In December 2021, the Jerusalem District Court dismissed two motions to certify a class action against the leading dairy manufacturer in Israel, Tnuva, for charging excessive prices. Both the motion and the dismissal are part of an intense dispute ongoing for years. The dispute revolves around whether the prohibition of a monopolist charging an “unfair” price applies to charging excessive fees.

The “Safe Harbor” Test

In 2014, the director-general of the Competition Authority published a public statement on the prohibition of excessive pricing by a monopoly. This statement took an affirmative view of the question and prescribed parameters for examining the fairness of a price. The statement prescribed a “safe harbor” test, whereby a price not exceeding 20% above the recognized costs shall not be subject to prohibition enforcement. Since the publication of the public statement, numerous motions have been filed with the courts to certify class actions over excessive pricing. In 2017, the Competition Authority published an updated statement after re-examining the issue. It determined to engage in moderate enforcement of the prohibition of unfair high pricing and focus on instances when the benefit of enforcement outweighs the damage involved.

Regarding both recognition of the cause of action and the conditions for applying it, the dispute is currently under deliberation by the Israeli Supreme Court. The most dramatic ruling expected is on the certification of a class action against the Central Bottling Company for excessive pricing of Coca-Cola bottles. The Attorney General submitted a position in that proceeding, believing it correct to acknowledge the existence of excessive pricing as a cause of action but to apply this carefully and with restraint.

In parallel, in November 2021, the Competition Authority announced its intention to institute enforcement proceedings against MBI Pharma for charging an unfairly high price, subject to a hearing (See our previous update here).

Tnuva Case Ruling

The Honorable Judge Tamar Bazak-Rapaport, head of the Competition Tribunal, handed down the Jerusalem District Court ruling. The ruling referred to two motions filed in 2014 by Prof. Yaron Zelekha to certify a class action against Tnuva. The motions claimed that Tnuva charged excessive prices for 5% white cheese and 38% and 32% sweet cream. The District Court chose to rule on the issue of whether the cause of action of excessive pricing exists and how to apply it. It did so even though the matter is pending before the Supreme Court. The District Court explained that it did not deem it fitting to delay the proceedings underway considering their long duration and the movant’s objection to a stay of proceedings. The starting point in the ruling was that Israeli law recognizes the prohibition against a monopolist charging a high and unfair price. Nevertheless, the Court dismissed the motions to certify a class action.

Firstly, it rejected the movant’s argument that a lower burden of proof is imposed on him at the motion to certify stage, considering the information gaps between the parties. The District Court referred to the extent of the disclosures in the case at hand. Tnuva exposed the movant and his attorneys to extensive data and documents during the disclosure stage. The court ruled that, under these circumstances, it is not warranted to rule that a reduced burden of proof is imposed on the movant and that the opposite might be the case.

Defining Relevant Markets

Secondly, the court ruled that the movant did not lay a reasonable foundation to his argument that Tnuva has a monopoly on each product specified in the motions to certify. According to the ruling, the movant did not define relevant market for each of the various products. In the relevant market, the product under examination itself will be found alongside the most limited group of products that are significant direct substitutes for such product in the consumer’s eyes. Since no relevant market was defined, the existence of Tnuva’s monopolistic position in relation to each of the products was not examined. The court ruled that the movant could not rely on the Competition Authority’s 1988 declaration of Tnuva as holding a monopoly on “dairy products.” The court explained that that declaration does not prove the existence of a monopoly when the relevant market concerns specific dairy products and not the “dairy market” as a whole.

The Two-Stage Test

Thirdly, and primarily, the District Court rejected the argument that the Competition Law prohibits charging a higher price than the market price, per se. The court ruled that the law prohibits charging a significantly higher price than the market price, and only if it is also unfair. According to this two-stage test, it is first necessary to check if there is a significant and blatant difference between the product’s price and the market price. Only if the answer to this is yes, will the question be if the difference reaches the point of being “unfair.” If so, this might attest to abuse of monopolistic position. This examination relates to all relevant data, including the economic value of the product, the magnitude of the monopolist’s market power, entry barriers, etc.

The court ruled that intervention in the “heart of the free market,” i.e., the pricing aspects, poses conceptual and practical difficulties.

These difficulties lead to a situation where it is appropriate to define a price as unfair due to its size only in a few clear cases. According to the ruling, this narrow interpretation is consistent with the Economic Competition Law. The law does not prohibit monopolistic activity. Moreover, it does not require a monopolist to sell at “market prices,” but rather prohibits setting an unfair price level. The court explained that a monopolist’s actions to maximize its revenues may be legitimate as long as they do not reach “unfairness.” Therefore, a price higher than the theoretical price set under competitive conditions does not necessarily constitute an abuse of monopolistic position. The court also noted that price control regulation generally pertains to price control laws and not to competition laws. Furthermore, the court explained there needs to be a conspicuous difference in prices to justify examining the fairness of the price within the framework of a civil proceeding pursuant to the Competition Law.

The court ruled the movant did not prove, even at the prima facie level needed during the motion to certify stage, that Tnuva had charged an unfairly high price attesting to abuse of monopolistic position.

Excessive Pricing – Where Do We Go from Here?

The District Court’s ruling deepens the dispute over unfair high pricing as a cause of action and its application. Whether or not the Supreme Court will examine this ruling under an appeal proceeding has generated significant and emphatic statements. It remains to be seen if the Supreme Court’s decision on this precedential issue will reflect these statements. It will be particularly interesting to see which position the Supreme Court adopts—a narrow interpretation, as expressed by the Jerusalem District Court, or a more expansive interpretation.