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The (Lack of) Economic Analysis by Courts in Israeli Antitrust Cases Concerning Restraints of Trade
Published online by Cambridge University Press: 04 July 2014
Abstract
This Article shows that Israeli case law refrains from economic analysis of harm to competition when it comes to determining whether agreements are antitrust violations. It also shows that the antitrust agency seems, de facto, to be content with the fact that courts tend not to conduct economic analysis in antitrust cases. Moreover, it shows that many times the antitrust agency itself initiated interpretations of the statute that set a broad range of per se prohibitions that do not require economic analysis. I hypothesize that the reason that the antitrust agency is content with the lack of economics analysis stems from the fact that broad per se prohibitions assist the agency in its role as a major litigator of antitrust cases. They also cause many of the business transactions to be subject to ex ante review by the antitrust agency, thereby enhancing the agency's regulatory powers. After fifteen years of broad per se prohibitions, courts concerned with the opportunism of parties began interpreting the statute to enable per se legality in many cases. It was only then that the antitrust authority responded by helping to propose an amendment that would make the statute less vague.
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- Research Article
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- Copyright
- Copyright © Cambridge University Press and The Faculty of Law, The Hebrew University of Jerusalem 2006
Footnotes
*
Senior Lecturer, Buchmann Faculty of Law, Tel Aviv University, [email protected]. I wish to thank the Cegla Center for the Interdisciplinary Research of the Law for financial assistance.
References
1 Under the antitrust statute, when a transaction such as a restrictive agreement is subject to pre-approval, the antitrust agency has broad powers to condition its approval upon certain changes in the business behavior of the entities involved, including, for example, unilateral behavior, such as pricing, tie-ins, refusals to deal, etc. These are types of behaviors that the agency could have regulated directly, under the statute, only vis-à-vis monopolies.
2 FHCA 4465/98 Tivol Ltd. v. Shef Hayam Ltd. [1999] IsrSC 46(1) 56.
3 To be sure, in many of these cases, the parties themselves failed to claim that competition had been harmed, so that the court allegedly did not have the tools or factual basis to deal with these issues.
4 CA 155/80 Rav Bariach Ltd. v. Amgar [1980] IsrSC 35(1) 817.
5 See Decision of the Head of the Antitrust Authority in the Matter of Restraints of Trade in the Steel Door Market; Antitrust Authority, Publication number 3003977 (1985), available at http://www.etype.co.il/anti1/?cmd=4&text=51,48,48,51,57,55,55 (last visited October 5, 2006).
6 CA 79/80 Orbach v. I.M.S. Eilin [1982] IsrSC 34(1) 125.
7 See CC 238/94 The State of Israel v. Nehushtan Elevator Industries, Ltd.; 1995 Antitrust 3001783 (convicting elevator firms for creating cartels in the market).
8 HP (Nz) 854/84 Tavor v. Amiad [1985] IsrDC 45(3) 221.
9 9N B 1048-12/92 Shefi Anzot Ltd. v. Medi [1992] IsrLC 25(2) 5.
10 See Decision of the Head of the Antitrust Authority in the Matter of Restraints of Trade between Manufacturers of Carton Boxes, Antitrust—Decisions of the Head of the Antitrust Authority and Court Decisions (Israeli Bar Association, Tel Aviv District, Vol. B) 66.
11 CA 672/96 Egged Ltd v. Rechtman [1999] IsrSC 44(5) 25.
12 See Decision of the Head of the Antitrust Authority in the Matter of Declaration of a Monopoly Egged and NZBA, Antitrust Authority, Publication number 3003820 (1999), available at htrp://www.etype.co.il/antil/ (last visited October 25, 2006).
13 LA 164/99 Fromer v. Redgaurd Ltd. [1999] IsrSC 34 294.
14 These are estimates as the decision lacks details regarding the parties' corresponding market shares or the structure of the relevant market.
15 CA 6601/96 AES System Inc. v. Saar [2000] IsrSC 43(3) 850.
16 Eastman Kodak Company v. Image Technical Services, Inc., 504 U.S. 451 (1992).
17 This critique is made in Gilo, David, Toward a New Legal Policy for Non-Competition Covenants, 23 Iunei Mishpat 63 (2000) [in Hebrew]Google Scholar; 1 Friedmann, Daniel & Cohen, Nili, Contracts 52 (1991)Google Scholar; Dror Strum, A Change in the Monitoring of Restrictive Practices, available at www.antitrust.gov.il (last visited October 3, 2006).
18 Tivol Ltd. v. Shef Hayam Ltd., supra note 2, at 106-108.
19 Similar reasoning implies that it would be a good idea to prevent the party who suffered breach of an illegal restraint of trade to sue for restitution of the value that he transferred to the breaching party in exchange for the restraint of trade. Otherwise, the parties could ex ante arrange for a large transfer in favor of the party restraining himself from competing, the restitution of which would deter this party from breaching (thereby promoting competition) in the future. Section 31 of the Contracts Statute (General Part) (1973) indeed enables the court to hold that there would be no restitution. The court in Tivol Ltd. v. Shef Hayam Ltd., however, does not deal with the issue of restitution.
20 See, e.g., LabA (Hi) 1800/00 Tanko International Ltd. v. Guy Ofra [May 18, 2006] (not yet published)(the labor court upheld a non-competition clause without regard or analysis of the harm to the competition); LabA 1457/05 Meir Peles v. Modgal Metals (99) Ltd. [March 26, 2006] (not yet published); LabA 26/99 Spector v. Direx Medical Systems Ltd. [April 21, 2006] (not yet published) (where the labor court did not uphold the non-competition clause, but, again, without any regard or assessment of the harm to competition in the relevant market).
21 This literal interpretation of Section 2(a) began with the Antitrust Commissioner, in decisions such as the decision in the matter of Cur Industries Ltd. and Colombus Capital, Klaridge Group, 1998 Antitrust 3001322 (this decision dealt with the antitrust commissioner conditions for his approval of a merger between Cur and Klaridge. The conditions included the need for prior approval for joint holdings between the parties and other large conglomerates. The commissioner mentioned that such joint holdings are illegal restraints of trade, due to the literal interpretation of the statute, regardless of the harm to competition in the relevant markets). It was upheld by the antitrust tribunal (the instance which is above the antitrust commissioner, and specializes in antitrust) in cases such as HA 2/97 Mizrachi v. the Antitrust Commissioner, 1999 Antitrust 3004577 (this case dealt with question whether a non-competition clause signed by a real estate agent is a restraint of trade).
22 To be sure, a few block exemptions were issued by the antitrust commissioner, granting an automatic exemption for restraints of trade that qualify, according to various characteristics of the market and the transaction. However, the block exemptions include various proviso's, and many restraints that have negligible effects on competition do not qualify for the exemptions. See Gilo, David, Anticompetitive Contracts, Antitrust and Monopoly, in 3 Contracts 635 (Friedmann, Daniel & Cohen, Nili eds., 2003) [in Hebrew] [hereinafter Gilo, Contracts]Google Scholar.
23 See CrC (Jer) 1142/01 The State of Israel v. Shulshtein [January 15, 2002] (unpublished) (applying the section to the dictation of minimum resale prices); CA 3700/98 A.M. Hanayot 1993 Ltd. v. The Municipality of Jerusalem [2003] IsrSC 57(2) 590 (applying the section to the dictation of maximum resale prices).
24 See Justice Naor's opinion in FHCA 6233/02 Extel Ltd. v. Kalma Y. Industry, Marketing of Aluminium Glass and Metal Fixtures Ltd. [2004] IsrSc 58(2) 635.
25 See decision of the General Director of Israel Antitrust Authority in the Matter of the Exclusivity Arrangements between the Gasoline Companies and Operators of Gas Stations, in 1 Antitrust-Decisions of the General Director and Decisions of the Antitrust Court 19 (Ulstein, Tova ed., 1995) [in Hebrew]Google Scholar; Decision of The General Director of Israel Antitrust Authority in the Matter of Kosher Flour for Passover, id., at 62); Decision of The General Director of Israel Antitrust Authority in the Matter of Manufacturers of Carton Boxes, in 2 Antitrust—Decisions of the General Director and Decisions of the Antitrust Court 66, 70 (Ulstein, Tova ed., 1995)Google Scholar; Motion (TA) 269/97 Berman v. Nikotron Ltd. [November 15, 1998] (unpublished); HA (Jer) 469/98 Delek, The Israeli Petrolium Company Ltd. [March 25, 2001] (not yet published), available at http://www.antitrust.gov.il (last visited September 17 2006); See also Justice Naor's above-mentioned opinion in the Extel case, supra note 24.
26 K.T. 750 [2004- consolidated version].
27 K.T. 749 [2004- consolidated version].
28 I show why this is the only viable interpretation of the black list in Gilo, Contracts, supra note 22, at 685-686.
29 K.T. 796.
30 Other block exemptions that could explicitly exempt vertical restraints concern exclusive distribution agreements and franchising. See generally, Gilo, Contracts, supra note 22.
31 Available at http://www.antitrust.gov.il (last visited September 18, 2006).
32 See id., the definition of “competitors.”
33 See Section III C infra.
34 See Antitrust Rules (General Instructions Definitions), 2006, K.T 786.
35 See Gilo, David, Is it Sensible to Break Down the Dam of Restraints and then Block the Flood with Ad Hoc Fences, 27 Iunei Mishpat 751 (2004) [in Hebrew]Google Scholar.
36 Supra note 24.
37 See id., at par. 12 of Justice Naor's opinion.
38 See, e.g., http://www.moital.gov.il/NR/exeres/1047D3A0-E109-45A3-B207-B366A2F62EC3.htm (last visited October 24, 2006).
39 Supra note 23.
40 For a critique of the over-broad interpretation to the “land use” exemption see Gilo, supra note 35, at 767.
41 Antitrust Rules (Block Exemption For Agreements of Minor Harm to Competition).
42 See Gilo, supra note 35, at 771-74.
43 Id. at 782-86.
44 CC (TA) 2011/02 Ramat Hagolan Wineries v. Stern [October 14, 2002] (not published).
45 CA 10638/02 Stern v. Ramat Hagolan Wineries [March 2, 2003] (not published).
46 See CC (TA) 1160/03 Shikovta Siro v. Lev Ashdod Ltd. [March 17, 2003] (not published).
47 Section 2(b) of the Statute, with its per se prohibitions, was completely ignored in these decisions. Accordingly, these decisions did not discuss its application on vertical restraints.
48 Gilo, David, A Restraint that Harms Competition between the Party Enjoying the Restraint and its Competitors, 28 Iunei Mishpat 517, 550–52 (2004) [in Hebrew]Google Scholar.
49 For a more elaborate economic analysis of these issues, including application of the distorted outcomes of the linguistic interpretation to the vanos kinds of vertical restraints, see Gilo, id.
50 See Gilo, id., at 530-33.