Monopoly: Meta to Pay ILS 25 Million for Failing to Report Mergers

A few days ago, the Israel Competition Authority’s Director General announced she had reached an agreement with Meta Platforms Inc. (owner of Facebook and Instagram). Under the agreement, Meta undertook to pay the State treasury ILS 25 million and to report every merger it carries out in Israel to the ICA. This outcome follows a proceeding in which the Director General accused Meta of failing to report its mergers, despite the fact that it holds a monopoly in the social networking market for private users in Israel.

The consent decree pertains to a unique clause in Israeli competition law, which obligates companies to report and receive a prior approval for a merger also in instances when one of the parties to the merger holds a market share exceeding 50% in any sector in Israel (a market share defined as monopolistic in Israel), even if the other party to the merger has no sales in Israel at all. This obligation is the “monopoly criterion.” This obligation applies even if the merger is not in the same sector as the sector in which that monopoly exists, and even if the Director General did not declare that company a monopolist. In many other judicial systems, the reporting obligation only applies when the parties’ sales turnovers exceed a particular threshold.

Meta’s Series of Acquisitions

As is known, Meta is an international company that also operates in Israel. The fine imposed on Meta relates to its acquisitions of two Israeli startups, RedKix and Servicefriend, in 2018 and 2019. Meta did not report these acquisitions to the ICA’s Director General because they did not fulfill the “sales turnover criterion.” In 2021, the Director General notified Meta of her intention to determine, subject to a hearing, that the mergers required her approval prior to their execution, because Meta had a monopolistic market share in the social networks market for private users in Israel at the time of the mergers.

We note that Meta has not been declared a monopolist in Israel, and there was no previous determination by the Director General attributing a monopolistic market share to Meta in any sector. Nevertheless, the Director General announced her intention to impose a pecuniary sanction on Meta totaling ILS 6.5 million for its violation of competition laws.

Subsequent to the hearing, the Director General and Meta reached an agreement whereby Meta will pay ILS 25 million to the State’s treasury and will undertake to report prospectively every merger it intends to execute in Israel, in conformity with the law’s monopoly criterion. For her part, the Director General undertook not to take any enforcement measures against Meta or against Facebook Israel in respect of the failure to report the aforesaid mergers. The consent decree is open for public comments until early February and is subject to the approval of the Competition Tribunal.

Consent as Opposed to a Determination

Had the Director General carried out her intention and issued a determination against Meta, this would have caused Meta considerable financial exposure, in addition to the fine would have paid. Such a determination constitutes prima facie evidence in legal proceedings, and third parties (whether a single plaintiff or a class of plaintiffs) could use such evidence in lawsuits against Meta. For example, a person or company suing Meta for abuse of dominant position would not need to prove the definition of Meta’s market and its monopolistic market share, and the burden would shift to Meta to rebut the Director General’s determination. This would greatly increase the likelihood of successful lawsuits against Meta based on its monopolistic position. One can assume this is why Meta was willing to pay a much higher fine in order to settle and avoid a detailed and reasoned determination.

The Monopoly Criterion

This case highlights the need to be familiar the obligation that exists in Israeli law to report mergers and obtain the Director General’s approval prior to their implementation, even when the first and “immediate” criterion for the merger reporting obligation, the sales turnover criterion, has not been fulfilled. This is especially salient in light of the fact that, as stated, a party can fulfill the monopoly criterion even when the acquired company does not engage in sales of any product or service and has no sales turnover in Israel, and the fact that the monopoly does not have to be in a sector that is in any way tangential to the operating segment of the other party to the merger.

Under these circumstances, we recommend that any company (including a foreign company) intending to execute a merger transaction in Israel should ascertain whether or not it must report the transaction by virtue of the monopoly criterion, by using the appropriate tools for each transaction. Executing a merger in Israel without the Director General’s prior approval, when such approval is obligatory, could expose the company to enforcement proceedings by the Israel Competition Authority, including the issuing of a determination that could expose the company to civil suits. Moreover, if the Director General believes that the merger executed without her approval raises concerns of harm to competition (unlike in Meta’s case), the sanctions imposed on the company could be far higher. Furthermore, if the merger causes harm to competition, this could potentially result in the filing of criminal indictments.

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Barnea Jaffa Lande’s Antitrust and Competition Department is at your service to answer any questions in this regard.

Adv. Gal Rozent heads the firm’s Competition and Antitrust Department.

Adv. Irit Brodsky is a partner in the Competition and Antitrust Department.