Among Competitors, note 29 herein above, on page 9.

[72] Wholesale Grocery Products Antitrust Litigation, 752 F.3d 728 (8th Cir. 2014), page 734; The Polygram Case, note 48 herein above, on pages 8-9.

[73] The Hollandia Case, note 23 herein above, para. 36-37.

 

[74] The Hollandia Case, note 23 herein above, para. 31-32.