1. INTRODUCTION 2. THE CASS PROGRAM. a. General

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1 ISRAEL ANTITRUST AUTHORITY Decision pursuant to Section 14 of the Restrictive Trade Practices Law, , regarding the granting of an exemption from the requirement of obtaining the Tribunal s approval for a restrictive arrangement, the parties to the arrangement being the International Air Transport Association and airline companies in relation to the CASS Program (Cargo Accounts Settlement System) 1. INTRODUCTION I have here an application for the granting of an exemption, pursuant to section 14 of the Restrictive Trade Practices Law, (hereinafter: the Restrictive Trade Practices Law ) for an arrangement, the parties thereto being the International Air Transport Association (hereinafter: IATA ) 1 and airline companies. The arrangement pertains to the installation and use of a computerized central clearing system that regulates the reporting, billing, accounting settling and payment processes between cargo agents that sell their services to the public and use air freight forwarding services, and airline companies that have joined the arrangement, by way of a program known as the CASS Program (hereinafter: the CASS Program, the Program or the System ). After having scrutinized the proposed arrangement and the restrictive aspects contained therein, as well as their possible impact on competition in the relevant market, and after having consulted with the Exemptions and Mergers Advisory Committee, I became convinced that, although the arrangement is liable to restrain competition in a significant portion of that market that is affected by it, subject to the conditions stipulated in the last section of my decision, the arrangement is not one that could have a substantive adverse affect on competition in the market as stated; the gist of the arrangement is not to diminish or prevent competition; and the arrangement contains no restrictions that are not necessary in order to realize its purpose. For these reasons, the arrangement qualifies for an exemption pursuant to section 14 of the Restrictive Trade Practices Law, subject to the conditions stipulated in the last section of my decision, and considering the rationale specified hereunder. 2. THE CASS PROGRAM a. General According to data furnished by IATA, the organization, which was founded in 1945, represents more than 250 airline companies operating scheduled international air traffic. 1

2 According to the arrangements customary today, account settling between airline companies and cargo agents is carried out for each airline company and each cargo agent separately, such that each of the airline companies settles accounts separately with each of the cargo agents operating in Israel. According to the customary practice in the cargo industry, airline companies collect payments from cargo agents on the 15 th and 30 th of each month in respect of the airway bills invoiced by airline companies during that month. b. The arrangement The CASS Program was designed to streamline and improve the reporting, billing and account settlement procedures currently in practice. The gist of the arrangement is to establish a system that enables computerized reporting, billing, account settling, clearing and payment of invoices deriving from transactions executed between IATA-accredited cargo agents and intermediaries 2 and airline companies that are members of the Program in Israel. The CASS Program was designed to streamline the reporting, billing and account settling procedures between IATA-accredited cargo agents and Associates using the Program and each of the airline companies that are members of the Program. Thus, in lieu of individual reporting, billing and account settling of each IATA-accredited cargo agent or intermediary opposite each of the airline companies with whom purchase transactions were executed under the Program, transactions of agents and Associates are reported to the Program. The Program sums up the charges of each agent or Associate from each airline company for the entire reporting period (less commissions due to the agent or intermediary from the airline company), invoices the agent or intermediary, computes the distribution of the sum due from all of the agents and Associates to each of the airline companies that are members of the Program, outputs the relevant charges or credits to each Program participant for the report period, forwards them for its information, and handles the clearing through a clearing bank: each agent or Associate transfers the sum due from it to the predefined clearing bank, and the bank transfers the payments collectively to each of the airline companies. The CASS Program is essentially similar to the BSP Plan, 3 whose exemption the Israel Antitrust Authority (hereinafter: the IAA ) renewed in November It should be noted that, unlike the BSP Plan, the CASS Program is open to all cargo agents, who may join the Program regardless of whether or not they are IATA accredited. As these terms are defined in the conditions hereunder. The BSP Plan (Billing and Settlement Plan) is a plan for the regulation of payment, reporting, billing and accountsettlement processes between the IATA-member airline companies and IATA-accredited travel agents. Exemption decision

3 The CASS Program is not unique to Israel. The CASS Program has been implemented in various locations around the world since 1979, and, according to the information furnished to me by IATA, the Program is being operated in conformity with the IATA regulations in approximately 80 countries, including countries in Western Europe, Australia and Canada. It is important to note in this context that the arrangement is likely to affect many Israeli cargo agents and many airline companies providing air freight forwarding services to and from Israel (as well as a number of foreign airline companies that do not fly to and from Israel), and therefore, in the final analysis, the arrangement will affect many transactions being transacted in Israel to which Israeli cargo agents and Associates are parties in connection with the sale of air freight forwarding services. The Program will simplify the reporting, billing and payment processes, will put in place uniform work procedures and will enable good control over air freight forwarding services. The Program s primary advantage is savings in collection costs: in lieu of dozens or hundreds of money transfers between cargo agents or Associates and airline companies, which are currently being executed on two payment dates each month, once the Program is implemented, each cargo agent or Associate will transfer a single payment on each payment date to the clearing bank, and each airline company will receive a single payment on the same payment date from the clearing bank. Furthermore, the arrangement will computerize and automate the reporting, billing and account-settling processes between cargo agents or Associates and airline companies. The simplification of the account-settling and clearing processes in the case under discussion also offers another advantage, that of facilitating the engagement of Israeli cargo agents and Associates with foreign airline companies. The said facilitating of engagements could increase the gamut of cooperation arrangements between IATA-accredited Israeli cargo agents and Associates and foreign airline companies, and therefore, could, in effect, increase the supply of air freight forwarding services. In the final analysis, operation of the System means increasing efficiency, which may lead to a reduction in freight forwarding costs for the customer. The arrangement constitutes a restrictive arrangement pursuant to section 2 of the law. The arrangement does not focus on international transport, but rather on the regulation of aspects of airline companies engagements with the market of cargo agents, a subject having no direct and substantive connection to international transport, and having no close and intimate interest in international transport, as required for inclusion within the bounds of section 3(7) of the Restrictive Trade Practices Law, which prescribes that certain arrangements within the scope of international transport shall not be deemed restrictive arrangements. 5 Since the arrangement does not fall within the bounds of section 5 See High Court of Justice appeal 47/83 Israel Air Tour Ltd. v. Chairman of the Antitrust Control Council, Case Law 39(1), 169, paragraphs 11, 16 (1985). 3

4 3(7), in any event, there is no need to discuss section 3.a. of the law, which limits the effective incidence of section 3(7). 3. THE CONCERNS ARISING FROM THE ARRANGEMENT Notwithstanding the inherent advantages of the Program, adoption of the CASS Program is not without difficulties. Joint meetings of business entities that are competing against each other ordinarily give rise to considerable concerns: cooperation between competing entities naturally creates conditions conducive to dialogue and the exchange of business information. 6 Besides these considerations, past experience with the BSP Plan indicates that the Program is likely to eventually become a primary, if not the sole, platform for carrying out account-settlement, clearing and payment processes opposite airline companies that are members of the Program. Consequently, there is an additional concern relating to the CASS Program, whereby the airline companies might use the CASS Program as leverage to exert their combined power over the cargo agents or Associates, for example, in instances of a specific disagreement between a given airline company and a given cargo agent or intermediary. The arrangement, as submitted to me, necessarily leads to a situation whereby a cargo agent s arrears or shortfall in payment would be reported by the CASS System to all airline companies that the agent needs to pay that month. This means that a shortfall or arrears in payment is liable to lead to a halting, contingent suspension or suspension of activity of that agent or Associate in the CASS Program. This would be the case, even if the agent or Associate does not pay sums it was required to pay, because, in its opinion, the airline company has no right to receive them, and the agent is under no legal obligation to pay them. This outcome is not justified, inter alia, because a threat of being cut off from working with all airline companies may not leave any real possibility for a practical examination of the merits of the agent s or intermediary s arguments. Moreover, the implications of the existence of this mechanism might be pressure on the agent or intermediary not to get into an argument with any airline company and to pay whatever it claims, even in instances when the law is on the agent s side. Such an outcome is neither desirable nor reasonable, and also contravenes the provisions of law, which prohibit airline companies from using their combined clout against an agent The concern is that the legitimate cooperation between competitors might spill over to areas where the cooperation would not be legitimate and would adversely affect competition. These concerns exist as long as competitors cooperate amongst themselves. In this regard, see the decision on the matter of the arrangement, the parties thereto being the International Air Transport Association and the airline companies on the matter of the BSP Plan (Billing and Settlement Plan); 2010 Antitrust ; determination pursuant to section 43 restrictive arrangement between transportation companies in Ye adim Tourism Ltd.; 2001 Antitrust ; decision on the matter of an agreement between Elbit Systems Ltd. and Israel Aerospace Industries Ltd.; 2007 Antitrust Decision on the matter of an agreement between Israel Aerospace Industries Ltd. and Rafael Advanced Defense Systems Ltd.; 2009 Antitrust Decision on the matter of a restrictive arrangement between six overland transport cooperatives regarding Tachbura s operations; 2010 Antitrust Miriam Mizrahi Joint Venture as a Restrictive Arrangement Mishpatim 23, 213, 235 (5754). 4 6

5 or Associate, whether by themselves or through any business association, or from jointly setting the commercial working arrangements with an agent. 4. THE CONDITIONS FOR GRANTING THE EXEMPTION The uniqueness and nature of the Program have raised the concern about exploitation of the airline companies collective clout in order to reap gains relating to use of the Program. This concern was dispelled in light of the fact that no connection fees will be collected from IATA-accredited cargo agents in respect of use of the Program. IATA has declared to me that it shall not collect any connection fee (as this term is defined in the conditions hereunder) from IATA-accredited cargo agents, apart from the annual membership fee. 7 IATA also declared to me that the connection fee that it collects from Associates shall not exceed the sum of the annual membership fee that it collects from IATA-accredited cargo agents, and that, during the period of this exemption, it shall not raise the price it is currently charging IATA-accredited cargo agents as the annual membership fee. 8 The concern about the airline companies using their collective clout against cargo agents or Associates in relation to the suspension or contingent suspension of their activities, or to their disconnection, is dispelled by a number of conditions that enable each agent or Associate to notify that it disagrees with a particular charge that it was billed, such that the charge under dispute will be removed from the CASS System and handled directly and solely between the agent or Associate and the airline company; conditions that restrict IATA s ability to disconnect an agent or Associate from the System in instances of an error not dependent upon the agent or Associate; the conditions obligating the giving of notice to an agent or Associate about a failure to render a payment or about the rendering of a short payment, and the giving of an opportunity to make up the shortfall; and conditions obligating IATA to document and issue an immediate report to the commissioner about any suspensions, contingent suspensions and disconnections of IATA-accredited cargo agents and Associates, for control purposes. Another concern, about the elbowing of competing airline companies that are not members of the CASS Program, and blocking them from cargo agents that do use the Program, is also dispelled, since the System is open equally to any airline company desiring to join. The concern about exploiting the System as a tool for dialogue and exchanges of business information among the airline companies, either directly inter se, through the System or by IATA, was dispelled due to the conditions that prohibit information exchanges that are liable to diminish or prevent competition, to the extent that the information exchange is not necessary for the current operation and functioning of the System. Currently, IATA collects a membership fee from IATA-accredited cargo agents at the sum of CHF 465 per annum. Apart from linkage differentials as is customary

6 Obviously, the CASS System itself is not permitted to change the credit terms, the very ability of an agent to work with it or to set terms relating to working with cargo agents. Thus, for example, IATA cannot express its position relative to the commission rates and will not decide whether a cargo agency should be established in this or that location, just as it will not oppose the establishment of an agency nor refuse to work with a cargo agent or Associate. It should be noted that an amendment to the IATA regulations might be deemed a material change in the conditions of the arrangement presented to me. IATA declared to me that the Program is not expected to enable the rendering of payments in shekels during the exemption period and that therefore, the conditions do not include reference to this issue. The enabling of Israeli users to render payments in more than one currency will require an application to the IAA, the outcome of which might be the imposition of additional conditions. 5. CONCLUSION After having consulted with the Exemptions and Mergers Advisory Committee, I have deemed it fit to exercise the power vested me under section 14 of the Restrictive Trade Practices Law and to grant the requested exemption, subject to the conditions specified hereunder: A. Definitions 1. All terms in this decision will be interpreted as determined in the Restrictive Trade Practices Law, and the Restrictive Trade Practices Rules (General Provisions and Definitions), , unless otherwise expressly defined in this decision. 2. In these terms: "the Commissioner": the Restrictive Trade Practices Commissioner; "IATA" International Air Transport Association and any person associated therewith; "IATA s Regulations" IATA s Regulations as published by IATA from time to time; "Airline Company" Including Cargo General Sales and Service Agent as such term is defined in Regulation 823 of IATA s Regulations; "Licensed IATA Cargo Agent" any cargo agent that has withstood the examination procedure and has obtained the approval of IATA, in accordance with criteria prescribed by it; "Associate" CASS Associate, cargo agent, or any other user of the program as it defined hereunder, which is not Licensed IATA Cargo Agent; "the Program" a program managed by IATA and which facilitates the implementation of reporting procedures, a settling of accounts, clearing or payment, including neutral air waybill, between cargo agents or associates and airline companies; "Connection Fee" any payment, including, any expense, registration fee, handling fee, membership fee, usage fee and the like, including periodical payment from any kind, in cash or cash 6

7 "Use" "Connection" "Disconnection" Deviation equivalent; executing transactions through the Program including reporting, settling of accounts, clearing or payment, neutral air waybill, concentration of debits and credits and the furnishing of a breakdown of such debits and credits to the entity in debit or credit; joining to the Program, inter alia, by granting access to the Program, including Use of the Program after the aforesaid joining; denial of Use of the Program, including, preventing by any means Use of the Program, suspending, delaying, blocking, restricting, harming, limiting or conditioning the Use on conditions the result of which is similar to the afore-going, dishonor of air waybills, denying access to the computer program through which the Program operates, technological, mechanical or other blockage of the Use, including partial, temporary or permanent blockage of the ability to make Use of the Program, restricting the ability to issue an airline air waybill, including by technical or electronic means, and in any other manner which would result in restricting the ability of ongoing work with the Program; Penalty Point, Irregularity or Default, as such terms are defined in Regulation 801r of IATA s Regulations, or Regulation 851, as applicable, or any other similar Regulation or Regulation that comes in its place; B. Duty to Allow Connection to the Program 3. IATA shall enable any Licensed IATA Cargo Agent operating in Israel, any Associate, and any Airline Company, to join the program at their request. IATA shall not discriminate between cargo agents or between Associates or Airline Companies regarding connecting to the Program. 4. (a) IATA will not charge any Connection Fee from Licensed IATA Cargo Agent for the Connection to the Program. (b) Notwithstanding that stated in subsection (a) above, IATA will be entitled to collect a Connection Fee from an Associate or an Airline Company, provided that it does not discriminate between Associates or between Airline Companies. C. Prohibition Against Sharing or Transferring Information 5. a. IATA will not transfer to any Licensed IATA Cargo Agent, Associate, Airline Company or any person associated with either of the afore-going, whether directly or indirectly, any information that was relayed through the Program, including any notice of non-payment or notice of insufficient payment. Nothing contained in this sub-section shall prevent the transfer of the aforesaid information to any Airline Company or Licensed IATA Cargo Agent or Associate in connection with a transaction to which they are party or related to their activities. Nothing in this condition shall prevent the transfer of information the subject of which is of a general-statistical nature and is unrelated to any specific Licensed IATA Cargo Agent, Associate or Airline Company. b. IATA, an airline company connected to the Program and any person associated with either of the aforegoing may not transfer to an airline company an instruction or recommendation concerning the contract with a Licensed IATA Cargo Agent or with an Associate or the terms thereof. Nothing contained in this subsection shall prevent the transfer of information by IATA concerning the proceeding of reviewing and authorization of a Licensed IATA Cargo Agent or an Associate. 7

8 D. Restriction of Disconnection from the Program 6. a. IATA shall not disconnect a Licensed IATA Cargo Agent or an Associate from the Program if, on the date of payment the Licensed IATA Cargo Agent or the Associate had sufficient funds in the bank account from which payment is to be effected to fully settle the amount due, and the Licensed IATA Cargo Agent or the Associate took all the required actions in order to effect full and timely payment of the debt, but due to external circumstances not within the control of the Licensed IATA Cargo Agent or the Associate, including a typographical error, an error or technical malfunction in the bank systems or a bank strike ("the technical error"), full and timely payment was not effected, and provided that the Licensed IATA Cargo Agent or the Associate provided IATA with documentation evidencing the existence of all of the afore-going. b. In the circumstances described in subsection (a) the delay in payment will not be recorded as a Deviation (and, if recorded, the record will be deleted without delay) and IATA will not take any measure against the Licensed IATA Cargo Agent or the Associate, provided that the Licensed IATA Cargo Agent or the Associate will effect the remaining balance of the amount due immediately after discovery of the technical error. E. Notice of Amount in Dispute 7. If according to IATA's documentation no payment was effected by the Licensed IATA Cargo Agent or the Associate on the due date therefor, or that payment as aforesaid was effected but was insufficient, IATA will notify such agent or Associate about the non-payment or that the payment was insufficient, as aforesaid. 8. a. Upon a Licensed IATA Cargo Agent or an Associate notifying IATA that it disputes the amount debited to such agent or Associate within the framework of the Program, attaching thereto a copy of the deduction notice regarding the matter which he sent to the Airline Company (unless the charge being disputed does not relate to a specific airline company, including a disagreement over differentials resulting from late payment, a sum which IATA has transferred to itself, etc.), prior to the date specified hereinafter in subparagraph D, then IATA shall take the following action: (1) It will amend the debit for the purpose of the Program in accordance with the agent's or Associate's deduction notice and the amount in dispute will not be considered a debt within the framework of the Program; (2) It will not act in any other manner, save as stated in subsection (1) in relation to the amount in dispute; nothing in this subsection shall prevent deduction notice being sent to an airline company to the effect that the Licensed IATA Cargo Agent or the Associate disputes the amount debited to it. However, if the charge being disputed by the agent or the Associate does not relate to a specific airline company as aforesaid, then IATA shall be entitled to take action to recover the debt by initiating negotiations with the agent or the Associate or by referring the matter for adjudication to an arbitrator or authorized legal tribunal. b. Any deduction notice as referred to in subsection (a) above that is given by the date specified in subsection (d)(1) below, may also be given in relation to the charge debited by the airline company whose due date for payment occurred in the preceding month. c. Nothing contained in subparagraph A shall be deemed to alter the rights and obligations subsisting between the Airline company and the Licensed IATA Cargo Agent or the Associate and the Airline company shall be free to take action against the Licensed IATA Cargo Agent or the Associate in order to realize its legal rights. d. (1) The deduction notice referred to in subparagraph A may be given 3 days before every date set for payment. 8

9 (2) If the amount of the charge being disputed by the Licensed IATA Cargo Agent or the Associate does not relate to a specific airline company as aforesaid, and the agent or the Associate had no way of knowing the amount is disputable by the date specified in subsection 8d(1) above, then the deduction notice referred to in subsection A shall be given prior to the end of the next working day following the day on which IATA's notice was received as stated in paragraph 7 above. F. General Provisions 9. IATA will not restrict, whether directly or indirectly, and will not stipulate, contracting between a Licensed IATA Cargo Agent or an Associate and an Airline Company regarding a payment, or regarding a commission given to the Licensed IATA cargo agent or the Associate. 10. IATA will not restrict, whether directly or indirectly, the Licensed IATA Cargo Agent or the Associate and the Airline Company from contracting with one another outside the framework of Use of the Program. 11. a. IATA will keep written documentation of every Deviation, Disconnection and Connection, made in relation to a Licensed IATA Cargo Agent or an Associate. Such documentation will include, inter alia, the details of every Licensed IATA Cargo Agent or Associate, as applicable, including its name, commercial name, address, telephone and other contact details, as well as the date of documentation and a description of the chain of events preceding such Deviation or Disconnection, as applicable, and which caused it; such documentation will be maintained at IATA s registered office in Israel and will be available for perusal by the Commissioner within 7 days of IATA being requested to do so by the Commissioner. b. Should a Licensed IATA Cargo Agent or an Associate be disconnected from the program other than through his own initiative, then in addition to the action required as set out in paragraph a above, the documentation relating to that Disconnection shall be submitted to the Commissioner not later than 3 working days from the date on which it took effect. 12. IATA will keep written documentation of all applications, complaints and requests received by it concerning the Program or these terms. Such documentation will include, inter alia, the details of the applicant, complainant or petitioner, including his name, commercial name, address, telephone number and additional contact details, the date the application, complaint or request was received, as well as a photocopy thereof and the date on which an answer was given by IATA together with a photocopy thereof; if any application, complaint or request was received or a response was given by IATA orally, then also a summary of its content; such documentation will be maintained at IATA s office in Israel and will be available for perusal by the Commissioner within 7 days of being requested to do so by the Commissioner. 13. IATA will forward a copy of this decision to each person connected to the Program, soon after the date of commencement of the Connection. 14. No amendments or technical additions, or significant applications may be made to the Program which could affect the terms detailed in this decision, unless the Commissioner has given his advance written consent thereto. IATA will not charge payment for supplying any Program improvements, unless the Commissioner has given his advance written consent thereto. 15. Any Airline Company asking for making use of the program, shall forward a letter to the Commissioner prior to its connection in the format set out in the example attached to this exemption marked Exhibit 1, confirming that: by using the program it shall be a party to the arrangement to which this exemption relates, it shall be bound by the conditions upon which this exemption is being given, the conditions are viable from its point of view, and it shall fulfill the conditions with regard to operation of the program in Israel. 16. If doubt exists as to the validity, interpretation or manner of application of these terms, the matter will be brought for the Commissioner s decision. 17. This exemption is valid until

10 Pursuant to section 15(a) of the Restrictive Trade Practices Law, any business organization, consumers association or other person who may be detrimentally affected by the restrictive arrangement to which the exemption relates may file an appeal against this decision with the President of the Restrictive Trade Practices Tribunal. Jerusalem, 13 th Sivan, th June, 2011 David Gilo, The Restrictive Trade Practices Commissioner 10

11 Exhibit 1 Date: For the attention of: The Restrictive Trade Practices Commissioner 22 Kanfei Nesharim Street Jerusalem Re: Confirmation and notification of participation in the CASS ("Cargo Account Settlement System") We hereby confirm that our company is amongst those airline companies which are about to join the CASS Program in Israel. Since this is the case, we hereby confirm as follows: 1. By using the program our company shall be a party to the arrangement regarding the CASS. 2. Our company wishes to make it clear that it shall, accordingly, be bound by the Conditions upon which the said exemption was given. 3. The conditions are viable from our company's point of view. 4. Our company shall fulfill the conditions with regard to operation of the program in Israel. Yours faithfully, 11