12-34-56-78 Chekhov v. State of Israel, P.D. 51 (2)
Cause of Invention
- In our case, the Applicant based the application for determination of the methods of invention on the alternative set forth in Regulation 166(5) of the Rules of Procedure, which deals with an action that is "based on damage caused to the plaintiff in Israel, from a product, service or conduct of the defendant, provided that the defendant could have expected that the damage would be caused in Israel and that the defendant, or a person related to him, is engaged in international trade or the provision of international services on a considerable scale." According to the Respondent, the Applicant did not prove, even slightly, the existence of damage to the Israeli consumer.
- In the application for heresy, the Respondent discussed at length the value chain of the product, until it reached the final consumer in Israel (and in the process, the Respondent claimed that the Applicant and the expert on his behalf "skipped" a stage in this chain). The Respondent argued that the suspension assemblies are tiny components mounted on another component (magnetic heads), and together with it and other components, they assemble an integral assembly (HSA) that serves as a single input in the production of the hard drive (HDD), which is the product sold to the consumer (as an independent product or as part of a finished electronic product). The Respondent therefore argued that there are several segments in the value chain of the product, until it reaches the consumer in Israel, and these include the production of each of the sub-components, the production of the hard drive, the production of the finished product, its import and marketing in Israel. In each of these segments, the activity of other companies, which are conducted according to the market conditions that characterize this segment, and their conduct (including the manner in which the product is priced) is influenced by a wide variety of circumstances and considerations.
The Respondent insisted that according to the law and case law, the Applicant, who claims the existence of pure economic damage that has been rolled down the long and complex value chain, must prove the existence of damage that is claimable and compensable, including complying with the rules of distance from the damage, as determined in the case law. The Respondent argued that the Applicant should assume, already at this stage, a factual basis that establishes, to the minimum extent required, the claim that the damage was indeed passed down to the consumer in Israel. The Respondent insisted that in view of the value chain as described by it, the consumer in Israel is, as a rule, the purchaser of the finished product, who is an indirect consumer from the Sixth Circle at least. In these circumstances, it is argued, in view of the negligible cost of the component in question (which stands at less than one weight), which is installed in a finished product that costs hundreds or thousands of shekels; Taking into account the complex value chain and the circumstances relevant to each of the markets in the segments of this value chain, the claim that the damage has been rolled out, in whole or in part, to the consumer in Israel, is a minefield. The Respondent argued that the expert opinion on behalf of the Applicant, Mr. Sharon, which is based entirely on assumptions, estimates and general estimates only, does not substantiate the claim of rolling the damage, as was also determined in the judgment given by the Supreme Court in the Libor case (Civil Appeal 7125/20 Success for the Promotion of a Fair Society v . UBS AG (January 2, 2025) in relation to a similar opinion submitted by the same expert on another matter.
- In his response to the application, the Applicant argued that the Respondent does not deny at all that it is a party to the cartel, which lasted for about 14 years and encompassed more than 95% of the global production of the assemblies, nor does it deny the many decisions made on the matter abroad, which were detailed in the application for approval. It was also argued that the Respondent does not claim that the direct consumers (the purchasers of the assemblies) did not suffer damage of the type of overcharge, and its only argument is that the Applicant did not prove that the damage was extended to the final consumer in Israel. With regard to the issue of the rollover of damages, the Applicant argued that he has the presumption of rollover of damages, which is determined, inter alia, in section 14 of the relevant EU Directive, which was quoted with agreement in the Supreme Court ruling, and which is well supported by Mr. Sharon's opinion that was attached to the motion for approval, and which in itself establishes the claim of rollover. The Applicant also argued that the Respondent's arguments, even if they were correct, relate, at most, to the rate of rollover but not to its very existence. The Applicant further argued that in the application for heredy, the Respondent ignored the main characteristics that indicate that the damage of the cartel was passed on to the group (including: the fact that the assemblies are homogeneous products that are within the scope of variable cost, the period of the cartel, the competitiveness of the markets down the chain, etc.), and sufficed to point sporadically and messily to the existence of marginal characteristics, the existence of which may increase or decrease the rate of rollover. It was also argued that the Respondent's claims regarding the low price of the assemblies had been rejected in the past by courts in the United States and Canada, which ruled that even a cheap component could cause significant aggregate damage. In view of these characteristics, the Applicant argued that the likelihood of a "zero rollover", from which only the Respondent can be built (since a rollover at any positive rate means that the cartel caused damage to the group) aspires to zero. The Applicant referred to a case law that recognized the cause of action of an indirect injured party to whom the damage caused to the direct victim was attributed.
- In response to the reply, the Respondent reiterated its claim that the Applicant failed to lay an evidentiary basis, even prima facie, for the existence of damage to the consumer in Israel, as required by the cause of action under Regulation 166(5), while the Sharon opinion presents an abstract and generic overview, without reference to prices in Israel, and does not isolate the influence of the cartel from the other variables. The Respondent further argued that the Applicant did not deal with the material flaws in Sharon's opinion, which does not include an analysis of the prices that were actually collected from the consumer in Israel. The Applicant continues to claim the existence of competitive markets down the value chain, but the Respondent showed that the production segment of the hard drives was centralized and with differentiated products, which lays the groundwork under the claim of rolling the damage.
The Respondent argued that the Applicant also does not deny that the value chain is long and multi-stage, and that the consumer in Israel is a purchaser from at least a fifth circle. The Respondent reiterated that the cost of the components that are the subject of the cartel is negligible in relation to the prices of the products sold in Israel, about $0.225, and it is absurd to claim that such a small increase has been rolled over a branching value chain to the Israeli consumer. It was also argued that, contrary to the Applicant's claims, there is no "presumption of rolling damage" in Israeli law, and that the European "Rollover of Damage" Guidelines , to which the Applicant relates, also stipulate that when overcharging constitutes a small part of the variable costs, the direct purchaser may not roll it over. In this case, it is a negligible over-charge of less than a single weight, which should have rolled over in a long and branched value chain.