January, 2021 – Israel – Granot Speiser Law Office
During 2020, the Israeli Competition Authority (“ICA”) published 2 important reports. The first report was made after the ICA completed an inquiry concerning the prevalence of investments in Israeli startups by major tech corporations (Google, Amazon, Facebook, Apple and Microsoft) which could be considered as “Killer Acquisitions”. “Killer Acquisitions” is one specific theory of harm, in which the acquisition of a nascent firm, aims to terminate the development of the acquired product (or potential product), remove it from the market, and preempt future competition. The ICA reviewed 21 of such transactions in the digital markets between 2014 to 2019, but found no indications that such transactions could be considered as “Killer Acquisitions” as no transaction led to the elimination of the acquired product from the target market or to termination of potential development by the target into a complementary (or adjacent) market.
The second report is a report that was published earlier in 2020, and it was the basis for the later “Killer Acquisitions” report. The second report suggested basic model for categorizing which transactions may raise competitive concerns and as so, requires enhanced review. According to the ICA, in the digital markets there is significant advantages to scale, scope and network. Accordingly the ICA stated that many digital markets suffer from high barriers to entry and therefore, the incumbent, which is not threatened by immediate competition, is likely to maintain (or increase) it’s dominance in the market and therefore, M&As in digital markets can raise horizontal, vertical or conglomerate competition concerns.
The basic model in the earlier report suggests 2 categories for transactions: “green” – transactions that do not require a different review other than the ordinary competition review in ‘brick-and-mortar’ markets, while the “yellow” – are transactions which require an enhanced review into the particular competitive concerns which may arise in digital markets. Both categories relaying on certain basic criteria related to products and services which were classified by the ICA.
Nonetheless, for now, the focus with respect to digital markets will be through legislation rather than enforcement, and so, the ICA together with other authorities in Israel are currently promoting legislation with respect to platform to business interface, with the purpose of helping small businesses in their interactions with the major technology companies in the digital markets, which will be similar to an EU directive on this issue. Also, behavioral rules which will be applied to major tech corporations outside Israel will be use as a benchmark for the ICA to the behavior of those companies operating in Israel.