Israeli Supreme Court: Monopolies May Be Sued for Charging Unfair Excessive Prices
On July 26, 2022, the Israeli Supreme Court handed down a precedent-setting ruling in the Central Bottle Company (Coca-Cola Israel) case (Permission for Civil Appeal Gafniel v. Central Bottle Company Ltd.). The court determined the Economic Competition Law enables would-be plaintiffs to sue monopolies for charging unfair excessive prices and that they may also file class actions on this ground.
By doing so, the Supreme Court resolved a long-standing dispute: whether the prohibition on “unfair pricing” of products or services the Economic Competition Law imposes on monopolies also applies to charging an excessive price (and not just to low, predatory prices that may push competitors out of a market). Although district courts and some Israel Competition Authority Director-Generals have interpreted this prohibition as applying also to charging an unfairly high price, until now, the Supreme Court did not adopt this position.
The Supreme Court’s ruling on this issue is likely to provide significant tailwind to both private and class action plaintiffs looking to sue monopolists on grounds of charging unfair excessive prices for their products or services.
Ruling Highlights
The Supreme Court ruled that prohibiting monopolists from charging excessive prices is necessary to prevent the exploitation of consumers and to contend with the high cost of living in Israel. Nevertheless, the Supreme Court ruled that courts must exercise caution and restraint when intervening in prices retroactively in a free market in order not to harm companies’ investment incentives or damage free competition.
The Supreme Court, through Justice Anat Baron’s majority opinion, defined the following criteria to substantiate a cause of action of unfair excessive pricing:
- The plaintiff must prove the defendant company holds a monopoly (i.e., a market share exceeding 50%, or significant market power) in the relevant market.
- Next, the plaintiff must prove the price charged by the monopolist is “excessive,” i.e., significantly higher than the price that would have been set under competitive market conditions. This examination will take place in conjunction with the possible use of auxiliary tests already proposed by the Israel Competition Authority:
- The costs test, which focuses on the difference between the product price and its manufacturing/supply cost.
- The comparison test, which compares the price charged by the monopolist to, inter alia, the prices its competitors charge in the market, the price the monopolist charges different customers, the price of a similar product in another geographic market, or the product price in a different period.
- The profitability test, which examines the ratio between the monopolist’s actual profitability and a “reference index,” which represents the market’s perception of the level of risk in the company’s sector, and which essentially measures the return required by investors for investing in the company.
- The Supreme Court ruled that if a plaintiff succeeds in proving a monopolist charged an excessive price, this constitutes a “strong indication” the price is “unfair.” In such a case, the burden will shift to the monopolist to prove the price it is charging is fair. Shifting the burden to the defendant at this stage is a significant innovation, which counters the position of the Competition Authority Director-General and the Attorney General in this regard.
To prove the price is indeed fair, the monopolist can try to show, for example, that supplying the product or providing the service involves a high risk or a high investment, which justifies the price. Alternatively, it could try to show that limiting the price may adversely affect other aspects in the supply of the product, such as variety, quality, availability, or prices it wishes to offer consumers in the future. At this stage, the court will also need to ascertain if the excessive price is the outcome of the company abusing its monopolistic power or if it derives from some legitimate reason. In this regard, the court will also examine the power imbalance between the monopolist and its customers, entry barriers into the market, the elasticity of the demand for the product, etc. According to the ruling, this is a question of judicial policy that requires the exercise of discretion.
Finally, the Supreme Court emphasized the considerable difficulty in proving a cause of charging an unfair excessive price, both due to the complexity of this cause and due to the inherent information disparity between the parties, since the class plaintiff has no access to the defendant’s data.
Within this context, the court reiterated that a class plaintiff must present, already at the preliminary stage of filing a motion to certify a class action, sufficient evidentiary and legal grounds for proving the cause of excessive pricing. It must also show the class has good prospects of winning the action. The court added that the plaintiff has several tools it can use to overcome the inherent information disparity. The most effective of such tools is discovery, when the defendant must disclose documents for inspection. The court cited a ruling that emphasizes that, in complex cases that require reliance on a large database, the court may, even during the proceeding to certify a class action, order the disclosure of a significant volume of documents and data.
The Ruling’s Potential Effect
Israel’s district courts have already recognized the possibility of suing a monopolist in respect of charging an unfair excessive price, and have granted reliefs based on this cause. However, the Supreme Court’s recognition of this cause of action halts defendants’ potential arguments for opposing the very possibility of suing monopolies on this ground, and puts an end to other possible arguments. One such argument is that the court should not allow lawsuits in relation to excessive prices of particular types of products or services, such as luxury items or nonessential products.
Furthermore, the Supreme Court has defined orderly criteria for substantiating this cause of action, thereby preventing contradictory rulings.
Finally, while the court reiterates and emphasizes the burden imposed on a class plaintiff already at the preliminary stage of filing a motion to certify a class action, i.e., the need to present sufficient evidentiary grounds for proving a prima face cause of action, it also makes it easier for the plaintiff to bridge the information gaps through document discovery proceedings (even at a significant volume). Thus, through a shift of some of the evidentiary burdens to the monopolist, it makes it easier for the plaintiff to prove its claim.
The Supreme Court’s ruling is likely to provide significant tailwind to private lawsuits and to class actions against monopolists on the grounds of charging unfair, excessive prices. It is thus likely to increase monopolists’ exposure to lawsuits of this kind.
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The Competition and Antitrust Department at Barnea Jaffa Lande Law Offices is at your service if you have any questions or require advice in this regard.
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