Israel: Suing Monopolies for Setting Unfairly High Prices
In July 2022, in a class action filed against the Central Bottling Company alleging unfair pricing of Coca-Cola, the Israeli Supreme Court ruled for the first time that a monopoly may not set an unfair excessive price. With this innovative ruling, it seemed a new wave of class actions was about to begin and that the battle against the cost of living was shifting to the courts.
However, the Supreme Court’s recent ruling in a class action filed against Tnuva alleging excessive and unfair pricing of cottage cheese shows that, despite the resonance of the Coca-Cola ruling, the courts will only allow such actions in highly exceptional instances.
Excessive Pricing – Summary of Previous Cases
In its ruling in the Coca-Cola case, the Supreme Court adjudicated a long-standing dispute and ruled, for the first time, that the Israeli Competition Law prohibits monopolies from setting unfair, excessive prices. The court devised a two-stage test for applying the cause of action of excessive pricing. In the first stage, the plaintiff must prove the monopoly set an exorbitantly high price, which significantly exceeds the price that would have been set under competitive conditions. If the plaintiff succeeds in proving the price is excessive, then the second stage is activated and the monopoly must prove the price is fair, even though it is excessive.
Tnuva Case – Curbing the Cause of Action of Excessive Pricing
In the Tnuva case, the Supreme Court took a very narrow approach to the cause of action of excessive pricing and stressed that it should be applied only in extreme and blatant instances of consumer exploitation. The Supreme Court assumed Tnuva had a monopoly on cottage cheese during the period relevant to the class action, and Tnuva itself did not claim otherwise. However, the Supreme Court ruled that the class plaintiff had failed to prove the cumulative criteria for applying the cause of action of excessive pricing.
Stage 1
The Supreme Court ruled that the plaintiff failed to prove that the price set by Tnuva was indeed excessive, since it did not prove that the price was significantly higher than the price that would have been set under competitive conditions. The Supreme Court ruled that the district court had relied on an incomplete factual foundation and that it had erred in the way in which it performed the internationally accepted auxiliary tests for applying the cause of action of excessive pricing (particularly, the price-cost test and the comparison test).
Stage 2
The Supreme Court also chose to refer to the second stage when arriving at its principle ruling . According to the Supreme Court, the district court erred when it ruled that since Tnuva has significant market power, the excessive price (according to the district court) it set was necessarily also unfair. The Supreme Court referred to several key considerations when examining the fairness of the price:
- Is the monopolist close to absolute control over the market consistently and over time?
- Do consumers have alternatives to purchasing the relevant product, and what are the reasons why consumers prefer to purchase the product from the monopolist (such as personal taste, health sensitivity, etc.)?
- To what extent do consumers consider the product a necessity?
- What was the duration of the period of the excessive pricing?
- Is there another designated regulatory authority (such as the Ministry of Health, the Ministry of Communications, etc.) that can supervise the price more effectively than the Competition Authority or the court?
Excessive Pricing – What Can We Expect?
Admittedly, in the Tnuva case, the Supreme Court did not retract its recognition of the existence of the cause of action of excessive pricing in Israeli law. However, the Supreme Court construed this cause in a very narrow and restrained manner, considerably limiting the possibility of suing on these grounds. Moreover, the Supreme Court relied on several basic assumptions that further constrain the application of this cause of action:
- The difference in price during different periods does not necessarily attest to the fact the price during one of the periods was excessive. The monopolist may claim the difference derives from considerations of image and reputation, even without proving its manufacturing costs changed.
- The application of the cause of action of excessive pricing is justified only in relation to essential goods (such as medicines, gas, infrastructure, etc.). Moreover, even if it is an essential product, the cause should be applied only in instances when consumers’ preference for the monopolist’s products does not derive from personal taste, but rather has some “objective” reason (such as health sensitivity to an ingredient in a medicine).
- Considering the difficulties inherent in using the cause of action of excessive pricing in class actions, it should generally be enforced by the Competition Authority and not by the court, lest the court find itself in a position of “the super-regulator of prices in the Israeli economy.”
The Israeli Supreme Court has significantly limited the possibility of suing monopolies in private and class actions for excessive pricing. Although the Supreme Court has indicated that the Competition Authority is a more appropriate authority to enforce the cause of action of excessive pricing than the courts, it is well known that the Competition Authority itself adopts a very restrained policy when enforcing this cause. There is no reason to assume the Competition Authority will adopt a more expansive enforcement policy in the wake of the Supreme Court’s ruling. In fact, there are reasonable grounds to assume the opposite. Thus, in practice, the Supreme Court’s ruling in the Tnuva case almost hermetically closes the window that seemed to open in the Coca-Cola case.
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Barnea Jaffa Lande’s Antitrust and Competition Department is at your service if you have any questions regarding monopolies, the Food Law, or any other issues.
Adv. Irit Brodsky is a partner in the department.