The Israel Competition Authority has published a draft amendment to the Economic Competition Regulations (Block Exemption for Exclusive Distribution Agreements) (Temporary Order), 5786-2026. The draft includes several significant changes that could affect exclusive distribution arrangements in Israel and, if adopted, would narrow the circumstances in which such arrangements may benefit from the current safe harbor.
The block exemption for exclusive distribution effectively creates a “safe harbor” – a framework that allows parties to an exclusive distribution agreement to operate without obtaining individual approval from the Competition Authority, provided that the agreement satisfies the conditions prescribed under the block exemption.
At present, the safe harbor applies primarily where the agreement is entered into between a supplier and a distributor that are not competitors; where the distributor’s market share is below 30%; where neither party is a monopolist; where substitute goods are regularly available in the market; and where the term of the agreement does not exceed ten years unless the agreement may be terminated upon reasonable prior notice within a reasonable period. In addition, the exemption currently permits certain restrictions, such as exclusive purchasing obligations, non-compete obligations with respect to competing products, restrictions on active sales outside an agreed territory, and maximum or recommended resale prices.
The principal rationale underlying the exemption is to encourage investment in marketing and distribution. The exemption is intended to address circumstances in which one distributor invests in promoting a product or brand, while other distributors benefit from the resulting demand without bearing the corresponding investment costs.
According to the explanatory notes published alongside the draft, the Competition Authority takes the view that the existing safe harbor is overly broad and may also capture arrangements that are liable to harm competition. Accordingly, it is proposed to extend the validity of the block exemption for an additional five years, until September 2031, while at the same time materially narrowing its scope.
The principal proposed changes include:
- a substantial reduction in the market share threshold – lowering the distributor’s maximum market share from 30% to 20%;
- a shortening of the permitted agreement term – reducing the maximum duration of exclusive distribution agreements eligible for the safe harbor from ten years to five years, in line with European law;
- the elimination of the ability to rely on oral agreements – the exemption would apply only to written agreements, inter alia due to the difficulty of monitoring compliance with the exemption conditions where the parties’ understandings are not documented;
- the exclusion of recommended price lists – it is proposed that agreements involving the dissemination of recommended price lists should no longer benefit from the block exemption, due to concerns that, in practice, they may facilitate price signaling or amount to de facto resale price maintenance.
The draft amendment reflects a broader trend toward stricter scrutiny of exclusive distribution arrangements in Israel and would bring the Israeli framework more closely into line with the European approach to vertical restraints. If adopted in its current form, the proposed amendments are likely to require many suppliers and distributors – particularly those with significant market shares – to reassess their existing distribution agreements, contractual terms, exclusivity mechanisms, pricing practices, and any arrangements that are not documented in writing.
The proposed revision to the block exemption is also likely to require parties to revisit arrangements that previously relied on the existing safe harbor conditions, in order to determine whether such arrangements may still fall within the scope of the block exemption as amended or whether they will instead require renewed self-assessment and/or individual approval from the Israel Competition Authority.
The draft amendment is open for public comment until July 19, 2026.
We are available to advise on the implications of the proposed amendment for existing and future distribution arrangements.
