The Chips Are Down: Intel’s Victory in the European Court of Justice Has Implications on How Anticompetitive Conduct Is Analysed in EU Antitrust Cases

 

On 6 September 2017, the Court of Justice of the European Union (“CJEU”) handed down its long-awaited ruling in Intel v Commission (the “Ruling”).[1] The Ruling, which sets aside the appealed judgment of the EU General Court and orders the case to be re-examined for failing to consider the effects of anticompetitive conduct on competition, has potentially broad implications for how the European Commission (“Commission”) conducts its analysis and reasons its decisions in ongoing and future EU antitrust investigations.

Key Takeaways

  • The Ruling signals a return of “effects-based” analysis in EU antitrust cases and a move away from a “form-based” approach where certain conduct is deemed per se illegal.
  • The Ruling not only clarifies how the General Court should assess appeals of Commission decisions, but is likely to have implications for how the Commission approaches its analysis and reasons its decisions in EU antitrust cases going forward. In particular, the burden of proving that specific conduct or practices have anticompetitive effects is placed firmly with the Commission.
  • Intel’s victory may embolden other entities facing similar allegations to defend their corners more aggressively.
  • This is not the end of the road. It cannot be ruled out that the General Court, when it re-examines the case and applies the appropriate analysis, comes to the same ultimate conclusions and upholds the Commission’s original fine.

European Commission Investigation

The case dates back to the early 2000s when AMD filed complaints to the European Commission (“Commission”) and the German Bundeskartellamt (“BkA”) alleging that Intel abused a dominant position by engaging in a range of anticompetitive conduct designed to force competitors out of the market. Following “dawn raids” carried out in July 2005, the Commission issued a Statement of Objections (“SO”) to Intel in July 2007. The SO alleged that Intel had engaged in three different types of abuse designed to exclude AMD from the market: (i) granting substantial rebates to Original Equipment Manufacturers (“OEMs”) conditional on them obtaining all or the great majority of their CPU requirements from Intel; (ii) making payments to OEMs in order to induce them to either delay or cancel the launch of a product line incorporating competitors’ CPUs; and (iii) offering CPUs on average below cost terms to strategic customers in the server segment of the market.[2]

The Commission carried out further dawn raids and issued a supplementary Statement of Objections (“SSO”) to Intel in July 2008, alleging three further, similar abuses: (i) providing substantial rebates to a European retailer conditional on it selling only Intel-based PCs; (ii) making payments in order to induce an OEM to delay the planned launch of a product line incorporating an AMD-based CPU; and (iii) providing substantial rebates to that same OEM conditional on it obtaining all of its laptop CPU requirements from Intel.[3]

On 13 May 2009, the Commission imposed a then-record fine of €1.06 billion on Intel for abusing a dominant position in violation of Article 82 of the EC Treaty (now Article 102 of the Treaty on the Functioning of the European Union (“TFEU”)) by engaging in in two specific forms of illegal practice aimed at excluding competitors from the market for x86 CPUs. The Commission found that: (i) Intel gave wholly or partially concealed rebates to OEMs on condition that they bought all, or almost all, of their x86 CPUs from Intel, also making direct payments to a major retailer on condition that it only stocked computers incorporating Intel x86 CPUs; and (ii) Intel made direct payments to OEMs to halt or delay the launch of specific products containing competitors’ x86 CPUs and to limit the sales channels available to these products.[4]

Intel’s Appeal to the General Court

Intel lodged an appeal to the General Court in July 2009, seeking to annul the Commission’s decision on the grounds that it erred in law by: (i) finding that the conditional discounts granted by Intel to its customers were abusive per se by virtue of them being conditional without establishing that they had an actual capability to foreclose competition; (ii) relying on a form of exclusionary abuse, termed “naked restrictions”, and failing to conduct any analysis of foreclosure (even a capability or likelihood to foreclose) in respect thereof; and (iii) failing to analyse whether Intel’s rebate arrangements with its customers were implemented in the EU and/or had immediate, substantial, direct and foreseeable effects within the EU.[5]

The appeal was heard by the General Court in July 2012, where Intel argued inter alia that the Commission was obliged to assess the specific circumstances surrounding rebates granted to OEMs and prove via means of economic analysis that Intel’s conduct foreclosed competitors. In contrast, the Commission claimed that it was under no legal requirement to examine the actual or potential effects of the rebates on competitors (despite having conducted a detailed investigation into the circumstances surrounding the rebates). The General Court handed down its ruling nearly two years later, in June 2014, dismissing Intel’s appeal in its entirety and upholding the Commission’s fine. Supporting the Commission’s position, the General Court concluded that it was not necessary to show, on a case-by-case basis, that the rebates restricted competition: “exclusivity rebates granted by an undertaking in a dominant position are by their very nature capable of restricting competition.[6]

The ruling was, at the time, considered to be a set-back to more progressive “effects-based” analysis in abuse of dominance cases in the EU, with the General Court instead backing the previous “form-based” approach that certain types of conduct, such as loyalty rebates, are per se illegal (“by object”) regardless of whether there is evidence of any competitive harm.[7]

The Appeal to the CJEU and the Opinion of AG Wahl

Intel appealed the General Court’s ruling to the CJEU, where the case was heard in June 2016.  Intel argued that, in order to determine whether rebates are capable of restricting competition and to find an abuse of a dominant position within the meaning of Article 102 TFEU, the settled EU case law requires an examination of “all the circumstances”, including the level and duration of the rebates in question, customer needs, the market shares concerned and the ability of the rebates to foreclose an “as efficient competitor”, and that the General Court failed to do so.

In October 2016, Advocate General Nils Wahl delivered his non-binding Opinion in the case, concluding that the General Court had failed to correctly apply the EU case law on rebates and, as a result, had erred in law by finding that exclusivity rebates constituted a “separate and unique category of rebates that require no consideration of all the circumstances in order to establish an abuse of a dominant position contrary to Article 102 TFEU”, and that it had failed to establish “on the basis of all circumstances, that the rebates and payments offered by the appellant had, in all likelihood, an anticompetitive foreclosure effect.[8] In particular, AG Wahl criticised the General Court for citing the long-standing Hoffman-LaRoche ruling “without examining the circumstances of the case”, resulting in an overly strict approach to exclusivity rebates, failing to consider the legal and economic context. Observers considered that AG Wahl’s Opinion therefore supports a move towards effects-based analysis in EU antitrust cases, requiring the Commission to make a thorough assessment of whether alleged anticompetitive conduct actually causes harm.

AG Wahl recommended that the CJEU uphold the vast majority of Intel’s appeal, set aside the General Court ruling, and return the case to the General Court for fresh review “of all the circumstances of the case and, as the case may be, of the actual or potential effect of Intel’s conduct on competition within the internal market.

The CJEU’s Judgment

In the Ruling, the CJEU re-emphasised the general principles that Article 102 TFEU is not designed to prevent an undertaking from acquiring a dominant position on a market, nor does it seek to ensure that less efficient competitors should remain on the market, noting that, therefore, “not every exclusionary effect is necessarily detrimental to competition”, but also that “not all competition by means of price may be regarded as legitimate.”[9]

Largely following the opinion of AG Wahl, the CJEU recited the principles from Hoffman-LaRoche,[10] but noted that it “must be further clarified in the case where the undertaking concerned submits, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects.[11] The CJEU therefore considered that in addition to being required to analyse the extent of an undertaking’s dominant position, the share of the market covered by the alleged conduct and the specific conditions and duration of the rebates in question, the Commission is also required to “assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market.[12]

In this regard, the General Court, in considering an appeal of a Commission decision finding that a rebate scheme constitutes an abuse of a dominant position, “must examine all of the applicant’s arguments seeking to call into question the validity of the Commission’s findings concerning the foreclosure capability of the rebate concerned.[13] In this case, the CJEU found that the General Court had failed to do so, thereby failing to consider Intel’s arguments against the Commission’s findings in this regard.[14]

On this basis, the CJEU ordered that the General Court judgment be set aside and the case referred back to the General Court where the issue of whether the rebates in question are capable of restricting competition will be re-examined.[15]

Intel’s General Counsel, Steven Rodgers, welcomed the “landmark ruling”, noting that Intel has always considered its actions to be “lawful and did not harm competition.” The Commission acknowledged the Ruling and stated that it would “look carefully into the details of the judgment.[16]

The Ruling is available here.

 

[1] Case C-413/14 P – Intel v Commission, judgment of 6 September 2017.

[2] See Commission press release MEMO/07/314.

[3] See Commission press release MEMO/08/517.

[4] See Commission press release IP/09/745.

[5] OJ C 220/41, 12.9.2009. Intel also claimed that the Commission failed to meet the requisite standard of proof in its analysis of the evidence and that the Commission failed to prove that Intel engaged any foreclosure strategy, alongside a raft of procedural infringements and jurisdictional questions, which are not considered in this blog post.

[6] Case T-286/09 – Intel v Commission, judgment of 12 June 2014.

[7] Drawing on previous CJEU case law including British Airways (C‑95/04), Michelin (C-322/81) and Hoffman-LaRoche (C-85/76).

[8] Opinion of AG Wahl in Case C-413/14, delivered on 20 October 2016.

[9] Ruling, at paras 133-137, citing the CJEU’s ruling in Case C-209/10 – Post Danmark v Konkurrencerådet, EU:C:2012:172.

[10][..] that an undertaking which is in a dominant position on a market and ties purchasers — even if it does so at their request — by an obligation or promise on their part to obtain all or most of their requirements exclusively from that undertaking abuses its dominant position within the meaning of Article 102 TFEU, whether the obligation is stipulated without further qualification or whether it is undertaken in consideration of the grant of a rebate. The same applies if the undertaking in question, without tying the purchasers by a formal obligation, applies, either under the terms of agreements concluded with these purchasers or unilaterally, a system of loyalty rebates, that is to say, discounts conditional on the customer’s obtaining all or most of its requirements — whether the quantity of its purchases be large or small — from the undertaking in a dominant position.” Ruling, at para 137.

[11] Ruling, at para 138.

[12] Ruling, at para 139.

[13] Ruling, at para 141.

[14] Ruling, at paras 142-146.

[15] Ruling, at paras 148-150.

[16] See, e.g., https://www.nytimes.com/2017/09/06/business/intel-eu-antitrust-fine.html.