Menu

Court of Justice issues judgment in the Intel case

Person typing code Print publication

29/05/2018

In September 2017, the European Court of Justice (ECJ), issued its long-awaited judgment in the Intel case (C-413/14 P) setting aside the judgment of the lower General Court (GC) that exclusivity rebates are automatic abuses of dominance contrary to Article 102 of the Treaty on the Functioning of the European Union (TFEU). The ECJ has referred the matter back to the GC for further assessment.

The relevance of the case for business is that it provides some welcome clarity on how certain rebate pricing schemes of dominant companies, namely loyalty rebates offered by dominant companies are treated under EU competition law, and affords some room for manoeuvre in granting such rebates if the undertaking can show that they could not have the effect of foreclosing an as efficient competitor from the market.

Background

The case related to an appeal by Intel of a decision by the European Commission (EC) in 2009, which fined Intel €1.06 billion for abusing its dominant position on the market for x86 Central Processing Units (CPUs) between 2002 and 2007. The EC had found that Intel had granted loyalty rebates to computer manufacturers (such as Dell, Hewlett-Packard (HP), Lenovo and NEC) in order to attempt to exclude Advance Micro Devices (AMD), a rival chipmaker, from the market. The EC’s decision had taken the line that such loyalty 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.

The EC’s decision was appealed by Intel to the GC, which rejected the appeal and upheld the EC’s decision. Intel then appealed to the ECJ. According to Intel, the GC had erred in law by failing to examine the rebates at issue in the light of all the circumstances of the case.

The EC decision had described two types of conduct by Intel vis-à-vis its trading partners, namely conditional rebates and so-called ‘naked restrictions’, intended to exclude AMD from the market:

  • the first type of conduct consisted in the grant of rebates to four computer manufacturers, namely Dell, Lenovo, HP and NEC, which were conditional on them purchasing all or almost all of their x86 CPUs from Intel; and
  • the second type of conduct consisted in Intel making payments to computer manufacturers so that they would delay, cancel or restrict the marketing of certain products equipped with AMD CPUs.

The Intel judgment

The GC had ruled that rebates which were conditional on a customer obtaining all or most of its requirements from a dominant firm (exclusivity rebates) were per se (automatically) abuses of dominance contrary to Article 102 TFEU and that it was not necessary for the EC to consider whether the rebates had anti-competitive effects in order to reach a finding of infringement.

Intel argued that the GC had wrongly failed to consider highly relevant circumstances such as the lower market coverage of the rebates at issue, the short duration of the practices at issue, the lack of market foreclosure and a rapid decline in prices of the CPUs. In particular, Intel argued that one of its largest customers, Dell, had switched to AMD despite the rebates offered.

The ECJ rejected the GC’s approach and it made clear in its judgment that exclusivity and loyalty rebates do not automatically breach Article 102 TFEU. They are presumed harmful but, where the dominant firm submits evidence that they are not capable of affecting competition, a further effects-based analysis is required. The ECJ helpfully lists four factors the EC must consider:

  • the level of dominance;
  • the share of the market affected by the practice;
  • the conditions and arrangements for granting the rebates; and
  • their duration and amount.

Most notably the ECJ also refers to the EC being required to make an assessment of the “possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking“. This appears to reinforce the ECJ’s general approach that Article 102 TFEU does not seek to ensure that competitors less efficient than the dominant undertaking remain on the market. The ECJ elaborates that not all exclusionary effects are necessarily detrimental to competition – competition on the merits may lead to the departure or marginalisation of competitors that are less efficient and so less attractive to consumers. In other words, the exclusion of less efficient competitors should not automatically be ascribed to the conduct of the dominant firm.

It is only after analysis of the capacity of rebates to force as efficient competitors that the EC can assess whether the system of rebates may be objectively justified i.e. counterbalanced or outweighed by advantages in terms of efficiency which also benefit the consumer.

The ECJ then referred the case back to GC to examine, in the light of the arguments put forward by Intel, whether the rebates in question are indeed capable of restricting competition.

Intel also put forward arguments that the EC lacked jurisdiction to penalise the abuse and alleged certain procedural irregularities with the case had affected its rights of defence. These arguments were rejected by the ECJ.

The full text of the ECJ’s judgment can be found here.

Comment

The Intel judgment has been welcomed by commentators on the basis that the EU competition rules should seek to sanction practices based on their harmful effect on competition rather than their form. The case will no doubt raise the bar for the European competition authorities for what they need to show to bring an abuse of dominance claim against a rebates system and the case will continue to be followed closely when it comes again before the GC.

Dominant companies should continue to ensure that their rebates systems are compliant with competition law, in particular, where there is any risk that the scheme may foreclose rivals from the market by inducing loyalty amongst customers. However, the Intel judgment is good news for dominant companies doing business in the EU because it provides some scope for them to apply exclusivity rebates, whereas previously these were prohibited for all practical purposes. Nonetheless, the circumstances when such rebates are lawful are likely to be limited.

The Competition team at Walker Morris has specialist experience advising a wide range of companies in relation to pricing issues and rebates. If you would like to discuss what this case might mean for your company, or require advice on pricing issues or rebates generally, please contact any of the members of the team listed below.

Contacts