In October 2020, the Founder and Executive Chairman of the World Economic Forum, Klaus Schwab noted the huge global impact of the COVID-19 pandemic in several areas, including primarily, local economies and public health care systems as well as its deleterious effect on human rights, for example, in terms of aggravating inequality. 

As Schwab noted, after World War II countries around the world had made unprecedented strides toward equality and reducing poverty. It was now necessary to maintain the progress achieved through international cooperation so as to continue to improve human rights and enable further investment in innovation, research and development.

According to Schwab the world was moving towards the “Fourth Industrial Revolution”, focusing on technological advances and digitization. Although those gave us the opportunity to overcome the pandemic crisis, including through the rapid development of vaccines, new treatments and personal protective equipment, it was not enough. Investment was still required in education and health care to better protect the world from similar crises in the future.

Neoliberal ideology in particular required rethinking. Schwab argued that the free market harmed employees’ rights and their economic security. Neoliberal ideology enabled the emergence of massive new global monopolies capable of harming customers’ rights. In turn, trade, taxation, and competition regulation was required to handle such harm.

Schwab suggested that we should not cancel the basic engines of economic growth, instead a new innovative business model had to be encouraged. Talking of the consumers’ point of view, Schwab explained: “today’s consumers do not want more and better goods and services for a reasonable price. Rather, they increasingly expect companies to contribute to social welfare and the common good”, adding that modern corporations also had to be social organisms, table to take long-term views.

The pandemic has proved that governments, businesses, and civil-society groups must cooperate to meet global challenges. There is a growing need to build institutional platforms for public-private cooperation, and it is also vital for the younger generation, as future leaders, to participate. Most importantly, citizens at all levels must act together irrespective of background and political opinions.

[1] See Klaus Schwab, We must Move on from Neoliberalism in the Post-COVID Era World Economic Forum (October 12, 2020) available at: https://www.weforum.org/agenda/2020/10/coronavirus-covid19-recovery-capitalism-environment-economics-equality?utm_source=twitter&utm_medium=social_scheduler&utm_term=COVID-19&utm_content=13/10/2020+11:00.

In present times, the state is not the sole source of sovereignty as its rule is shared with powerful private entities. A prominent example is the digital information environment, operated by online intermediaries which control the flow of information and monitor content running on the various online platforms. In effect, these online operators have become the online rulers. Various social media platforms, such as Facebook, YouTube, and WhatsApp, are major examples. To date, these online rulers have operated with an almost complete lack of regulation in pursuance of their own commercial interests. Accordingly, it is important to discuss whether particular public law norms which bind the state should be imposed on these private entities that govern the digital sphere, and, if so, how this can be achieved.   

The issue of online content monitoring stands at the heart of contemporary social and legal discourse, as it challenges other constitutional rights and freedoms, such as freedom of speech, and, more broadly, “Digital Human Rights”.[2] Online rulers face a new legal and social challenge in that they are expected to strike the appropriate constitutional balance in the course of content monitoring despite being private-commercial entities. This reality may be demonstrated through different practices concerning content monitoring in cases of conduct allegedly offensive to a wide range of rights, from privacy, through defamation, to intellectual property rights. Online rulers are required to act as gatekeepers preventing this offensive conduct yet at the same time maintain competing Digital Human Rights — albeit without adequate legal infrastructure.

The question, therefore, is how some of the basic public law norms, such as accountability, transparency, equality, and reasoning, may be imposed on relevant private entities currently engaged in online content monitoring. European countries, in contrast to the United States, have displayed greater willingness to accept the introduction of public law norms into the private law sphere. An accepted doctrine acknowledges that in some cases, private entities, such as commercial companies that serve a social function, may be perceived as hybrid private/public bodies.[3] The legal consequence stemming from such perception is the opening of the door to the imposition of public law norms on the relevant private entity.[4]   

The advantage of applying the hybrid bodies doctrine to online rulers lies precisely in its dynamic nature. The acknowledgment of an online ruler as a hybrid body is just the starting point for a discussion on the extent to which public law norms should be applied. However, imposing even very basic public law norms on online rulers may generate an appropriate digital governance, guaranteeing protection to Digital Human Rights, and at the same time preserve the online rulers’ freedoms when conducting their own business as well as other interests. In other words, a quasi-public legal framework for online rulers may promote a proper balance between the various stakeholders' legitimate and occasionally competing interests.

In Israel, the doctrine of hybrid bodies is relatively well-developed and may be applied in a wide range of cases. Under Israeli common law, a private entity that controls public resources, supplies basic social needs, fulfils a public function, or promotes necessary social values, may be acknowledged as a hybrid body and therefore subjected to certain public law norms and their underlying principles.[5] We propose that in relevant cases major online rulers should be acknowledged as hybrid bodies, in order to promote a fair and balanced digital information environment. To date, there has been one Israeli case where this proposition was discussed and rejected, albeit without being analyzed in-depth.[6] Nonetheless, there are many benefits stemming from the use of this doctrine enabling a gradual and proportionate application of public law norms in the private sphere. The digital environment has become the backbone of societal life. Thus, the time is ripe in our view for online rulers, governing the digital environment, to enter into a new phase of digital governance norms. 

* Prof. Orit Fischman-Afori is a Law Professor at the Haim Striks School of Law, College of Management, Israel, and Academic Director of the Heth Center for the Research of Competition and Regulation.

[1] The ideas expressed in this document are part of a full article – Orit Fischman-Afori, Online Rulers as Hybrid Bodies: The Case of Infringing Content Monitoring, 23 U. Pa. J. Const. L. (forthcoming, February 2021).

[2] See, Rep. of the Special Rapporteur on The Promotion and Protection of The Right To Freedom Of Opinion And Expression U.N. Doc. A/HRC/38/35 (July 6, 2018). The U.S. Supreme Court has also acknowledged the importance of Digital Human Rights in the case of Packingham v. North Carolina, 137 S. Ct. 1730, 1737 (2017) (“[T]o foreclose access to social media altogether is to prevent the user from engaging in the legitimate exercise of First Amendment rights….Even convicted criminals—and in some instances especially convicted criminals—might receive legitimate benefits from these means for access to the world of ideas, in particular if they seek to reform and to pursue lawful and rewarding lives.").   

[3] See for example YL v. Birmingham City Council (2007) 3 All Eng. Rep. 957 (HL).

[4] For example, the Human Rights Act 1998, c.42 § 6(1) (UK) proclaims that the obligations of public authorities apply to any person or body performing “functions of a public nature".

[5] See the seminal decision in the case of CA 294/91 Hevra Kadisha v. Kastenbaum, P.D. 46 (2) 464 (1992); Aharon Barak, Constitutional Human Rights and Private Law, 3 Rev. Const. Stud. 218, (1996).

[6] CC 50870-05-15   Lan v. Facebook Inc., (Decmber 14 2017) (Discussing removal of Lan's Facebook page).

Strauss Water Ltd. ("Strauss"), develops, produces, and markets environmentally-friendly drinking-water heating and cooling Water Bars for in-home and business use.[1] In 2017, Strauss filed a lawsuit against five defendants, claiming each of them is involved, in some form or another, in the counterfeiting of Strauss's water filter cartridges. [2] Of note, Strauss has invested in the protection of its rights, through the registration of patents, patent designs, and trademarks in Israel and worldwide.

The defendants have denied these claims, asserted several defenses, and filed a counter-suit. First, the defendants claimed they do not sell counterfeit water filter cartridges but rather, replacement cartridges for the original product. Therefore, the defendants claim that they are not engaging in misleading or deceptive conduct nor are they making false or misleading representations regarding their water filter cartridges. Second, they argued that they negotiated with Strauss over the sale of its original water cartridges, but the company set conditions that the defendants could not accept. Consequently, Strauss refused to sell the defendant's spare parts, as well as original water cartridges. As a consequence of this, the defendants have filed a counter-suit where they claimed that Strauss was using its position as a monopoly in the market for water bars to exclude potential rivals. The defendants have argued that Strauss holds a monopoly in the relevant market and is using its monopolistic power in a way that harms competition and the public. The defendants have stated that Strauss was pursuing strategic practices, and among other things, was setting extremely high prices for the original water filter cartridges, illegally tying the service agreement to the purchase of cartridges, and refusing to sell the defendants spare parts for the original cartridges. Therefore, they petitioned the court to declare Strauss as a monopoly in the relevant market as well as to compel Strauss to sell the defendants' spare parts and the original water filter cartridges for a reasonable price. Defendants ask, at the very least, for the price charged to them be no higher than the one charged to the company's "full service" customers.[3]

The defendants have tried to base the claim that Strauss must sell its water cartridges on competition laws.[4] However, Strauss claimed, that coercing a patentee to exploit its patent is a compulsory license. Thus, it falls under the unique authority of the Patent Registrar under Section 117 of the Patents Act.

One of the first questions discussed by the court was whether the existence of patent law negates the applicability of competition law. The court held that the fact that a monopoly holder (in accordance with competition law) is also a patent holder does not exempt them from the application of competition law, and therefore the patent holder is subject to both laws. To that end, the court clarifies that although both patent law and competition law use the term "monopoly", competition law is concerned with the economic status of a monopoly in the relevant market. On the other hand, patent law is concerned with the protection of the patentee's invention and their proprietary rights, regardless of their position in the market. Hence, an entity could be regarded as a monopoly under patent law while not under competition law, and vice versa.[5]

Moreover, the court recognized that the Patents Act and the Economic Competition Law run parallel and both could be applicable when a patentee holds economic monopoly power over a market. The subordination of a patentee to both patent and competition legislation could be understood as vesting the authority to grant a "compulsory license" to a monopoly patent holder with the Patent Registrar as well as with the court.[6] The question remains, however, what is the relationship between section 117 of the Patents Act and Economic Competition Law? Specifically, do the various strains of law give a plaintiff the right to choose which route to take? 

In its decision, the Court held that competition law cannot be used to compel a patent holder to allow the exploitation of the invention that is the subject of the patent. The Court reasoned that although the provision pertaining to compulsory licensing is rarely applied, the Israeli legislature outlined a specific legal arrangement under which one's request to force a patentee to exploit its patent will be examined.[7] In other words, the court found the provision pertaining to compulsory licensing to be a form of Lex specialis;[8] Meaning that although competition law applies parallel to patent law when a patentee also holds an economic monopoly, there is a variance when the issue in question is of patent exploitation. In this specific regard, the legislature has adopted a special mechanism that grants the Patent Registrar the power to consider whether or not the patentee should be compelled to allow others to exploit the patented invention.

The Court stated that this particular arrangement does not prevent the general application of competition law. Thus, if consumers were to claim that the prices set by Strauss reflect an abuse of their monopolistic power in the market, rather than their patent rights, then, competition law would indeed prevail.[9] Moreover, under the specific arrangement adopted within patent law, the fact that the patentee (i.e., Strauss) holds monopoly power within the specific market can be considered. Nevertheless, the power to grant a compulsory license is under the unique authority of the Patent Registrar.[10] That is to say, that although competition law and patent law run in parallel, the courts held that when a party aims to force a patent holder to allow the exploitation of its patented invention, patent law provisions prevail over competition legislation. Thus, the court dismissed the claim on a preliminary grounds; a lack of authority.

Although the court recognizes the limited expertise and ability of the Patent Registrar to take into consideration competition interests, it argues that allowing the competition authority to consider these interests, which are at the heart of patent laws suffers from the same weakness.[11] Therefore, the Court held that attempts to coerce a patentee to allow exploitation of its patented invention, even in circumstances where the patent holder also holds monopoly power in the relevant market, should be done using patent law as the lodestar.[12] In this instance, the defendants should have approached the Patent Registrar and not the Court with their complaint.

Broadly, Strauss Water Ltd., v. Gal established that when a party aims to force a patent holder to allow the exploitation of its patented invention, asking the Patent Registrar to grant a compulsory license is the right course of action.

It is certainly correct that allowing competitors to negate the foundations of the patent law system using competition could lead to undesirable consequences. Further, if one accepts the idea of patents as an incentive mechanism for innovation;[13] surely, there are advantages to the intrinsic approach taken by the court. At the same time, the court's decision neglects to take into consideration how seldom compulsory licenses are granted[14] or the long term possible implications of poorly designed compulsory licensing. For instance, forcing a patent holder to license can harm the value of its rights and ultimately hinder innovation. Moreover, the Court's decision renders the patentee’s obligations under competition law nearly useless in practice. Finally, it appears that the Court's approach was too broad. The result is a decision that does not fully take into consideration whether there are other potential, preferable, intervention mechanisms.

The Strauss Water Ltd., v. Gal case, rises the aftermarket dilemma in durable goods. While the goods are sold in the primary market, spare parts and maintenance services are provided in the aftermarket. There are vertical relations between the primary market and the aftermarket since the aftermarket starts after the purchase decision has already been made. [15]

The aftermarket poses a good study case to survey the conflict between patent laws and competition laws. Products that are sold in the primary market may be protected by patents, thus empowering the patent holder to determine how much to sell, to whom, and at what price. The propriety right may also enable the patentee to refuse to sell spare parts to independent service organizations that act in the aftermarket. Consumers who chose to buy a certain brand in the primary market may find themselves locked-in with a particular manufacturer due to switching costs that strain their mobility to other brands. By using patent rights to refuse to deal, the manufacturer may exclude rivals and stiffen competition in the aftermarket. 

The famous case of Kodak demonstrates this dilemma. Kodak was a manufacturer of micrographic and photography equipment, holding dozens of patents for its different products. During the 1980s, Kodak was facing harsh competition from Independent Service Organizations that offered customers better prices for aftermarket’ services. Kodak reacted with a refusal to sell spare parts to Independent Service Organizations. The data showed that prices went up. The Independent Service Organizations filed a lawsuit in court, arguing that Kodak manipulated its dominant position in the market.[16] The district court dismissed the complaint, reasoning that Kodak’s proprietary rights include the right to refuse to deal. In the appeal, the Federal 9^th Circuit Court reversed the summary judgment.[17] In 1997 the Ninth Circuit considered the case another time on remand and affirmed a jury verdict that awarded the plaintiffs $72 million.[18]  Furthermore, it allowed a 10-year injunction that requiring Kodak to sell the spare parts for its machines at reasonable, non-monopoly and nondiscriminatory prices.

The court of appeals emphasized that a patent does not immunize the patentee from the application of the Anti-trust laws. It ruled that a monopoly may not refuse to sell patented products unless it shows a legitimate business justification.  In that case, the data showed that Kodak did not distinguish between patented and non-patented products and applied its exclusionary practice to exclude rivals. Kodak’s defense, relying on its patents’ rights, was rejected on the ground that Kodak failed to prove that it acted to protect its patents. The court found that Kodak’s purpose was to prevent ISOs from competing with Kodak's service organization for the repair of Kodak equipment. The court based its decision on competition laws, providing the plaintiff's remedies according to competition laws, although Kodak's “refusal to deal” practice has mostly relied on its patents.

The Kodak judgment represents an approach that limits the patent holder when turning into a monopoly. As a monopoly, the patent holder’s activities are scrutinized under competition law and may be restrained in the name of competition. A more moderate approach was adopted by the court in a case brought before it several years later, in the case of Xerox. Again, the manufacturer, holding patent rights, refused to sell patented products to Independent Service Organizations that threatened its dominance in the aftermarket. Here, the court found a legitimate justification for the exclusionary practice on the ground of protecting the patents. The Federal Circuit Court adopted an approach in favor of the patentee, emphasizing that the mere refusal to deal is not in itself wrong. Nevertheless, the court did not negate regulatory intervention in case the patentee abuses its rights.[19]

The verdict in the Kodak case provoked a legal debate. Our purpose in this article is not to analyze the pros and cons of the verdict but to point out the need to assess the conflict between patent laws and competition laws. The Kodak approach recognizes this conflict and balances it by applying to a patent holder their obligations as a monopoly. This approach does not deprive the patent owner of their rights under the Patent Law rather, it restrains their rights when becoming an economic monopoly. At that special point, the public interest requires the application of competition laws to maintain competition and to prevent exclusion of rivals out of the market.

Patent rights do not automatically confer a patent holder with a dominant market position, but in certain circumstances, they may lead to the formation of economic market power. At that point, when a patent holder becomes a monopoly in the relevant product market, the Economic Competition Act comes into action. This act explicitly prohibits a monopoly from an unreasonable refusal to trade, therefore providing a specific answer to cases where a monopoly acts strategically to exclude their rivals out of the market. The Economic Competition Act is the right legal arena to deal with abuse of market dominance and its anti-competitive ramifications. A compulsory license that may be imposed on a patentee according to the Patents Act is a general remedy against abuse of rights but surely not the only appropriate remedy to stop a patentee from leveraging their dominance to avoid competition from legitimate competitors. By dismissing the case on the grounds of less authority, the court missed the opportunity to examine a monopolistic behavior and its implications on the market and deprived the defendants of their rights according to the Economic Competition Act without a discussion of the substance of the matter.

[1] See Strauss Water Hone Page. Available at: https://www.strauss-water.com/

[2]  Strauss Water Ltd. V. Avi Gal and others, file no. 16853-04-17, August 28^th 2019. The appeal was closed with the consent of the parties: appeal no. 8110/19, May 27^th 2020.

[3] See Strauss Water Ltd., v. Gal, at p.3

[4] See section 29 of the Economic Competition Law -1988 (previously titled the Restrictive Trade Practices Act, 1988) (hereinafter – the "Competition Law").

[5] See the court's decision in Strauss

[6] Strauss Water Ltd. V. Gal. See also, 3/97 Magal Security Systems Ltd. v. Commissioner of Antitrust 2001.

[7] See the court's decision in Strauss

[8]  See also, Aharon Barak, Interpretation in Law: General Theory of Interpretation 569 (1992). 

[9]  See the court's decision in Strauss.

[10]  See court's decision in Strauss.

[11]  See the court's decision in Strauss.

[12] See the court's decision in Strauss.

[13] Shapiro, C. and D. Teece (1994), “Systems Competition and Aftermarkets: An Economic Analysis

of ’Kodak’”, The Antitrust Bulletin, Vol. 39/1, at p. 158

[14]  European Patent Office (EPO) (2018), Compulsory licensing in Europe. Available at: http://www.epo.org/compulsory-licensing

[15] For example: C Shapiro & D Teece, “Systems competition and aftermarkets: an economic analysis of Kodak” 39(1) The Antitrust Bulletin (1994) 135, 139.

[16]            Eastman Kodak Co. v Image Technical Services Inc. et al 504 US 451 (1992)

[17] Image Technical Services Inc. v. Eastman Kodak Co. 903 F. 2nd 612 (9th Cir. 1990). The Supreme Court affirmed the Ninth Circuit's denial of Kodak's summary judgment motion reversing the district court: 504 US at 458.

[18] Image Technical Services Inc. v Eastman Kodak Co. 125 F 3d 1195 (9^th Cir 1997)

[19]            P. 1327-1328.

Link to the full article: https://www.tandfonline.com/doi/full/10.1080/13537121.2020.1832326

The crisis that took place in 2008 left feelings of distrust in the banking system among many populations around the world. At the same time, there were a decrease in income concurrent with increased regulation and restrictions on loans from financial sources. Into this arena, internet platforms that provide alternatives to conventional financial systems were introduced, such as peer-to-peer (P2P) lending platforms. While in some industries, the new consumption method led to a transformation (e.g., tourism and music), the shift in the financial industry was minor. The percentage of loans granted through these types of platforms is still significantly lower than more traditional loan instruments, such as banking, and composes less than 10% of the total loan industry in the USA and UK, and around 4% of the loan industry in Israel. As such, the focus of the current study is to understand why the field of P2P lending has not succeeded in establishing legitimacy in the eyes of the public.

P2P lending platforms are online platforms that allow people (who define themselves as investors) to lend money to other people or small businesses. During the time of the survey, four major companies operated in Israel. Three of which allow lending to private borrowers (eLoan, Tarya and Blender), and one of which lends to small businesses (BTB). The present study focuses on the Israeli market to understand the public perceptions of P2P lending platforms to determine if these perceptions indicate a problem of industry legitimacy. Specifically, we want to examine the difference in the motivations of people who are active on these sites (i.e. investors), as opposed to people who refrain from activity.

There is no doubt that the main motivation of both lenders and borrowers on P2P lending platforms is economic. The interest rates given on these entities are significantly lower for borrowers than those given by more traditional institutions, yet they still present a valid alternative for lenders. However, various studies indicate that activity on online-social platforms not only involves rational economic elements but also relies on intrinsic dimensions such as helping others and enjoying activity on the site. Since P2P lending platforms include both financial and collaborative consumption elements, we were interested in examining whether there are additional reasons, beyond economic ones, for activity on P2P lending platforms.

This study also examined whether differences between groups stem from the influence of personal variables that distinguish between the people who lend money and the public, including risk perception and time preference. Understanding the attitudes and motivations that prevent people from using the platform can help formulate strategies to help promote the industry and increase its legitimacy.

To examine the attitudes of the public, we conducted an online survey of 1,180 respondents aged 25 and over. From all the respondents, 4% (47 people) had borrowed or lent money through a P2P lending platform in the past.  Respondents’ attitudes regarding P2P loans were measured with an attitude questionnaire developed by Hawlitschek, Teubner and Gimpel(2016)[†]^. The questionnaire examined 17 aspects of cooperative economic activity; in this study, we measured respondents’ perspectives on the following: whether the platforms offer an alternative to a conservative financial institutions (anti-capitalism), the complexity of using the platforms (platform complexity), the degree of enjoyment in using the platform (enjoyment), income supplement (income), the amount of knowledge needed in order to use the platform (knowledge), how much the platform is adjusted to modern life (modern life), perceptions about the protection of users’ privacy (privacy) and perceived risks in using the platform (risk). We also measured subjects' time preference.Risk preference and subjective risk preferences. In addition, demographic variables (age, gender, education, income, marital status) and questions about actual platform use were examined.

             Findings of the survey conducted indicate a dual perception of the use of P2P lending sites. On the one hand, respondents saw the possibility of lending and borrowing from peers as an alternative to the conservative and institutionalized financial system as contributing to others, as appropriate for modern times, and as a source of additional income. On the other hand, the survey shows that most of the public does not use these platforms. Some respondents said they fear possible risks relating to using the platform, such as economic risks, because of a lack of need or unwillingness to lend or borrow from others. However, many respondents said they are not aware of the possibility of obtaining loans or making investments through these platforms. This finding indicates an explanatory failure of the companies, alongside a lack of legitimacy amongst the public.

            When people who have been active on these platforms in the past or present were compared with respondents who have never used the platforms, it was found that both groups, similarly, perceive P2P lending platforms as an alternative to banks, as suitable for modern life, and as an income-generating activity. On the other hand, comparison between the groups found that the public perceives use of the platform as high risk and complex, and suffers from a lack of knowledge about using the platform, more than the public who uses the platform. It could be that the differences in respondents’ attitudes are also related to personality characteristics of the two groups, since respondents who have used the system were found to have a higher future orientation and more subjective perception of non-aversion to risk than the group that did not use the system.

Significant differences were found between men and women, in which men perceived use of the platform more positively than women, both in terms of using the platform as an alternative to institutionalized systems, as suitable for modern life, and as having a lower risk. Men tended to perceive the system as less complex and felt themselves to have more knowledge in the field than women.

In summary, we believe that the online financial platforms and P2P lending sites constitutes an appropriate alternative to more traditional banking systems, both as a relatively solid investment channel and as a channel for obtaining loans on convenient terms. At the same time, companies in the industry must act to increase legitimacy and reduce feelings of risk associated with using the platform. It is apparent that the P2P loan industry suffers from a lack of awareness about its existence, as well as a lack of knowledge about activity and the level of risk in providing social loans. Companies must raise awareness of their existence as an alternative to the institutionalized banking system among the public who is interested in convenient loans and attractive investments. At the same time, they must increase their own legitimacy by addressing the fear of economic risk through, for example, a security fund that allows a monetary refund if borrowers fail to meet their obligations.

[*] galik@ariel.ac.il

[†] Florian Hawlitschek, Timm Teubner and Henner Gimpel, Understanding the Sharing Economy – Drivers and Impediments for Participation in Peer-to-Peer Rental, in System International Sciences (HICSS) Conference4782 (2016)