Increasing Competition and Reducing Inequality between Israeli and Foreign E-Commerce Websites

Online shopping websites not owned by Israelis, or whose owners have no registered representation in Israel (even if the website is offered in Hebrew), tend to enjoy a significant advantage over Israeli-owned websites. Namely, these foreign-owned websites operate according to the perception that they are not subject to the provisions of the Israeli Consumer Protection Law.

The upshot of this perception is that the extensive obligations the law imposes on Israeli shopping websites are not imposed on foreign websites. For instance, customers purchasing products from foreign websites are able to cancel transactions and receive a credit (after deducting a token cancellation fee) within two weeks of receipt of the product purchased from the website, even if the customer used the product.

However, in order to entrench this perception, the terms of use of such foreign shopping websites give sole jurisdiction to the courts in the country of domicile of the website’s owner. Thus, in essence, these contractual terms unfairly prejudice Israeli consumers’ right to compensation for damages from a foreign shopping website, since Israelis are unlikely to rush to open an expensive legal proceeding outside of Israel against such a website (especially when at issue are, usually, insignificant sums of money, as well as the fact that Israelis would have to jump a considerable number of legal-procedural hurdles in order to obtain the court’s permission for service of process to a defendant domiciled outside of Israel).

The perception that they are not subject to the regulations of the Israeli Consumer Protection Law, according to which foreign websites operating in Israel, or offering their products for sale to Israeli consumers, have established the aforesaid policy, creates, or intensifies, the clear inequality in competition between them and Israeli websites. As noted, Israeli websites continue to be subject to quite burdensome regulation in their dealings with Israeli consumers.

However, a change in trend has been observed recently. Both the legislature and the courts have begun instituting a series of measures seeking to impose the provisions of the Israeli Consumer Protection Law on foreign websites. They have done so while also lowering foreign websites’ immunity from litigation in courts in Israel and according to Israeli law, and while simultaneously issuing some relief to Israeli websites.

This trend received expression in a number of motions to certify class actions filed against several multinational companies and adjudicated recently by Israeli courts. For example, a proceeding instituted against the website Booking.com resulted in the ruling that Israel has the jurisdiction to deliberate the lawsuit, even though the company who owns the website is registered in the Netherlands. The court also found that multinational companies, such as Booking.com, that operate in Israel at a volume large enough to expose themselves to lawsuits need to take this risk into account when pricing such operations. A few months earlier, during a similar proceeding instituted against LinkedIn (the website’s owners are domiciled in Ireland and in California, USA), the court ruled that, in the age of the “global village,” which is characterized mainly by use of the internet, major corporations providing their services throughout the world via the internet must take into account the possibility that consumer lawsuits for damages resulting from their services will be adjudicated in the place of domicile of those consumers, when their identities are clearly known to the websites. A judgment with a similar line of reasoning was issued even before this case, during a lawsuit filed against PayPal. In that suit, the court ruled that the fact that major corporations conduct their operations principally or exclusively via the internet does not grant them immunity from litigation in courts in Israel and according to Israeli law.

Another example of the change in trend may be found in an opinion given by the State’s Attorney General, issued to the Supreme Court during a lawsuit filed against the owners of Facebook (who are domiciled in Ireland and in California, USA). The question being deliberated was if the jurisdiction stipulation specified in the website’s terms of use, which basically negates any possibility of suing Facebook in the Israeli courts according to Israeli law, constitutes a “discriminatory condition” in a standard contract. In his opinion, the Attorney General determined that this stipulation may discourage Israeli users from suing Facebook due to the considerable costs involved (retaining a foreign attorney, frequent trips abroad, etc.), and, therefore, it does constitute a discriminatory condition in a standard contract. This means that, according to the Attorney General’s line of reasoning, this stipulation of jurisdiction is not binding upon Israeli users. If the Supreme Court accepts the Attorney General’s position, this will open a window for filing lawsuits against major websites in Israel and according to Israeli law.

Additionally, a draft bill recently passed a first reading in the Knesset: the Consumer Protection Law (Amendment No. 56) (Cancellation of a Remote-Sale Transaction for the Provision of Tourism Services Outside of Israel), 5778 – 2017. This draft bill pertains to Israeli websites that offer tourism services provided entirely abroad (lodging, transportation, a vacation, or entertainment) through a foreign service provider. The draft bill, which is enjoying widespread support among Knesset members on the committee, serves to resolve the failure in the interface between the Israeli dealer and the service provider abroad, whereby dealers in Israel that receive cancellation notices from Israeli consumers, pursuant to the Israeli Consumer Protection Law governing such online transactions, are often forced to pay the service provider abroad from their own pockets in respect of the difference between the cancellation fee they charge consumers and the refund and cancellation fee the foreign service provider charges them. According to the draft bill, the Israeli dealer (if he is the broker in the transaction and not the actual service provider) will be allowed to offer consumers two options: the right to cancel according to the provisions of the Israeli Consumer Protection Law, or, alternatively, the right to cancel according to the cancellation policy of the foreign service provider.

It remains to be seen if the abovementioned rulings and legislation are a harbinger of a more fair and equitable basis for competition between Israeli and foreign e-commerce websites, which may improve over time, or if Israeli websites will continue to find themselves the only players subject to the burdensome Israeli regulations, while their foreign counterparts operating in Israel and targeting Israeli consumers continue to enjoy a competitive advantage, all at the price of Israeli consumers continuing to forfeit their rights.