On January 26, the General Court (GC) of the European Union issued a judgment on remand,1 annulling the ?1.06 billion fine that the European Commission (EC) had imposed on Intel in 2009.
Companies commonly use rebates to maximize sales. From an EU antitrust law perspective, such discount schemes are generally not problematic. However, dominant firms may sometimes apply discounts in a way that distorts competition, for example when they are applied in a discriminatory or arbitrary manner or if they provide de facto exclusivity to the supplier. In this respect, which rebates can be considered lawful has been the subject of much controversy. The traditional rigid, formalistic approach that the European courts used to adopt regarding rebates granted by dominant firms could often punish healthy competition on the merits.
To understand the context for the EU courts' latest ruling on this issue, it is necessary to go back to 2017, when, in the Intel case, the Court of Justice of the European Union (Court of Justice), the highest court in the European Union, broke with tradition and held that not every foreclosure effect is necessarily detrimental to competition. More precisely, the Court of Justice held that the GC had erred in law by failing to consider Intel's criticism of the so-called as-efficient competitor (AEC) assessment of the impact of the rebates at issue in the EC decision.2 The Court of Justice thus set aside the GC's ruling and referred the case back to the lower court for fresh review.3 This landmark judgment was lauded for its effects-based, non-dogmatic approach.
The GC, on remand, implemented the Court of Justice's ruling and subjected the 2009 EC decision to close factual scrutiny, which this decision ultimately could not withstand. At the same time, the GC ruling clarifies the applicable legal standard and discusses in more detail apportionment of the burden of proof.
This long-running saga is not necessarily over, because the EC might decide to appeal this latest ruling to the Court of Justice.
I. BACKGROUND
a) The EC Decision, the First GC Judgment and the Opinion by the Advocate General
In June 2009, the EC found that Intel had abused its dominant position4 under Art. 102 of the Treaty on the Functioning of the European Union (TFEU) (roughly equivalent to Section 2 of the US Sherman Act's prohibition of monopolization) on the x86 central processing unit (CPU) market.5 The EC identified two types of abuse:
- Conditional rebates, i.e., rebates granted to original equipment manufacturers (OEMs) (Dell, Lenovo, HP and NEC) and MSH, a retailer, on the condition that they buy all, or almost all, of their CPU requirements from Intel; and
- "Naked restrictions," e.g., direct payments made to OEMs in order to halt or delay the launch of specific products containing a competitor's x86 CPUs.6
In light of those findings, the EC imposed on Intel a fine of ?1.06 billion. The decision was upheld by the GC in its first judgment in June 2014.7
Intel appealed to the Court of Justice on a number of grounds, both substantive and procedural. In October 2016, Advocate General (AG) Wahl gave his nonbinding opinion, in which he challenged most aspects of the GC's first decision.8 In particular, he disagreed with the GC's finding that the conditional rebates in question were "exclusivity rebates," which, under the Court of Justice's traditional case law, were seen as by their very nature capable of restricting competition and foreclosing competitors. The AG considered that an examination of "all the circumstances," i.e., the economic and legal context of the case, is necessary to establish a breach of Art. 102 TFEU, even in the case of presumptively unlawful practices, such as loyalty rebates.9
The AG also suggested that the GC should have examined the AEC test in the EC decision. This test posits that conduct by a dominant undertaking should be found unlawful only if it would exclude an equally efficient rival.10 While he stated that the case law did not impose a legal obligation to use the AEC test, he considered that this test was relevant in this case. This is because the EC had carried out an extensive AEC analysis in its decision and the other circumstances were equivocal regarding their effect on competition.11
b) The Court of Justice Ruling
The Grand Chamber of the Court of Justice issued its judgment in September 2017.TheCourt of Justice recited recent caselaw, according to which the purpose of Art. 102 TFEU is not to prevent an undertaking from acquiring, on its own merits, the dominant position in a market, nor to ensure that less efficient competitors remain in the market. The Court of Justice further held that "not every exclusionary effect is necessarily detrimental to competition."12 However, a dominant undertaking has a special responsibility not to allow its behavior to impair genuine, undistorted competition. The Court of Justice repeated the traditional view that, unlike volume-based rebates, rebates tied to exclusivity conditions are presumptively unlawful when granted by a dominant undertaking.13 However,it broke with tradition to hold that where the company concerned submitted-during the EC administrative procedure and based on supporting evidence-that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects, it was then incumbent on the EC to analyze several factors to determine whether the rebates are in fact capable of restricting competition:
- The extent of the defendant's dominant position in the relevant market;
- The market coverage, duration, amount, specific conditions and arrangements of rebates; and
- The possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant defendant from the market.14
The Court of Justice added that the assessment of the rebate scheme's capacity to foreclose is also relevant in assessing possible justifications for the conduct. The Court of Justice explained that this balancing of the favorable and unfavorable effects on competition of the practice in question can be carried out in the EC decision only after the EC analyzes the "intrinsic capacity" of that practice to foreclose competitors that are at least as efficient as the dominantundertaking.15 The Court of Justice then stated that if, in a decision finding a rebate scheme abusive, the EC carries out such an analysis, the GC must examine all the applicant's arguments seeking to call into question the validity of the EC's findings concerning the ability of the rebate concerned to foreclose competition.
In other words, the Court of Justice found that despite the EC's statement that the AEC test it had conducted was only additional support for its decision, this test played an important role in its legal assessment. Therefore, the GC had been wrong to hold that it was not necessary to consider whether the EC had carried out the AEC test correctly, or to review Intel's alternative calculations. The GC was in fact required to examine all of Intel's arguments concerning that test, which it had failed to do.16
Footnotes
1. Judgment of January 26, 2022, Intel Corp. v. European Commission, Case T-286/09 RENV, EU:T:2022:19.
2. The EC's 2010 Guidance Paper on Exclusionary Abuses adopted the AEC test as the preferred filter for distinguishing unlawful behavior from competition on the merits.
3. Judgment of September 6, 2017, Intel Corp. v. Commission, Case C-413/14 P, EU:C:2017:632, with rectification order in Case C-413/14 P-REC, September 19, 2017; Court of Justice Press Release 90/17, September 6, 2017, EU:, Case C-413/14 P, EU:C:2017:632, with rectification order in Case C-413/14 P-REC, September 19, 2017; Court of Justice Press Release 90/17, September 6, 2017, EU:C:2017:700.
4. The EC found that in the 10-year period that was examined (1997 to 2007), Intel consistently held a market share in excess of or around 70%.
5. Case COMP/37.990, Intel. The EC's summary decision is in OJ C227/13, September 22, 2009; the decision is available on the EC's website.
6. The naked restrictions, which were left untouched by the Court of Justice, were deemed to be unlawful insofar as the applicant pursued an "anti-competitive object," i.e., sought to deprive consumers of a choice (GC 2014, para 204). In its ruling in 2022, the GC relied on its previous 2014 assessment and stated that these naked restrictions were not the subject of the proceedings on remand.
7. Judgment of June 12, 2014, Intel Corp. v. European Commission, Case T-286/09, EU:T:2014:547.
8. Opinion of AG Wahl of October 20, 2016, Intel Corp. v. European Commission, EU:C:2016:788.
9. AG Opinion, paras 60-106.
10. The economic analysis carried out in this test concerns, in this case, the capability of the rebates to foreclose a theoretical competitor that is as efficient as Intel. More precisely, the analysis seeks to establish at what price a competitor as efficient as Intel and facing the same costs as Intel would have had to offer processors in order to compensate an OEM or retailer of microelectronic devices for the loss of the rebates at issue, in order to determine whether, in such a situation, that competitor could still cover its costs.
11. AG Opinion, paras 164-169.The EC stated, in para 925 of its decision (cited above),that although the rebates in question were tied to exclusivity conditions-a fact that, under the EU courts' traditional caselaw, sufficed to establish an infringement under Art. 102 TFEU in the absence of any objective justification-the EC would also demonstrate by an AEC analysis that "on top of fulfilling the conditions of the caselaw," these rebates were able or likely to cause anticompetitive foreclosure.
12. Court of Justice, para 134.
13. Court of Justice, para 137, citing judgment of February 13, 1979,Hoffmann-La Roche v. Commission, EU:C:1979:36.
14. Court of Justice, para 139.15Court of Justice, para 140.
15. Court of Justice, para 140.
16. Court of Justice, paras 144-147.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
