EU Court Orders New Assessment of Intel's Rebates

The Court of Justice of the European Union (CJEU) has quashed a ruling by the EU’s General Court which had upheld the European Commission’s (EC) 2009 finding of abuse of dominance by Intel Corporation Inc. Intel was fined €1.06 billion, a record at the time, for granting rebates in exchange for the promise by buyers not to buy from Intel’s rivals. In over-ruling the lower court the CJEU has gone some way towards restricting the EC’s reliance on form over substance, instead requiring an assessment of anti-competitive effects.¹ 

The EC had taken the line that such exclusivity rebates were anti-competitive by their very nature and did not have to be examined as to their effect – although it had in fact conducted such an examination. Rather than giving final judgment, the CJEU has referred the case back to the General Court, which must now carry out a fresh assessment of the relevant factual and economic evidence to determine whether the rebates at issue were capable of restricting competition, within the specific factual context of the case at hand. The Commission’s original 2009 infringement decision was not over-ruled by the CJEU but may be annulled or upheld by the General Court depending on the fresh assessment it is now required to perform.

The CJEU also ruled on two further important issues. It criticized the Commission for failing to record adequately the evidence that had been given by a third party: this part of the ruling will be valuable to defendants in other cases, although the prejudice to Intel was not enough, on this occasion, to lead to a ruling in its favor.

And the CJEU ruled that conduct outside Europe can sometimes infringe EU antitrust rules simply by its effect, even if not implemented in Europe. This has been a controversial issue for many years. The CJEU ruled that there can be infringement where it is “foreseeable” that the effect of the conduct in the EU will be “immediate and substantial”. In assessing foreseeability it is sufficient for the EC to take account of the “probable effects” of the challenged conduct.

Background

In October 2000, Advanced Micro Devices (AMD) complained to the EC that Intel was abusing its dominant position by engaging in two types of conduct: the granting of conditional rebates and so-called “naked restrictions”. It was thereby in the Commission’s view implementing a strategy of foreclosing competitors from the market.

Following a long investigation the EC decision in May 2009 found that Intel had infringed Article 102 CFEU in the period 2002 to 2007. The EC found that Intel had employed conditional rebates to incentivize OEMs to purchase from it all or almost all of their x86 central processing units (CPUs) for use in their computers, and granted payments to the largest desktop computer distributor in Europe, conditional upon the distributor selling exclusively computers containing Intel’s x86 CPUs. The EC also found that Intel had granted three OEMs payments to postpone or cancel the launch of AMD CPU-based products and/or put restrictions on the distribution of those products.

Intel appealed to the General Court, seeking an annulment of the EC’s decision. In June 2014, the General Court dismissed the action in its entirety. Intel then appealed to the CJEU.

Rebates: Test to be applied by EC

As to the analysis which should be carried out once the existence of presumptively unlawful rebates has been established, the CJEU ruled that in cases such as the one under examination, when a company argues its conduct was not capable of restricting competition and of producing anticompetitive effects, the EC is required to analyze the following factors:

• extent of dominant position on the relevant market;
• share of the market covered by the challenged practice;
• conditions and arrangements for granting the rebates;
• duration and amount of the rebates;
• the possible existence of a strategy aiming to exclude equally efficient competitors.

In place of the clarity of Advocate General Wahl’s October 2016 opinion,² the CJEU’s ruling is somewhat delphic. It confirms at least that the EC needed to examine factual matters raised by Intel. For example, the CJEU found that the General Court’s review of the EC’s analysis of Intel’s capacity to foreclose its competitors failed to consider Intel’s line of argument regarding errors committed by the EC in applying the “as efficient competitor” (AEC) test. But the CJEU did not clearly embrace the AG’s crisp formulation that the EC is always required to examine factual circumstances.

Since though dominant companies facing abuse charges are in practice always likely to argue before the EC that their conduct is not capable of restricting competition, the CJEU’s decision may de facto close down the EC’s reliance on object violations in relation to Intel-type rebates.

EC’s Obligation to Record Interviews / Rights of the Defense

During the EC’s investigation, in August 2006, the EC held a five-hour meeting with a senior executive from Dell Inc., an Intel customer. However, the regulator failed to take minutes of the meeting. An EC official drafted a note for the file at some point after the meeting. 

The CJEU’s ruling takes the EC to task, stressing that the regulator has a legal obligation to record all interviews in full, there being no such thing as an informal interview. This error was not cured by the later note, contrary to the view of the General Court, because the note lacked content as to what the executive had told the EC. In the present case, nevertheless, the errors of assessment by the General Court were not enough for the CJEU to annul the lower court’s decision on this ground.

Territorial jurisdiction

Importantly, for the first time, the CJEU has expressly endorsed an effects-based approach to jurisdiction in EU competition law. Intel argued that the EC had no jurisdiction over two specific rebate agreements with Lenovo in China. The CJEU found that the China agreements were “part of an overall strategy” aimed at foreclosing AMD’s access to the most important sales channels and agreed with the General Court that the “qualified effects” test will be satisfied when the behavior in question has foreseeable (i.e., probable), immediate and substantial effects in the internal market.

Key Takeaways

• The EC is not entitled to presume the anticompetitive effect of a company’s loyalty rebates when that company argues that its conduct was not capable of restricting competition. Rather, the EC must analyze the legal and economic context, and all the circumstances, in order to determine whether Article 102 TFEU has been infringed.
• The EC must “record” in full all interviews and meetings during antitrust investigations.
• The EC will have jurisdiction over all behavior that has foreseeable, immediate and substantial effects in the internal market, despite the fact that given elements of the behavior did not occur in the EEA.

Footnotes

_{1) Case C-413/14 P, Intel Corporation Inc. v European Commission, Judgment of the Court (Grand Chamber) of September 6, 2017.
2) Opinion delivered on October 20, 2016. The Advocate General hears the case with the judges and then delivers a preliminary opinion to assist them in forming their view on the case.}