Efficient-rival test will become norm in antitrust rebuttals, ex-Intel lawyer says

13 April 2018 6:59am

12 April 2018. By Lewis Crofts and Matthew Newman.

Dominant companies facing EU investigations will likely submit economic evidence to argue an equally efficient rival wouldn't have been harmed, Intel's former top lawyer said.

Douglas Melamed said the impact of a landmark EU ruling last year would be that companies would make such arguments, even if the European Commission thinks it isn't obliged to use such a test.

In a judgment last September, the EU Court of Justice sided with Intel and set aside a previous ruling that upheld a 1.06 billion euro fine on the company. The case was sent back to the lower-tier General Court for reconsideration. 

Previously, the General Court had ruled that Intel’s rebates on microchips to PC makers were anticompetitive by their very nature. But the Court of Justice disagreed, stating that the General Court had failed to consider Intel’s arguments that the commission’s “as-efficient competitor” (or AEC) test was flawed. This test was important because it showed that a competitor that was as efficient as Intel couldn’t provide the same rebates as Intel and was thus forced out of the market.

Melamed, who served as Intel's General Counsel during the EU investigation and was part of the litigation, told a conference* in Washington DC: "I assume, as a practical manner, most [companies] will put in an AEC [analysis]."

"As a practical matter, [it] will become mandatory," Melamed, now a professor at Stanford Law School, said.

The Court of Justice ruling states that companies can rebut the EU's accusations with economic reasoning. If they do so, officials are obliged to review those submissions and explain why they aren’t relevant.

At a separate event** in Brussels, Brice Allibert, a senior EU official in the Intel case, said that the Intel decision’s “rebuttable presumption framework” implies that companies “will almost always bring arguments to show lack of potential effects” in rebate cases.

Companies are “likely to bring more AEC price-cost tests,” he said. “These must be addressed by the commission if they are brought as supporting evidence.”

He said the commission has analyzed potential effects in market dominance investigations in recent years, including the Intel case. The European Commission has said it can choose which economic analysis is most relevant to its investigation and isn’t obliged to run an AEC test.

“If a defendant puts in exculpatory information… and the commission could have done an AEC test and didn’t do one, then the court will look very skeptically on that,” Melamed said in Washington DC.

The ex-Intel lawyer argued that the ruling was a "big moment" in the evolution of EU law, developing it from looking at the "form" of certain behavior to look more closely at effects. He pointed to a section of the court judgment that states EU law shouldn't protect competitors that are "less efficient" than the dominant company.

Melamed welcomed the court's "full-throated embrace" of this standard. He said it was a "hugely important step, and probably a bigger step from where the law was previously."

— Next steps —

The Intel case now goes back to a lower court for judges to reassess how Intel rebutted the commission’s AEC.

Allibert, speaking in a personal capacity, also said the Court of Justice didn’t state how judges should respond if Intel successfully rebuts the commission’s economic arguments.

Allibert said that “you would expect” the General Court to uphold the commission’s decision if judges find that Intel’s arguments were flawed and the commission’s as-efficient competitor test was correct.

“What if it's the opposite, and what if the commission’s as-efficient test rebuttal was wrong? The Court of Justice doesn’t say what happens,” he said. “It doesn't say that everything collapses, in substance or procedure, or can it stay if there are other good reasons.”

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