Overview
On October 24, 2024, the European Court of Justice (ECJ) confirmed the annulment by the General Court (GC) of the European Commission’s (EC) decision to impose a EUR 1.06 billion fine on Intel for the abuse of a dominant position on the x86 Central Processing Units (CPUs) market, specifically through the use of exclusivity rebates granted to several computer manufacturers. With its judgment, the ECJ definitively settles a 15-years-long saga, rejecting the presumption that exclusivity rebates restrict competition and requiring the EC to conduct a detailed analysis to demonstrate any such restriction. The era of presuming that exclusivity rebates harm competition has ended with this judgment.
In Depth
Background
The saga began with a formal complaint from Intel’s competitor AMD in 2000 which resulted in a decision from the EC on May 13, 2009, imposing a record EUR 1.06 billion fine on Intel for abusing its dominant position in the x86 CPUs market. The sanction addressed two practices: (i) offering conditional rebates to computer manufacturers for purchasing all or nearly all of their x86 CPUs from Intel, and (ii) making direct payments to computer manufacturers or placing restrictions on the distribution of x86 CPUs to incentivize them not to purchase those products from Intel’s competitors (also known as “naked restrictions”). The central issue in this long-running dispute concerns the extent to which the EC needed to prove that Intel’s rebates restricted competition.
The GC upheld the decision on June 12, 2014, qualifying the rebates granted by Intel as exclusivity rebates and ruling that such a practice constitutes by its very nature (“by object”) an abuse of dominance. It rejected Intel’s argument that such rebates should only be classified as abusive after applying the “as-efficient competitor” (AEC) test, i.e. after assessing whether an equally efficient competitor could offer similar rebates. In fact, even though the EC had found Intel’s rebate inherently abusive, it had also conducted an AEC analysis, which the GC did not review given its finding that the conduct was abusive by its very nature. On appeal, the ECJ set aside the GC’s judgment in its ruling of September 6, 2017, precisely for the GC’s lack of review of the EC’s AEC test, and referred the case back to the GC.
On January 26, 2022, the GC adopted an effects-based approach and annulled the part of the EC’s decision concerning exclusivity rebates. It considered that, although exclusivity rebates are generally presumed to restrict competition, this presumption can be challenged as they are not anti-competitive by their very nature. The AEC test was necessary to evaluate the foreclosure effects of such rebates. An AEC test consists of assessing whether the total amount of the rebates applied to the “contestable share” of the market (i.e. proportion of the demand that is willing and able to switch to an alternative supplier) resulting in sales above or below costs. It is apparent from the GC judgment that the result of the AEC test is ultimately determined by means of a comparison of the “contestable share” and the “required share” (i.e. proportion of the customer’s requirement that a competitor as efficient as Intel must obtain in order for it to be able to enter the market without incurring losses). If the contestable share is higher than the required share, the AEC test result is positive for Intel, while the opposite situation leads to a negative result and means that the contested rebates are capable of foreclosing a competitor as efficient as Intel.
The GC found that the EC’s analysis was distorted by several factual errors in applying this test regarding the calculation of the “contestable share” as well as the value of the rebates, the assessment of the advantages in nature granted by Intel and an insufficient extrapolation of data plus a lack of evidence over the entire relevant period. As a result, the GC annulled Intel’s EUR 1.06 billion fine because it couldn’t isolate the portion of the fine related specifically to the “naked restrictions” mentioned above. For more details on the GC’s judgment, see our previous client alert.
The EC appealed the GC’s judgment on six grounds, arguing that the judgment contained several errors of law as well as misinterpretation and misapplication and infringed upon the EC’s right of defense in its assessment of the AEC test.
The ECJ’s Judgment
The ECJ confirmed the GC’s finding that the EC erred by assuming that Intel’s rebates were by their nature anti-competitive without sufficiently proving their capability to foreclose competition based on all relevant circumstances. According to the ECJ, the EC is not only required to assess the extent of the company’s dominance in the relevant market, the contestable share of the market affected by rebates, the conditions and terms under which the rebates were granted and their duration and amount, but also whether there is a strategy aimed at excluding competitors that are at least as efficient as the dominant company in the market.
The ECJ confirmed that the AEC test, used by the EC to assess whether Intel’s rebates could exclude equally efficient competitors, contained multiple errors in its application regarding several computer manufacturers and retailers. These errors affected the EC’s conclusion that Intel’s rebates had a foreclosure effect. In particular, the EC failed to properly analyze the contestable share of the market covered by Intel’s rebates, which was crucial to assess whether the rebates had a significant foreclosure effect on competitors. It also failed to adequately assess the duration of Intel’s rebates and its potential impact on market foreclosure.
No doubt the EC’s draft Guidelines on Exclusionary Abuses will need to be partly reevaluated in light of this landmark ruling. Stay tuned for more developments as the effects of the judgement ripple outward.
