Using a power that it has not applied for 18 years, the European Commission today issued an interim order to chipmaker Broadcom to stop applying certain terms in agreements with six of its main customers, while it completes its full investigation into these terms and other alleged abuses of dominance. The interim order remains in force for three years (or until a final decision if this is earlier).
What are the Commission’s allegations against Broadcom?
As we reported in June when it opened its investigation, the Commission considers it likely that Broadcom is dominant in various markets for chips for TV set-top boxes and modems and that it has committed abuses consisting of practices which require or incentivise its customers to buy chips exclusively from it, thereby excluding competing chipmakers. However, the investigation is still at an early stage and so the Commission has not yet established that Broadcom has committed any infringement. This will only be decided at the end of the full investigation, probably in some years’ time.
But the Commission considers that by this time it may be too late effectively to remedy the harm done to competition, so it has taken “interim measures” to prevent this (for these purposes it focused on exclusive purchase obligations rather than the broader range of alleged abuses included in the full investigation). Explaining the need for interim measures, Competition Commissioner Margrethe Vestager said: “Broadcom's behaviour is likely, in the absence of intervention, to create serious and irreversible harm to competition. We cannot let this happen, or else European customers and consumers would face higher prices and less choice and innovation. We therefore ordered Broadcom to immediately stop its conduct.”
What did the Commission have to prove in order to impose interim measures?
Normally the Commission can only take a decision once it has conducted a full investigation into the evidence. In order to impose obligations on Broadcom at this earlier stage, it had to show both (i) evidence at first sight of an infringement and (ii) the need for the measures to prevent serious and irreparable damage to competition.
The Commission says that it analysed evidence in internal documents submitted by Broadcom's customers and competitors concerning issues such as the size and importance of the relevant customer, and the conditions and duration of the agreements, and concluded that interim measures were warranted to prevent serious and irreparable damage to competition. Specifically it made “first sight” findings that Broadcom:
· is dominant in three different markets for systems-on-a-chip (for TV set-top boxes, fibre modems and xDSL modems); and
· has in its agreements with customers exclusive or quasi-exclusive purchasing obligations and commercial advantages, such as rebates and other non-price related advantages, that are conditional on the customer buying products exclusively or quasi-exclusively from Broadcom.
What must Broadcom now do?
· stop applying the anti-competitive clauses and inform its customers that it will no longer apply them; and
· refrain in the future from using such provisions or any practices having an equivalent object or effect.
More interim measures coming up?
Broadcom does not accept that the provisions in question have a meaningful effect on whether the customers choose to purchase Broadcom products and says it will appeal. Clearly the final outcome will affect not only this case, but also more broadly the extent to and way in which interim measures are used in future cases.
Commissioner Vestager has recently been re-appointed for a second term as competition Commissioner, with an enhanced role covering digital policy. In her recent confirmation hearing she told the European Parliament that she considers interim measures are potentially a key tool in cases involving fast-moving technology markets. We therefore expect to see the Commission considering the use of this power more frequently in the future. However, the issues in these kinds of cases are frequently not clear cut, so establishing an infringement “at first sight” is often a significant challenge, making such interim measures vulnerable on appeal. This can be especially difficult in technology markets as market conditions evolve so quickly. The Commission and other competition authorities will therefore need to tread carefully along this path.