June 16, 2014

EU General Court Upholds Record 1.06 Billion Euro Antitrust Fine Against Intel

A View from Constantine Cannon’s London Office

By Irene Fraile

The General Court of the European Union has dismissed Intel’s appeal of the European Commission´s decision fining the computer chip manufacturer a record 1.06 billion euros for breaching EU competition law.

The European Commission imposed the fine on Intel in May 2009, after finding that Intel abused its dominant position in the x86 CPU microprocessors market by attempting to foreclose Advanced Micro Devices (AMD), its main rival, between 2002 and 2007.

According to the Commission’s complaint, which was filed in 2000, Intel (a) had conditioned rebates to strategically important customers on their agreeing to source all, or almost all, of their supplies from Intel, and (b) had paid certain customers (HP, Acer, Lenovo) to halt, delay or limit the launch of specific products incorporating chips from AMD. The Commission also concluded that Intel had attempted to conceal these anticompetitive practices, which formed part of a long-term strategy to squeeze AMD out of the market.

Although Intel reached a $1.25 billion settlement with AMD in 2009, and settled a similar antitrust case with the U.S. Federal Trade Commission in 2010, the European case wound its way to the General Court of the EU after the chipmaker appealed the European Commission’s 2009 decision. Among other legal errors, Intel argued that the Commission had failed to take account of certain exonerating evidence, and accused the regulator of failing to prove whether the company’s rebates were in fact capable of restricting competition, taking into account all the surrounding circumstances of the case.

In a judgment issued on June 12, 2014, the General Court rejected in Intel´s arguments in their entirety, and upheld in full the Commission’s decision. Citing previous case law on rebates, the General Court pointed out that a distinction can be drawn between three categories of rebates granted by a dominant undertaking, namely, (a) quantity rebates (linked to the volume of purchases), which are generally deemed not to be unlawful, as they reflect gains in efficiencies and economies of scale; (b) exclusivity rebates (conditioned on the customer obtaining all, or most, of its needs from the dominant company), which are designed to restrict the purchaser’s freedom to choose his supplier, and to deny other producers access to the market, and are therefore incompatible with the objective of undistorted competition; and (c) other rebate systems, (not directly linked to a condition of exclusive or quasi-exclusive supply), which may under certain circumstances restrict competition in breach of EU law.

The Court pointed out that it is only in the case of rebates falling within the third category that it is necessary to assess all the circumstances. When granted by a dominant undertaking, exclusivity rebates are by their very nature capable of restricting competition. In particular, the Court rejected Intel’s contentions that the Commission should have applied the so-called “as efficient competitor test.” Therefore, even if a competing supplier as efficient as the dominant company could have compensated the customer for the loss of Intel’s rebates while covering its own costs, the rebates at hand would (unless objectively justified) still be considered anticompetitive. As the court explained, it is not the amount of the rebates that matter, but the exclusivity or quasi-exclusivity they impose.

The Court also rejected Intel´s allegations that the 1.06 billion euro fine (more than double the 500 million euro penalty against Microsoft in 2004) was disproportionate, given that it only represented about four percent of Intel’s 2008 sales and was well below the maximum penalty of 10 percent of annual sales that the Commission is allowed to impose.

The judgment relies on previous rebates cases, including cases involving British Airways, Michelin, Hoffman-La Roche, and the more recent judgment of the European Court of Justice in Tomra Systems ASA v European Commission (Case C-549/10 P ). Perhaps Intel’s judgment stands out from the others because it applies the rather formalistic approach of previous rebate cases to high technology markets, the specific features of which could have justified a different, more “effects-based” approach, similar to that adopted by the Commission and the courts in relation to other types of abuses of dominance such as margin squeezes (e.g., TeliaSonera) or predatory pricing (e.g., Post Danmark).

Intel, which is now digesting the 283-page judgment, has two months to file an appeal (but only on points of law) to the Court of Justice of the EU. If the company does appeal (which is likely), it will undoubtedly pay close attention to the pending preliminary ruling in Post Danmark A/S v Konkurrencerådet (Case C-23/14), in which the Court of Justice is being asked to clarify the relevance that certain factors (such as the dominant undertaking’s prices and costs, and the characteristics of the market) have in assessing a rebate scheme under EU competition rules.

Edited by Gary J. Malone

Categories: Antitrust Enforcement, Antitrust Litigation, International Competition Issues

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