On 6 September 2017, the Court of Justice, the European Union (“EU”)’s highest court, issued its much awaited decision in a case of abuse of dominance by a US microchip manufacturer using exclusivity or loyalty rebates, i.e. rebates which are conditional upon a purchaser buying all or most of its requirements from a dominant supplier. According to the longstanding case law, such rebates are presumed to be illegal on the basis that they are by their very nature anti-competitive. In this ruling, the Court of Justice departed from its per se approach and suggested, for the first time, the need for an assessment of their anti-competitive effects on a case-by-case basis.
The case dates back to 2009 when the European Commission (“Commission”) adopted a decision imposing a EUR 1.06 billion fine on the company. The Commission found that the microchip manufacturer held a dominant position based on consistent market shares above or around 70% in the relevant period and on the significant barriers to entry and expansion on the market. It concluded that the company abused its dominant position by putting in place a strategy to foreclose a specific competitor. The contested conduct consisted in granting rebates to four computer manufacturers on the condition that they would purchase all or almost all of their specific central processing units (“CPUs”) from the company and in making payments to a major retailer on the condition it would sell exclusively computers containing the company’s CPUs. In addition, the microchip manufacturer made payments to original equipment manufacturers so that they would delay, cancel or restrict the marketing of certain products which were equipped with CPUs of its competitor. The Commission’s decision was upheld by the General Court in 2014.
The Court of Justice found that the General Court erred in the review of the US microchip manufacturer’s appeal against the Commission’s fine of EUR 1.06 billion since it failed to take duly into account the defendant’s economic evidence.
The Court noted that the Commission conducted “a very detailed” analysis of the “as efficient competitor” test. This test is premised upon an effects-based analysis of the contested conduct and is used to establish whether competitors who are as efficient as the dominant company could profitably match the dominant company’s rebates.
The Court considered that the test played an important role in the Commission’s assessment. It then concluded that the General Court was required to examine all arguments presented by the company regarding this test, which it had failed to do.
The General Court will now have to examine, in light of the defendant’s arguments, whether the rebates in question are capable of restricting competition.
Dominant companies can take some comfort that exclusivity or loyalty rebates will no longer be condemned as inherently anti-competitive. However, the risk assessment related to such rebates and in particular the risk of substantial fines has not changed dramatically with this judgment. The Court of Justice’s ruling should be viewed as a welcome step in the right direction, calling for a more nuanced analysis of exclusivity rebates in the EU on the basis of an effects-based analysis as opposed to per se approaches.