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21 February 2008
It is a commonly accepted notion that a monopolist bears special duties compared to other competitors in the market. As in other Western nations, Israeli law contains provisions which render illegal certain actions if they are taken by a monopolist, while allowing the same actions to be taken by other competitors in the market.
However, these limitations usually refer to business actions taken by a monopolist. An overwhelming majority of antitrust cases involving monopolies, both in Israel and abroad, refer to active conduct (with the specific and well-established exception of refusal to deal) which can be directly attributed to the dominant firm (ie, tying and bundling of products and predatory pricing).
Until recently, Israeli law did not address (at least directly) the question of whether and to what extent a monopolist has an obligation to take action to prevent possible damage to competition.
In a recent decision published by the Israeli Antitrust Authority (IAA) regarding Israel's leading telecommunications firm, the IAA commissioner ruled that an abuse of dominant position can occur not only when a monopolist actively excludes its competitors, but also when it fails to take diligent measures to prevent possible damage to its competitors.
Israel's leading telecommunications firm Bezeq was granted a statutory monopoly, which lasted many years, in both domestic and international telecommunications services. In the past decade the Israeli government has gradually introduced competition to different segments of Israel's telecommunications industry, including domestic phone services. In 2003 Bezeq's first competitor, Hot Telecom (a leading cable company), entered the market and was followed later by several other (smaller) telecommunications firms. All these new competitors relied on Bezeq for interconnection services (ie, connecting their customers with Bezeq's customers).
In April 2006 Bezeq's employees announced an upcoming strike which was due to begin on May 14 2006. According to the IAA’s decision, a small-scale unofficial strike began at the end of April 2006. On May 14 2006 the official strike broke and on May 17 2006 the reciprocal connection between Bezeq and Hot Telecom was disconnected for 34 hours, making it impossible for Hot Telecom's customers to call Bezeq's customers and vice versa. Since the vast majority of Israeli customers were and still are Bezeq customers, the loss of interconnection services caused exceptionally greater harm to Hot Telecom's customers than to Bezeq's customers. Following these events, the IAA opened an investigation which led to the commissioner's decision that according to Section 29A of the Restrictive Trade Practices Law 1988, these events amounted to an abuse of monopoly power by Bezeq.
Prior to this new ruling, Section 29A was implemented by the IAA and Israeli courts mainly in connection with active actions taken by a monopolist against its rivals. The Bezeq ruling was unique, as the commissioner did not contend that the strike was actually an action taken by Bezeq against its competitors, but merely ruled that Bezeq responded too late to the competitive danger posed by a possible strike of its employees and was incompetent in its efforts to prevent or stop such a strike.
It follows from the reasoning of the commissioner's decision that a monopolist must not only refrain from actions that may exclude competition, but also take diligent action to preserve competition where it can do so. Doing nothing in the face of possible harm to competitors is simply no longer an option, since antitrust liability can now result from a monopolist's negligent behaviour.
Since Israeli monopoly law applies to any firm holding a market share that exceeds 50% in any given relevant market in Israel, regardless of whether the firm possesses market power or not, this new 'good Samaritan' monopoly rule can also have practical implications for certain international firms operating in Israel.
For further information on this topic please contact David Tadmor, Shai Bakal or David Gideoni at Tadmor & Co by telephone (+972 3 684 6000) or by email (firstname.lastname@example.org or email@example.com or firstname.lastname@example.org).
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