Short Reads

Second time lucky: Intel’s EUR 1.06 billion loyalty rebate fine quashed

Second time lucky: Intel’s EUR 1.06 billion loyalty rebate fine quash

Second time lucky: Intel’s EUR 1.06 billion loyalty rebate fine quashed

02.02.2022 EU law

Intel’s second round at the General Court was significantly more successful than its first. In the first round, the General Court had failed to analyse whether the loyalty rebates at issue were capable of restricting competition. In the second round, after an in-depth examination of the Commission’s economic analysis, the General Court annulled Intel’s EUR 1.06 billion fine for abuse of a dominant position. 

The ruling proves the Commission has its work cut out: a defence raised by a dominant company will need to be countered by a thorough economic analysis to establish anti-competitive foreclosure effects. An (even greater) increased focus on evidence (and document collection) during Commission investigations is therefore likely.

First round

In 2009, the European Commission fined Intel EUR 1.06 billion for having allegedly abused its dominant position on the market for computer processors. Central to the Commission's allegations was that Intel granted rebates to buyers if they purchased all or almost all of their demand for processors from Intel. According to the Commission and the General Court, these "exclusivity rebates" could be considered abusive on account of their form, i.e. without requiring an examination of all of the circumstances of the case (see our July 2014 Newsletter). Nevertheless, the Commission did conduct an additional analysis of all the circumstances of the case and carried out an as-efficient-competitor (AEC) test to examine the foreclosure effects of the loyalty rebates.

On appeal before the European Court of Justice (ECJ), Intel argued that the Commission and the General Court should have taken into account evidence submitted by Intel showing that its conduct was not capable of producing anti-competitive effects (see our October 2017 Newsletter). The ECJ agreed. Since the AEC test had 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, the General Court was required to examine all of Intel’s arguments regarding that test. Moreover, if a dominant company argues, during the administrative procedure, on the basis of supporting evidence, that its pricing practices are not capable of restricting competition and, in particular, of producing any alleged foreclosure effects, the Commission is required to analyse: 

  1. the extent of the company’s dominant position on the relevant market,
  2. the share of the market covered by the challenged practices, 
  3. the conditions for granting the rebates in question, 
  4. the duration and amount of the rebates in question,
  5. the possible existence of a strategy aimed at excluding "as efficient competitors" from the market. 
     

If this analysis shows that the practices at issue are indeed capable of foreclosing as efficient competitors from the market, the Commission has to determine whether there are objective justifications for those practices. In other words, the Commission has to balance the favourable and unfavourable effects of the practice.

The ECJ referred the case back to the General Court to examine on the basis of all available factual and economic evidence whether the rebates at issue were capable of restricting competition.

Second round 

In its re-examination of the case, the General Court first distils three aspects from the ECJ’s ruling to keep in mind when assessing rebate systems:

  1. Presumption: a rebate system set up by a dominant company may be presumed to have restrictive effects on competition.
  2. Rebuttable presumption & five analysis criteria: where the dominant company submits, during the administrative procedure, evidence that its conduct was not capable of restrictive (foreclosure) effects, the Commission is required to assess the foreclosure capability of the rebate system by applying, at a minimum, the five above-mentioned analysis criteria.
  3. AEC test: it is not necessary for the Commission to carry out an AEC test to examine the foreclosure capability of all rebate systems. However, where the Commission chooses to carry out an AEC test, the Commission’s assessment must take this test into account.
     

The General Court reiterates that it is up to the Commission to adduce proof of an infringement by producing a “sufficiently precise and consistent” body of evidence, so as to leave “no residual doubt”. After examining the Commission’s evidence, the General Court finds that the Commission’s AEC analysis contains errors, is insufficiently substantiated, and that the Commission has failed to take proper account of all the five analysis criteria. As a result, the Commission's analysis has not established to “the requisite legal standard” that the contested rebates had foreclosure capabilities. The General Court therefore annuls a large part of the Commission decision imposing a fine of EUR 1.06 billion on Intel.

‘Third’ round?

The Commission is currently reflecting on the next steps. The Commission could, for instance, decide to appeal the General Court’s ruling (potentially making Intel ‘third time lucky’), adopt a new decision fixing the shortcomings of its 2009 decision (and re-imposing a fine on Intel) or let the case go completely (with a potential payment of default interest on the amount of Intel’s fine). Either way, it is clear that the effects-based test in rebate cases – with the requisite thorough and detailed economic analysis – is here to stay. 

 

This article was published in the Competition Newsletter of February 2022. Other article in this newsletter:

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