The EU Court of Justice's decision to refer the Intel case back to the General Court highlights the role of an economics based approach in determining whether exclusivity rebates breach competition law.
The Commission's case
In 2009, the European Commission ('Commission') fined Intel 1.06 billion euros for abusing its dominant position by requiring that four of their customers purchase all, or nearly all of their x86 processors from Intel if they wanted to benefit from rebates. The Commission's case held that Intel intended these rebates to squeeze out rival chipmaker Advanced Micro Devices from the market.
The Commission considered that Intel's rebates created such a strong incentive not to use rival processors that it was not necessary to carry out an analysis of the effects on the market because, by their very nature, the rebates were capable of breaching competition law.
The Commission decided in its assessment that the rebates were unlawful regardless of their effects on the market. However, for completeness, the Commission also applied a methodology more in line with its 2009 enforcement priorities guidance paper, namely the 'as efficient competitor' ('AEC') test. The AEC test is used to determine whether a competitor with as efficient operations as the dominant company could viably have competed on the market where the exclusivity rebates operated. The Commission gave a lot of weight to the test in its decision and concluded that an as efficient competitor would have had to offer their chips below cost in order to compete with Intel's rebates. In other words, the Commission concluded that an as efficient competitor could not viably have competed under those circumstances. This reinforced the Commission's view that Intel's rebate arrangements were unlawful (but, again, the Commission indicated that it was conducting this part of the analysis only for completeness and that it was not required to do so).
The General Court's Ruling
Intel appealed the Commission's decision to the General Court. In 2014, the General Court dismissed Intel's appeal entirely. Intel had appealed on the fact that the Commission misapplied the AEC test in its decision but the General Court disagreed. The General Court, citing a long line of existing case law, held that exclusivity rebates offered by a dominant company are capable of breaching competition law by their very nature so that any further economic analysis, including the AEC test, did not even need to be considered.
The EU Court of Justice Ruling
Intel subsequently appealed the General Court's findings to the EU Court of Justice (the 'ECJ'), the top court of the EU. In a ground-breaking judgment, the ECJ has referred the case back to the General Court, finding that the lower court's approach was too simplified and it had failed to correctly examine Intel's arguments on whether the rebates they offered were capable of foreclosing competitors from the market.
The ECJ's judgment makes it clear that where a dominant company puts forward arguments that its rebates are not capable of restricting competition, the Commission and the EU courts must analyse the circumstances in which the rebates were offered and cannot simply presume that they are unlawful. In its judgment, the ECJ makes explicit reference to the AEC test.
What to expect going forward
For Intel itself, it remains unclear what the final outcome of this case will be. While the ECJ's judgment is notable for its support for the AEC test, the Commission did in fact apply that test (for completeness) when considering Intel's rebate arrangements. In the ECJ's view, the General Court then made an error in failing properly to consider Intel's arguments that the Commission had come to the wrong conclusion when applying the test. Now that the ECJ has referred the matter back to the General Court, it remains to be seen whether the lower court will conclude that the Commission applied the test correctly all along (in which case it will presumably uphold the Commission's decision and fine) or not (in which case it will presumably annul the decision and fine).
The ECJ's judgment is however of considerable wider significance for dominant businesses (and their customers and competitors) grappling with the challenges of establishing the boundaries of what is lawful with regard to exclusivity rebates and similar arrangements. It brings greater clarity to an area of the law where the EU courts' formulistic approach has been open to some criticism and, indeed, where the European Commission itself published in 2009 guidelines on its enforcement priorities which in effect advocated the economics-based approach that the ECJ has now upheld.
Importantly, the judgment signals a move away from a formulaic approach to assessing exclusivity arrangements in which certain types of conduct were effectively considered unlawful by their very nature without any meaningful assessment of their actual impact on competition in the market.
Rather, the ECJ has confirmed that the courts and competition authorities must assess the market reality of the arrangements in question, including through an application of the AEC test.
For dominant businesses, the ECJ's judgment is broadly to be welcomed since it creates significantly greater scope for dominant businesses to resist allegations that their conduct is unlawful. The ECJ has signalled that, provided the dominant business can offer some evidence that its conduct was not capable of foreclosing competition, the person alleging the abuse must demonstrate (through economic evidence) that the arrangements were anti-competitive. In practical terms, this raises the bar for courts, competition authorities and others seeking to challenge dominant businesses' conduct.
The ECJ's judgment might in turn embolden dominant businesses to consider commercial conduct that they might previously have considered off-limits given the courts' formulaic approach. Needless to say, this is a line that businesses will want to tread carefully. While a more economics-based assessment implies potentially greater flexibility for dominant businesses, it also implies greater expense in conducting the requisite analysis and, potentially, residual uncertainty as to whether a court or competition authority would agree with the business' own assessment. Nevertheless, a more effects-based approach to applying the abuse of dominance rules is to be welcomed.