Israeli Court Permits First-ever Class Action Suit Against Price-gouging Monopolies

This is the first time the Israeli High Court has recognized the use of an “exorbitant price” as a cause for filing petitions, reversing previous attempts by former Attorney General Avichai Mendelblit to block class action lawsuits

Ido Baum
Ido Baum
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A woman walks past a Coca-Cola vending machine at a shopping mall in Virginia, in 2011.
A woman walks past a Coca-Cola vending machine at a shopping mall in Virginia, in 2011.Credit: Jewel Samad / AFP
Ido Baum
Ido Baum

The Supreme Court delivered a precedent-setting ruling on Tuesday, allowing consumers to file class-action lawsuits against monopolies that abuse their power in order to gouge prices.

This is the first time a court has recognized the use of an “exorbitant price” as a cause for filing petitions, even determining how such a suit should be managed in court.

The court used the opportunity to reject an attempt by former Attorney General Avichai Mendelblit and the Competition Authority to pose obstacles for class-action petitioners. In place of the stringent approach adopted by Mendelblit and the Competition Authority, the court set a more balanced test that will be employed by district courts, reflecting a better balance between petitioning consumers and the monopoly being sued.

The Supreme Court ruling was given in response to an appeal over a district court ruling in a petition against the Central Bottling Company (Coca-Cola). The ruling was written by Justice Anat Baron, who was joined by Justices Neal Hendel and Yosef Elron. The justices overruled their colleague Ofer Grosskopf, who delivered his ruling on the Coca-Cola issue while serving as a district court judge.

Justice Baron ruled that the prohibition on exorbitant prices is needed in order to avoid the exploitation of consumers and in order to contend with the high cost of living in Israel. After careful consideration, she noted that “the obvious conclusion is that the legislator deliberately chose to embrace the exorbitant price argument in the law pertaining to competition. Exorbitant prices harm consumers’ welfare and contributes to the high cost of living. Even though enforcement of this prohibition constitutes external intervention, it is guided solely by considerations of competition, unlike the case of price regulation,” she wrote.

The ruling releases more than 20 such class-action suits that were pending this ruling. District courts were waiting for a determination of what constitutes an exorbitant price and how disputes should be sorted out.

The ruling was surprising in its refusal to adopt the conservative stance of former Attorney-General Mendelblit, which was based on the approach of the Competition Authority. Mendelblit set a complicated two-stage barrier for plaintiffs, arguing that high prices were essential for competition while asking the courts to be cautious about intervening in the market.

Baron countered that there was a concern that profits would be higher than warranted by competition, and that court intervention would not affect competition but would reduce the harm to consumers. Plaintiffs will now have to prove that a company was monopolistic and then that prices were “exorbitant,” as well as “unfair.” This will entail providing briefs showing production costs, comparisons with competitors and prices in other markets, as well as estimates of profits. The monopoly will then have to justify its prices, based on factors such as the heavy investments required in production or the risks associated with delivery.

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