The Supreme Court confirmed that the Israeli Economic Competition Law indeed prohibits setting unfair, excessive prices. The Supreme Court ruled that the prohibition is necessary to prevent the exploitation of market power to rake in significantly higher profits than the competitive price and also to deal with the high cost of living in Israel. It was also determined that the prohibition can be enforced by filing class action lawsuits.

However, because the enforcement of the prohibition requires courts to intervene in free market prices retrospectively, it was clarified that such intervention must be done with caution and restraint in order to avoid harm to the efficiency and innovation incentives of the firms operating in the market. It was further clarified that a situation in which courts become the "supreme regulator" of prices in the Israeli economy must be avoided.

In the majority opinion, Justice A. Baron, with the agreement of Justice Y. Elron, established the standards for the application of the "excessive price" doctrine. It was determined that a threshold condition is that the firm has a monopoly in the relevant market, in accordance with the tests set forth in the Economic Competition Law – a market share exceeding 50% or a "significant market power".

In addition, the claim must be examined according to a two-stage test based on economic-competitive considerations. In the first stage, the class action plaintiff bears the burden of showing that an excessive price was charged. A determination regarding the degree of excessiveness of the monopolistic price in relation to the price that would have been charged under conditions of competition in the market will be made according to several tests, among them: the "costs test" – which examines the difference between the price of the product and its production cost; the "comparison test" – which examines the difference between the price charged by the monopoly and the price charged for similar products in the relevant market or for the products of the same monopoly in another period of time or another geographical location; and the "profitability test" – which analyzes the actual level of profitability of the firm compared to the level of risk in its activity.

If the court concludes that the monopolistic price is excessive, then the burden shifts to the defendant-monopoly to show that the price is not the result of market power abuse and that there are good reasons to determine that the price is nevertheless fair. In this framework, consideration will be given, among other things, to the disparity of power between the monopoly and the consumer, the entry barriers into the market, the degree of demand for the product, its differentiation, and the existence of substitute products.

The Supreme Court ruling further states that when the cause of the excessive price is asserted as part of a class action proceeding, the two-stage test must already be fully applied at the certification stage of the claim as a class action, and it must be examined whether sufficient evidence has been provided. To overcome the information gaps inherent in the class action proceeding, the plaintiff may file a motion for the disclosure of the information necessary to establish the claims, which typically is in the sole possession of the defendant corporation.

In the specific proceeding before the Supreme Court, the case was remanded to the District Court to allow additional discovery so that the excessive price cause of action could be fully examined.

For more information and counsel, contact our firm’s Competition Law Department or the Litigation Department.