Foreign Companies are Immune to Private Antitrust Enforcement in Israel

Despite the growing sensitivity to violations of the competition laws and the uptrend in the imposition of stricter penalties by the authorities in respect thereof, business managers and consumers who have fallen victims to competition-law offenses in Israel hesitant in instituting civil proceedings against offenders.

The idea underlying the concept of private enforcement is that the Antitrust Authority is not the only “watchdog” over competition, and that harmed consumers have the power to take private legal action against perpetrators, thereby, in addition to receiving compensation, creating deterrence and contributing to the enforcement of competition laws.

Civil remedies are available to every person or corporation in respect of violations of the Restrictive Trade Practices Law. A violation of any of the provisions of this law is tantamount to a tortious wrong. The Israeli Restrictive Trade Practices Law enables individuals and corporations harmed by a violation of provisions of the law to sue for damages through a tort claim.

In addition to the individual tort claim, the Restrictive Trade Practices Law also permits the filing of a class action in respect of a violation of provisions of the law. One of the ways for the Antitrust Commissioner to promote private enforcement through class actions is by way of ruling that a particular case constitutes a restrictive trade practice. Such a ruling by the Antitrust Commissioner enables class plaintiffs to use it as prima facie evidence within the scope of their claim and, in essence, helps plaintiffs meet the complex burden of proof in the action with respect to the facts of the violation, focusing the claim on the damages aspect.

In some jurisdictions private enforcement constitutes a significant and effective deterrent factor, even more than the enforcement tools of the government authorities. However, in Israel, the situation is different, for a number of reasons:

1. For some justices in Israel, their level of expertise in antitrust law is not on par with their level of expertise in other fields of law.
2. Economic – ananalysis of the competition is required in order to determine the existence of a restrictive trade arrangement, a monopoly, a cartel or other harm to competition and the courts in Israel tend to recoil from such economic analysis of trade practices.
3. The courts in Israel sometimes become entrenched in their view that the Antitrust Authority is the one to be providing relief to victims. This attitude is incorrect, since the Antitrust Authority has extremely limited resources that do not allow it to cope by itself with all of the major problems in the competitive arena in Israel. Furthermore, the Antitrust Authority does not have the authority to award compensation to plaintiffs/victims.
4. Israeli law does not provide incentivizing compensation (such as the punitive or exemplary damages common in US law with jurors tending to award large amounts of compensation to victims of offences of this kind). Furthermore, class actions are intended to be a very effective instrument for civil enforcement, but, due to the absence of incentive through punitive or exemplary damages in Israel, plaintiffs face a general, generic problem, which, by the way, is not unique to antitrust matters.

In a series of decisions, the Antitrust Commissioner in Israel has ruled that, when a violation of the Israeli competition laws is committed by a non-Israeli entity, but the violation has a material impact on the Israeli market, then the Israeli competition laws may be applied – “the material effects doctrine.”

In appeal 57451-03-16 The Consumer Movement for the Promotion of a Fair Economic Society vs. AU Optronic et al, the district court deliberated a motion to certify a class action against the companies AU Optronic, LG, Samsung, Chi Mei and Sharp. Legal proceedings in the United States and in the European Union had ruled that they had formed a cartel by coordinating prices of LCD panels used for flat screens for computers, televisions, etc.

In the judgment handed down in December 2016, the Israeli district court barred the service of process on the defendants. According to the judgment, even if the material effects doctrine can be applied in this case, the cartel itself had not been formed within the bounds of Israeli jurisdiction, and according to the Israeli rules of procedure, a court in Israel will permit service of process outside of its jurisdiction only when the act or omission was committed in Israel but not merely the harm. Therefore, the court in essence dismissed the action.

This judgment is puzzling, considering the fact that the Antitrust Commissioner had applied the material effects doctrine in the past. According to the judgment, the use of the material effects doctrine is relevant only to the administrative aspect and not to the civil aspect. The outcome of this judgment is that foreign companies that do not have a business establishment in Israel are immune to private enforcement of the Israeli Antitrust Law as long as they operate their cartel outside of Israel, and this, even if the cartel has a material adverse impact on the Israeli market.

Of course, this is an undesirable outcome and, therefore, the legislators in Israel can be expected in the near future to grant the Israeli courts civil jurisdiction also with respect to foreign entities whose overseas operations have a material adverse impact on the Israeli market.

Barnea advises Israeli and foreign companies, inter alia, in relation to antitrust laws, including in relation to restrictive trade practices and, to the extent needed, represents its clients before the Antitrust Commissioner. You are invited to contact us to receive legal advisory services in this regard and in relation to other matters.