Summary: On 6 September 2017, the European Court of Justice released its much anticipated decision in Intel’s appeal against a €1 billion fine for abuse of dominance. In doing so, the Court provided some important clarifications to EU law on abuse of dominance, and gave dominant firms more room to manoeuvre on granting rebates. In this blog we examine the ECJ decision and its key implications for business.
On 6 September 2017, Europe’s highest court (the European Court of Justice or “ECJ”) released its much anticipated judgment in Intel’s appeal against a fine of over EUR1 billion imposed by the European Commission in 2009 for abuse of dominance.
In its judgment, the ECJ helpfully clarified EU competition law as it applies to certain rebate pricing schemes of dominant companies. The ECJ set aside the General Court’s decision dismissing Intel’s appeal and referred the case back to the General Court for further assessment. The ECJ’s decision means that the use of exclusivity rebates with customers is no longer a “no-go” area for dominant companies in the EU, giving these businesses some room to manoeuvre with regard to this kind of pricing behaviour.
In 2009, the European Commission decided that Intel had breached Article 102 of the Treaty on the Functioning of the European Union by abusing its dominant position as a manufacturer of central processing units (“CPU”s) by:
- giving rebates to a number of major computer manufacturers that were conditional on those manufacturers purchasing most or all of their CPU requirements from Intel; and
- making a number of payments to computer manufacturers that were aimed at preventing the sale of products incorporating non-Intel CPUs.
In reaching its decision, the Commission stated that the rebates were capable of hindering competition in and of themselves. However, it went on to examine whether the rebate scheme would have the effect of excluding an “as efficient competitor” of Intel from the CPU market (the so-called “AEC test”).
Intel was fined EUR1.06 billion by the Commission for the breach.
Intel appealed to the General Court, primarily in relation to the finding of breach for the grant of rebates. The General Court stated that there were three categories of rebate that could be granted by a dominant seller of a product:
- Quantity rebates, based solely on the volume of purchases by the customer. Such rebates are always legal.
- Fidelity or exclusivity rebates, which are conditional on the customer obtaining all or most of its requirements from the dominant firm. The General Court stated that these rebates are always illegal.
- “Other rebates” that fall between the two extremes need to be assessed in light of all the relevant circumstances to determine whether, in the context, they restrict a buyer’s choice and are therefore capable of lessening competition.
As the rebates granted by Intel fell into the second category, the General Court held that the rebates were illegal and dismissed Intel’s appeal. Given the rebates were illegal in and of themselves, the General Court held that the Commission was not required to carry out the AEC test and dismissed Intel’s arguments that the Commission had carried out that test incorrectly.
Intel appealed to the ECJ. In October 2016 the ECJ’s Advocate General Wahl advised the Court that it should allow the appeal and that, in the case of all rebates, the Commission should be required to assess all the surrounding circumstances before finding that there was a breach of Article 102. That is, there should be no circumstances where a rebate scheme will always be found to be illegal.
The ECJ’s Decision
The ECJ allowed Intel’s appeal and referred the case back to the General Court. In doing so, the ECJ noted that it has previously been held that a dominant firm that ties purchasers through exclusivity obligations (either by way of express agreement or grant of an exclusivity rebate) with its customers abuses its dominant position within the meaning of Article 102 regardless of its possible effects on competition.
The ECJ then crucially went on to say that the previous case law must, however, be clarified. In particular, where the dominant firm submits evidence that its conduct was not capable of restricting competition the Commission is obliged to assess the impact of the conduct on the market in question and also to carry out the AEC test. Such analysis is also relevant to whether the conduct can be objectively justified. This is a significant change in EU jurisprudence but is in line with the European Commission’s enforcement practice, an important alignment for the European Commission, EU national competition authorities and EU national courts.
In cases where the Commission carries out an AEC test analysis, the General Court is required to evaluate all arguments relating to that analysis. In this case, given that the Commission carried out a detailed assessment of the AEC test, the General Court was obliged to consider all of Intel’s arguments in relation to that test. The ECJ therefore referred the case back to the General Court to hear those arguments.
In addition to the rebates point, the ECJ dismissed arguments raised by Intel relating to the Commission’s jurisdiction over Intel’s conduct and alleged breaches of Intel’s rights of defence.
For Intel, the long-running saga will continue, with no guarantee of success. It remains possible that, having considered Intel’s arguments in relation to the AEC test, the General Court will again side with the Commission. Further appeals to the ECJ are also a possibility. It could therefore be many more years before Intel has a final answer in this matter.
What does this mean for business?
While Intel’s case perseveres, the heart of the ECJ’s decision provides important guidance to companies with strong market positions in the EU, as well as their customers and rivals, with respect to the legal analysis of exclusivity rebates. Before this decision, exclusivity rebates as applied by dominant firms in the EU were automatically illegal under EU law. With this judgment, the ECJ has clarified that will not always be the case and companies can now defend such pricing practices on the basis that they do not give rise to actual or potential anticompetitive effects. In practice, this means dominant companies will have more room to manoeuvre in this space, while customers and rivals too will have to adjust to consider if such practices may give rise to competitive harm before they can complain successfully or seek to litigate.
Whether the decision changes much in practice remains to be seen. In most cases, consistent with its guidance on enforcement of Article 102, the Commission will carry out an analysis of whether a rebate scheme is capable of restricting competition in any event. Indeed, it carried out a detailed analysis of the AEC test in this case. The decision does, however, impose a greater burden on the Commission in carrying out its analysis, and it will now need to make sure it takes into account all evidence presented by a dominant firm to show that its conduct was not capable of restricting competition. This has the potential to impact some ongoing cases before the Commission, notably its case against Qualcomm relating to exclusivity payments.
Finally, companies should bear in mind that the ECJ’s decision relates to Article 102 only – that is, it only applies to the payment of exclusivity rebates by dominant firms. Such payments by non-dominant firms are less likely to raise competition law issues.