The Intel Ruling: A New Dawn?

by Shearman & Sterling LLP
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In perhaps the most hotly anticipated judgment in the European competition law world this year, the Court of Justice of the European Union (CJEU) handed down its landmark ruling on September 6, 2017 in Intel’s appeal against its €1.06 billion European Commission (EC) fine for abuse of dominance. The judgment marked a rare defeat for the EC, setting aside the General Court’s judgment upholding the EC’s fine and referring the case back for further analysis. In the process, the CJEU clarified that the rebating practices in question (so-called exclusivity rebates) cannot be found unlawful unless they are actually capable of producing anti-competitive effects. It remains unclear what a dominant  company needs to do to show whether a rebate is capable (or not capable) of producing such effects.

Background

The Intel case originates from a formal complaint submitted in 2000 by Intel’s competitor, AMD, alleging that Intel had been engaging in an anti-competitive strategy to foreclose AMD from the market in x86 central processing units (CPUs). In July 2007, the EC sent a statement of objections to Intel outlining its concerns that Intel had, among other things, provided substantial rebates to various Original Equipment Manufacturers if they obtained all or the great majority of their CPU requirements from Intel. The EC went on to issue the record-setting fine in 2009, concluding that Intel had granted de facto exclusivity rebates to strategically important customers with the intention of excluding its competitors. The EC considered that, pursuant to previous case law, the rebates were abusive per se and therefore by their nature capable of restricting competition  and foreclosing competitors. The EC did, however, conduct an additional assessment of the effects on competitor foreclosure, as an ‘as-efficient competitor test’ (AEC Test). 

Intel challenged the EC’s decision before the General Court, arguing that the AEC Test carried out by the EC failed to establish that the rebates at issue were capable of  foreclosing as-efficient competitors. In 2014 the General Court, relying on its reading of earlier case law, upheld the fine and agreed with the EC that such exclusivity rebates  were necessarily illegal and that there was no need for the EC to investigate whether there had been market foreclosure. It was therefore not necessary for the Court to review the EC’s application of the AEC Test. 

CJEU Judgment

The CJEU rejected the notion that exclusive rebates are illegal per se, but rather there is a rebuttable presumption of illegality. A company under investigation may therefore adduce evidence that its conduct was not capable of restricting competition and producing the alleged foreclosure effects. The Court describes the (non-exhaustive)  circumstances the EC should consider:

  • The extent of the undertaking’s dominant position on the relevant market.
  • The share of the market covered by the challenged practice.
  • The conditions and arrangements for granting the rebates in question, their duration, and their amount.
  • The possible existence of a strategy aiming to exclude from the market competitors that are at least as efficient as the dominant undertaking.

However, the Court gives little guidance as to the extent, nature and quality of the evidence required in order to successfully rebut the presumption. It is also important to note that the judgment does not oblige the EC to conduct a full economic analysis in every case but rather to consider any evidence adduced by a party.

The judgment is the first case to confirm that an effects-based analysis is admissible in conditional rebate cases and may signal a shift to a more effects- based approach to abuse of dominance cases going forward. It also raises the wider question about the role of presumptions of illegality in competition law cases outside of dominance, for example  infringements ‘by object’under Article 101.

Procedural Irregularities

Another important aspect of the CJEU’s judgment relates to alleged procedural irregularities by the EC during the original administrative procedure. While this ground was not ultimately successful in overturning the General Court’s conclusion that the administrative procedure was not vitiated by the irregularity, the CJEU’s comments regarding the EC’s behavior will have significant implications in practice. 

Intel had argued before the General Court that its rights of defense had been breached as a result of the EC’s failure to record the content of a meeting with a very senior executive of Dell, Intel’s largest customer. The General Court held that the meeting did not constitute ‘formal’ questioning for the purposes of Article 19 of Regulation 1/2003, and therefore the EC was not required to organize the meeting as a formal interview for the purposes of Article 19(1) of Regulation 1/2003 or Article 3 of Regulation 773/2004. The General Court further held that the EC had in any case remedied that initial omission by disclosing the non-confidential version of an internal note relating to that meeting to Intel.

The CJEU found that the distinction drawn by the General Court between formal and informal interviews was incorrect in law, and the EC is required to record any interview it conducts under Article 19 of Regulation 1/2003. The CJEU also held that the General Court had erred in finding that the EC had remedied its error by disclosing the internal note of the meeting to Intel. Although the note contained a brief summary of the subjects addressed during the interview, it did not contain any indication of the content of the discussions that took place during that interview, in particular the nature of the information provided during that interview.

The CJEU’s judgment in this regard is likely to have a significant impact on the way the EC conducts its investigations in antitrust cases going forward. In particular, it will need to demonstrate a more formalized and transparent approach, as is already the case in merger investigations. Parties should pay particular attention to the way the EC conducts its official meetings and state of play meetings in antitrust cases in the future, as well as disclosure of minutes of third-party meetings and interviews.

Key Practical Takeaways

Commentators and companies alike will now look to the EC’s upcoming decision in its investigation into rebates granted by Qualcomm to see how the EC will respond to the Intel judgment in practice. However, the impact of Intel on the EC’s substantive assessment may be limited, given that the EC regularly does now demonstrate anti-competitive capabilities in its decisional practice. 

From a practical perspective, firms that hold a dominant position (or close to a dominant position) will need to contemporaneously assess whether the rebates they are  considering could foreclose an as efficient competitor.It will be important to provide strong evidence early in the administrative procedure to rebut the presumption of illegality.  In a speech at the CRA conference in Brussels on December 12, 2017, Johannes Laitenberger, Director- General of DG Competition, stated that “placing the burden of rebuttal on the dominant firm encourages it to put forward its best evidence early in the process. Indeed that is in the firm’s interest if it has a good case.” 

Conclusion

Regardless of the merits of the CJEU judgment, it’s notable that our legal infrastructure has still not delivered definitive judgment on a case that is already 17 years old. Indeed, the re-trial at the General Court and (almost inevitable) subsequent appeal back to the CJEU mean that definitive judgment is still years away. When the complaint that triggered this case was first made, Google was only two years old and Facebook wouldn’t exist for another four years. Without criticizing any actor in this case, it is hard to see how such timescales are serving anyone’s interests well.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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