This piece reviews the Court of Justice’s decision by the Grand Chamber in Intel (Case C‑413/14 P Intel v Commission ECLI:EU:C:2017:632), which can be found at http://curia.europa.eu/juris/liste.jsf?num=C-413/14.
The facts of the case are relatively straightforward. Intel sells x86 CPUs processors. The x86 architecture is a standard designed by Intel for its CPUs, and can run both Windows and Linux operating systems. The European Commission found that Intel had engaged in two abusive conducts concerning these processers intended to exclude a competitor, AMD, from the market for x86 CPUs; and imposed a EUR 1.06 billion fine.
The first conduct consisted in the grant of rebates to four original equipment manufacturers (‘OEMs’), namely Dell, Lenovo, HP and NEC. These rebates were conditional on these OEMs purchasing all or almost all of their x86 CPUs from Intel. The second conduct consisted in making payments to OEMs so that they would delay, cancel or restrict the marketing of certain products equipped with AMD CPUs.
Intel appealed the decision before the General Court, which upheld it. The following matters reviewed by the General Court are of interest:
- Extraterritorial Jurisdiction – The chips were sold outside the EEA to some OEMs, but those OEMs planned to sell downstream products anywhere in the world, including in the EEA. Intel argued that the Commission did not have jurisdiction, as the abusive conduct occurred outside the EEA. The General Court concluded that, in order for the Commission to have jurisdiction under public international law, the infringing conduct had either to be implemented in the EU or to have certain effects in the EU. The court found that Intel’s conduct was capable of having a substantial, immediate and foreseeable effect within the European Economic Area (EEA); and that the conduct in question had also been implemented in the territory of the EU and the EEA.
- Exclusivity Rebates – The General Court held that the rebates granted to four OEMs (Dell, HP, NEC and Lenovo) were exclusivity rebates, i.e. they were conditional upon customers purchasing either all of their x86 CPU requirements or most of their requirements from Intel. Such exclusivity rebates were by their very nature capable of restricting competition. It follows that whether exclusivity rebates can be categorised as abusive does not require an effects analysis.
In any event, the Commission had established that the exclusivity rebates and payments that Intel granted to a number of OEMs were capable of restricting competition under an as effective competitor test (‘AEC test’). However, and since the rebates were abusive by their very nature, it was not necessary for the General Court to consider whether the Commission had correctly carried out the AEC test; nor was it necessary to examine whether the alternative calculations proposed by Intel had been carried out correctly.
Subsequently, Intel brought a further appeal before the CJEU. The main topics covered by this judgment are the following:
- Extraterritorial Jurisdiction – The CJEU dismissed Intel’s arguments that the Commission did not have territorial jurisdiction.
The fact that an undertaking participating in an anticompetitive practice is situated in a third country does not prevent the application of the EU competition provisions if that practice is implemented on the territory of the internal market. If the applicability of competition law were made to depend on the place where the agreement, decision or concerted practice was formed, the result would obviously be to give undertakings an easy means of evading those prohibitions.
In addition to conduct implemented in the EU, jurisdiction can be established by reference to a qualified effects test. Under this test, EU competition law prevents conduct which, while not adopted or implemented within the EU, has certain anticompetitive effects liable to have an impact on the EU market. This test is in line with public international law, in that it requires that it must be foreseeable that the conduct in question, taken as a whole, will have an immediate and substantial effect in the EU. In order to determine whether this condition is fulfilled, it is sufficient to take account of the probable effects of the conduct on competition.
Since Intel’s conduct vis à vis Lenovo in China formed part of an overall strategy intended to ensure that no Lenovo notebook equipped with an AMD CPU would be available in the market, including in the EEA, and formed part of an overall strategy aimed at foreclosing AMD’s access to the most important sales channels, it was foreseeable that Intel’s conduct was capable of producing an immediate and substantial effect in the EEA.
- Exclusivity Rebates – Intel contended that loyalty rebates may be found abusive only after an examination of all the relevant circumstances in order to assess whether the rebates are capable of restricting competition – including the level of the rebates in question, their duration, the market shares concerned, the needs of customers, and the capability of the rebates to foreclose an as efficient competitor (as efficient competitor test, ‘the AEC test’)
The CJEU started by pointing out that ‘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 less efficient than the undertaking with the dominant position should remain on the market. (…) not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.’
At the same time, not all price competition may be regarded as legitimate. A dominant undertaking is prohibited from, among other things, adopting pricing practices that have an exclusionary effect on competitors considered to be as efficient as it is itself and from strengthening its dominant position by using methods other than those that are part of competition on the merits. It is settled law: ‘that 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 grant 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, Intel submitted evidence that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects. The CJEU considered that, in such a case, the case law must be clarified to the effect that: ‘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 required 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.’ The analysis of this capacity to foreclose is also relevant in assessing whether a prima facie anticompetitive system of rebates may be objectively justified by advantages in terms of efficiency which also benefit the consumer.
Importantly, this balancing of the favourable and unfavourable effects on competition of the practice in question can be carried out 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 an 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.
It is true that the Commission emphasised that the rebates at issue were by their very nature capable of restricting competition; and that, as such, an analysis of all the circumstances of the case and, in particular, an AEC test were not necessary in order to find an abuse of a dominant position. Nevertheless, the Commission carried out an in-depth examination of the circumstances of the case and pursued an AEC test, which led it to conclude the rebate scheme at issue was capable of having foreclosure effects on such a competitor. It follows that, in the decision at issue, the AEC test played an important role in the Commission’s assessment of whether the rebate scheme at issue was capable of having foreclosure effects on as efficient competitors. In those circumstances, the General Court was required to examine all of Intel’s arguments concerning that test.
Consequently, the CJEU decided that the judgment of the General Court must be set aside, and that the case should be referred back to the General Court to examine factual and economic evidence in order to determine whether Intel’s rebates at issue are capable of restricting competition.
Comment: In short, this judgment contains significant holdings on: (i) the territorial scope of EU competition law; (ii) the lawfulness of loyalty rebates by dominant companies; (iii) the impact of submissions by defendants regarding objective justifications and efficiencies in the context of loyalty rebates; (iv) the role that the AEC test can play in the context of rebate cases.