October 2017 – The Court of Justice of the European Union (CJEU) has set aside the General Court’s judgment upholding the European Commission’s EUR 1.06 billion fine in Intel’s abuse of dominant position case.
1. Why is the decision important?
The decision is extremely important for two reasons.
Firstly, the CJEU has further specified the role of economic arguments in abuse of dominant position cases.
Secondly, the decision clarifies the legal regime of exclusivity rebates. It follows from the decision that exclusivity rebates are not always illegal and that they constitute a prohibited abuse of dominant position only if they have the potential to force an exit from the market of an equally effective competitor.
2.1. Decision of the European Commission
On 13 May 2009, the European Commission (“Commission”) decided to fine Intel EUR 1.06 billion for abuse of its dominant position. According to the Commission the abuse consisted of (i) exclusivity rebates, and (ii) naked restrictions.
2.2. Decision of the General Court
On 12 June 2014, the General Court dismissed Intel’s appeal against this decision, upholding the Commission’s legal characterisation of the abusive conduct. The General Court classified the rebates as exclusivity rebates. It held that exclusivity rebates granted by a dominant undertaking are, by their very nature, capable of restricting competition and foreclosing competitors from the market. The General Court held that, to establish abuse, it was not necessary to conduct an analysis of the circumstances of the case on order to show that the rebates had the capability of restricting competition.
2.3. Intel’s appeal against the decision of the General Court
Intel appealed the decision mainly on the grounds that the General Court:
- applied the wrong legal standard in assessing the legality of its conduct under Article 102. In particular, it claimed that the General Court had been wrong to classify its conduct as “exclusivity rebates”, which were by their very nature capable of restricting competition, without it being necessary to examine all of the relevant circumstances. In addition, Intel asserted that contrary to the General Court’s view not all exclusivity rebates provided by dominant undertakings are prohibited and that it is always necessary to analyse the economic effect of the rebates on the competition.
- committed various errors in calculating the fine imposed, as the fine was manifestly disproportionate.
2.4. Decision of the CJEU
On 6 September 2017, the CJEU set aside the General Court's judgment and referred the case back to the General Court in order for it to examine the arguments put forward by Intel concerning the capacity of the rebates at issue to restrict competition.
The CJEU noted the following:
- It is in no way the purpose of Article 102 TFEU to prevent an undertaking from acquiring, on its own merits, the dominant position on a market. Nor does that provision seek to ensure that competitors should remain on the market of they are less efficient than the undertaking with the dominant position. Thus, not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to a departure from the market or the marginalisation of competitors that are less efficient and thus less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.
- A dominant undertaking has a special responsibility not to allow its behaviour to impair genuine, undistorted competition on the internal market. That is why Article 102 TFEU prohibits a dominant undertaking from, among other things, adopting pricing practices that have an exclusionary effect on competitors considered to be as efficient as it is itself and strengthening its dominant position by using methods other than those that are part of competition on the merits. Accordingly, in that light, not all competition by means of price may be regarded as legitimate.
- An undertaking which is in a dominant position on a market and ties purchasers — even if it does so at their request — by an obligation or promise on their part to obtain all or most of their requirements exclusively from that undertaking abuses its dominant position within the meaning of Article 102 TFEU, whether the obligation is stipulated without further qualification or whether it is undertaken in consideration of the granting of a rebate. The same applies if the undertaking in question, without tying the purchasers by a formal obligation, applies – either under the terms of agreements concluded with these purchasers or unilaterally – a system of loyalty rebates, that is to say, discounts conditional on the customer’s obtaining all or most of its requirements — whether the quantity of its purchases be large or small — from the undertaking in a dominant position.
- However, the case-law must be further clarified in cases where the undertaking concerned argues, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged exclusionary effects.
- In that case, the Commission is not only required to analyse, first, the extent of the undertaking’s dominant position on the relevant market and, secondly, the share of the market covered by the challenged practice, as well as the conditions and arrangements for granting the rebates in question, their duration and their amount, it is also acquired to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market.
- An analysis of the capacity to exclude is also relevant in assessing whether a system of rebates which, in principle, falls within the scope of the prohibition laid down in Article 102 TFEU, may be objectively justified. It must be determined whether the exclusionary effect arising from such a system, which is disadvantageous for competition, may be counterbalanced, or outweighed, by advantages in terms of efficiency which also benefit the consumer. That balancing of the favourable and unfavourable effects of the practice in question on competition can be carried out in the Commission’s decision only after an analysis of the intrinsic capacity of that practice to foreclose competitors which are at least as efficient as the dominant undertaking.
- If, in a decision finding a rebate scheme abusive, the Commission carries out such analysis, the General Court must examine all of the applicant’s arguments seeking to call into question the validity of the Commission’s findings concerning the foreclosure capability of the rebate concerned.
The Commission is currently investigating a producer of chips for mobile phones (Qualcomm) for rebates of the same type as Intel was offering. The Commission also recently fined Google for agreeing exclusivity undertakings with mobile phone manufacturers in relation to the Android operating system. It will be interesting to see how this decision will be reflected in the future in these and similar cases.