Dear clients and colleagues,

On February 14, 2022, the Israel Competition Authority published the Memorandum of the Economic Competition Law (Amendment) (Removal of Barriers to Import) (Temporary Order), 2022 (hereinafter: the “Proposed Amendment“), which seeks to amend the Economic Competition Law, 1988 (“ECL“).

The Proposed Amendment proposes to create new prohibitions aimed at “Direct Importers, with the stated purpose of “protecting competition stemming from parallel import”.

A “Direct Importer” is defined by the Proposed Amendment, as a person who (1) imports goods into Israel or distributes imported goods in Israel in accordance with an arrangement with the manufacturer of goods in a foreign country; OR (2) manufactures goods in Israel following an arrangement with a person in a foreign country.

Note that the Proposed Amendment does not apply directly to the international manufacturer but only to the local representative, be it an importer/distributor or a franchise manufacturer.

The new prohibitions are:

• A Direct Importer will be prohibited from performing an act which may result in harm to parallel imports or personal imports in the sector in which said Direct Importer operates, and that as a result thereof competition in said sector may be harmed;
• Direct Importers will be prohibited from performing an act, the main objective of which is to prevent or reduce competition, or an act that may prevent or reduce competition from parallel or personal imports, which is not “essential” for the purpose of importing the products by the direct importer.

The Israeli Competition Commissioner (“Commissioner“) will be authorized to impose monetary sanctions with regard to breaches of the new prohibitions. According to Proposed Amendment’s current language, breaching the new prohibitions will also amount to a criminal offence.

The Proposed Amendment was drafted following the expiry of section 31F of the ECL, which empowered the Commissioner to impose instructions on a Direct Importer, if she found that, as a result of the direct importer’s status or behaviour, there was a concern of significant harm to parallel or private import, and, as a result, significant harm to competition in the relevant sector.

Section 31F was applied, and parallel import was discussed, by the Competition Tribunal in the matter of S. Shestowitz (2020). In that matter, Commissioner issued instructions under section 31F to Shestowitz Ltd. the local importer of the Colgate toothpaste brand. Following the importer’s appeal to the Competition Tribunal, the Commissioner and the importer reached an agreement (which was approved by the Tribunal) according to which some limitations were placed on the importer’s dialogue with Colgate, and rules were set regarding the kind of information that the importer could share with Colgate as well as the manner of reporting.

To the best of our knowledge section 31F has not been used since the Shestowitz case.

If the law is amended in accordance with the Proposed Amendment in its current language, it will create an entirely new prohibition, which, to the best of our knowledge, has no equivalent in other jurisdictions. As currently drafted, the new prohibitions will apply to any direct importer, regardless of their size and market share or market power.

We are concerned that, the new prohibitions, if enacted, may somewhat reduce the incentives to introduce new products and brands to the Israeli market. As currently drafted, the Proposed Amendment suffers from vagueness, which might create uncertainty for new and small importers as well as larger ones.

Public comments to the Proposed Amendment are welcome until March 7, 2022.

Sincerely,
Herzog, Fox & Neeman

Talya Solomon | Partner
Head of Competition and Antitrust Department
Tel: +(972) 3 692 5960
 solomont@herzoglaw.co.il

Iris Achmon | Partner
Competition and Antitrust Department
Tel: +(972) 3 692 5960
 achmoni@herzoglaw.co.il

Tslil Bar Bainvol | Adv.
Competition and Antitrust Department
Tel: +(972) 3 692 5952
barbainvolt@herzoglaw.co.il