On 13 May 2009, the EC Commission imposed a record fine of €1.06 billion on Intel for abusing its dominant position in the market for computer chips (x86 CPUs, an essential component of personal computers). The Commission found that, over a period of at least five years, Intel had sought to protect its overwhelming 70% share of the global market for these chips by:-
- offering anticompetitive rebates or other payments to incentivise customers to buy all (or almost all) their chips from Intel; and
- making payments to its customers (computer manufacturers) to persuade them to hold up the launch of products containing CPUs produced by Intel's competitors.
In the Commission's view, these practices were part of a strategy intended to exclude rivals from the marketplace. Intel has countered that its success on the market is a result of effective competition. This fundamental disagreement reflects the fact that the boundary between legal and illegal practices can be difficult to draw in practice. In recent years, the Commission has been keen to emphasise that it will pursue only those practices that have a concrete anticompetitive effect on the market. Intel has already made clear that it will appeal the Commission's Decision and we may see it ask the Court to give guidance on what will constitute adequate evidence of such effects.
In addition, whilst the Commission has been keen to emphasise that the fine imposed on Intel is well below the statutory maximum of 10% of annual turnover, the sheer size of the fine in this case is bound to raise questions as to the legitimacy of the Commission's approach.
Background and procedure
The Commission's case against Intel is based on breaches of the EC rules outlawing abuses of a dominant position (set out in Article 82 of the EC Treaty). These rules are often said to impose a "special responsibility" on companies occupying a strong position on particular markets, as they prohibit some types of behaviour that might be acceptable for smaller rivals. As a rule of thumb, companies with a share of 40% or more of any market are normally said to be at risk of being considered dominant. In this case, the Commission concluded that Intel's share of the relevant market was as high as 70%, far outstripping its only meaningful competitor – Advanced Micro Devices (AMD).
The Commission's investigations of Intel began with a series of complaints about Intel's practices by AMD in the early 2000s. Alongside these complaints to the European Commission, AMD has actively pursued Intel for allegedly anticompetitive behaviour in the US in recent years; the Japanese and Korean regulators have also taken action against Intel under their competition rules.
The Commission's investigation stepped up a gear in July 2005, when it conducted "dawn raids" on Intel's premises in Italy, Spain, Germany and the United Kingdom and seized documents and e-mails which it ultimately relied on as evidence to support this final Decision.
In an unusual move, in 2008 Intel brought a case before the European Court of First Instance challenging the Commission's procedure against it by alleging that its ability to defend itself was prejudiced by the Commission's refusal to provide it with key documents from AMD and to extend its deadline for replying to some of the Commission's objections. The Court rejected Intel's case, but we may well see these issues resurface in the course of Intel's appeal of the final Decision.
Discounts and rebates
Discounts and rebates can be a controversial area in competition law. The Commission acknowledges that discounts are often pro-competitive, leading to lower prices for consumers. However, where a company is dominant, the scope of the discounts it can offer can, in some circumstances, be limited.
In this case, the Commission established that computer manufacturers always had to purchase a certain proportion of their chips from Intel. As a result, there could only ever be competition between chipmakers for a limited proportion of a manufacturer's needs at any one time (known as the "contestable portion").
The Commission found that Intel's discount schemes were structured so that any manufacturer that chose to purchase all or part of this contestable portion from a rival chip-maker would lose the considerable discount applicable to all of its purchases from Intel (including those that it would have to make in any event). In effect, therefore, the discounts were conditional on a customer purchasing all (or nearly all) of their chip requirements from Intel. In practice, the size of these discounts meant that AMD could not compete even by offering chips to manufacturers for free.
The Commission also found that Intel had made payments to a technology retailer – Media Markt – that were conditional on their outlets stocking only PCs containing Intel processors.
In its recently published Guidance on Enforcement Priorities in Applying Article 82, the Commission made clear that the key question it will ask when assessing a discount is whether the effect of the system in practice is to prevent a competitor, whose operations are as efficient as the dominant company, from expanding or entering the market. The Commission has made careful note of the fact that this Guidance is not strictly applicable to Intel's case (which commenced before they were introduced), but has asserted that its analysis is nonetheless compatible with the principles in this case.
Despite the Commission's statement that the Guidance is not applicable, Intel's appeal may nevertheless raise the extent to which the Commission's approach in this case is consistent with the "effects-based" approach trumpeted by the Guidance.
Payments for delay
The Commission also found that Intel had made payments to certain of its manufacturer customers that were conditional on those manufacturers postponing the launch of products containing AMD's chips, or for restricting the availability of those products in other ways.
The Commission argues that this is a clear example of anticompetitive behaviour by a dominant company seeking to restrict its rival's ability to compete effectively.
This case, like the Commission's earlier case against Microsoft, makes clear that it is not only participants in hardcore cartels that face heavy sanctions for engaging in anticompetitive behaviour. The Decision sends a clear message that companies at risk of being found to be dominant must pay very close attention to ensuring that their behaviour conforms with competition rules to avoid the risk of serious sanction.