Amendment to Israeli Competition Rules – RPM Arrangements
The block exemption for non-horizontal arrangements recently underwent a significant change. Beyond changing the name of the block exemption to “Rules of Economic Competition,” a significant amendment was introduced relating to the issue of price restraints in vertical arrangements.
Up until the amendment, the vertical block exemption did not apply to arrangements that include particular price restraints, for example, resale price maintenance (RPM) arrangements (apart from arrangements that set maximum prices).
Prior to the amendment, the block exemption applied under several cumulative conditions: (1) the arrangement does not cause significant harm to competition, (2) the purpose of the arrangement is not to reduce or prevent competition and the restraint is required in order to implement the legitimate arrangement between the parties, and (3) the arrangement contains no price restraints (apart from setting a maximum price).
As a result, any vertical arrangement containing price restrictions had to undergo an examination by the Competition Authority or fall under another type of exemption.
The updated rules coming into effect on September 15, 2021, eliminate the requirement that an arrangement must not contain price restraints. Thus, any vertical arrangement, even if it dictates minimum prices (an RPM arrangement), will be subject to a self-assessment regime by the parties to the arrangement with regard to the potential harm to competition, as well as to the Competition Authority’s retroactive examination.
Furthermore, in such retroactive examination, the burden of proof to demonstrate the arrangement is not covered by the block exemption is on the Competition Authority. If the parties duly performed a self-assessment process, no criminal conviction would be possible, due to the obligation to prove a violation of the law was committed “beyond a reasonable doubt.”
The rationale given for the amendment in its explanatory notes includes considerations of legislative harmony, increasing the parties’ certainty, and alleviating the regulatory burden by transitioning to a self-assessment regime (similar to other vertical arrangements), in lieu of discussing each individual exemption application.
We emphasize the amendment in no way constitutes a sweeping green light for vertical RPM arrangements. Such arrangements are only permissible if they fulfill the aforesaid material criteria: the arrangement does not cause significant harm to competition, the purpose of the arrangement is not to reduce or prevent competition, and the restraint in it is required in order to implement the legitimate arrangement between the parties.
In addition to amending the block exemption for vertical arrangements, the Competition Authority intends to revise its Public Statement 2/17 regarding RPM arrangements. This revision is necessary in order to clarify how the Competition Authority analyzes the fulfillment of exemption tests relating to RPM arrangements. This is an important amendment that will serve as a key tool for the required self-assessment processes in the private market.