Intel antitrust decision will shift EU regulator's gaze to market reality

8 September 2017 1:15pm
Eu Flag on Laptop

🔊 Podcast

MLex Chief Global Correspondent Lewis Crofts and Senior Mergers and Antitrust Correspondent Matthew Newman join Brussels Managing Editor James Panichi to discuss this week's decision by the EU Court of Justice to refer the complex Intel decision back to a lower court.

6 September 2017. By Matthew Newman.

Today's ruling by the EU's highest court, which sent a record-breaking fine against Intel back to a lower court for review, has given the European Commission's antitrust regulators plenty to think about.

The EU Court of Justice's decision, which stated that regulators must examine "all the circumstances" when assessing whether Intel's rebates to its customers were anticompetitive, means investigators will have to start thinking about market reality as well as legal precedent when pursuing antitrust actions against dominant companies.

Intel's lawyers will be pleased that they have another chance to argue the case. But the case has wider ramifications, too.

The commission may have to rethink its pursuit of Qualcomm in a similar rebate case, while Google is expected this week to announce an appeal against the 2.4 billion euro ($2.9 billion today) fine levied by the commission earlier this year.

When the regulator fined Intel 1.06 billion euros in 2009, it found the US chipmaker had abused its market dominance by granting "exclusivity" rebates to four computer makers on the condition that they obtain all, or almost all, of their x86 central processor units — used in most personal computers — from Intel. The regulator said these rebates were capable "by their very nature" of restricting competition. As such, there was no need to look at effects on the market.

The General Court accepted this position in its initial 2014 ruling. The Court of Justice today didn't.

The conclusion is as radical as it is simple: when deciding whether a rebate has an effect on the market, today's decision has shifted the burden of proof from the company to the commission.

As efficient competitor

The crux of the Court of Justice decision is that the lower court failed to examine all of Intel's arguments on whether the rebates it offered to PC makers were "capable" of harming competition.

The commission did apply an "as efficient competitor" test to show that Intel's conditional rebates prevented or made it more difficult for PC makers to source chips from Advanced Micro Devices, Intel's rival. Investigators had already been moving toward an economic approach in cases involving alleged pricing abuses by dominant companies.

The regulator argued at the General Court that it didn't have to conduct this test. Case law dating back to the landmark 1979 Hoffmann-LaRoche case — in which vitamin buyers were induced to purchase all or most of their needs from a dominant company — showed that "fidelity" rebates were by their very nature illegal.

The Court of Justice doesn't question that case law. Instead, it faulted the General Court for failing to analyze whether Intel's rebates were capable of restricting competition, and for ignoring the company's arguments that the commission had made errors in its "as efficient competitor" test.

But the court then added a novel twist by saying that the case law on rebates must be "further clarified."

All circumstances

When a dominant company that has been charged with a pricing abuse argues that the rebates aren't capable of restricting competition, the commission is "required" to analyze "all the circumstances" of the rebates, the EU top court said.

That would include the market share, the "conditions and arrangements" of granting the rebates, the rebates' size, how long they lasted and whether there was an "overall strategy" to exclude an "as efficient competitor," the court said.

And if there's a question about the company's dominance — such as a market share below 50 percent — or whether the rebates were minimal and only affected a small part of the market, then the commission must analyze all the circumstances.

The court's message is clear: if regulators take the time to conduct an "as efficient competitor" test, they must do it properly. The commission will have to be much more careful when it asserts that a company's dominance is so obvious that it can dismiss arguments that its behavior isn't capable of harming competition.

Qualcomm and Google

That could have far-reaching ramifications for the commission's pursuit of Qualcomm in a similar rebate case. The EU watchdog has accused the US chipmaker of granting "significant amounts" to a major smartphone and tablet maker on condition that it exclusively use Qualcomm's baseband chipsets in its products.

If Qualcomm argues that it's not dominant in baseband chips, and that its behavior wasn't capable of restricting competition, then the commission will be obliged to conduct an "as efficient" competitor test — thoroughly.

If the commission is convinced that Qualcomm's conduct clearly falls into the box of "fidelity" rebates aimed at excluding a rival, and are by their very nature illegal, then it can skip the test. But that seems unlikely following today's Intel decision.

The same could be said for the antitrust probes against Google's AdSense advertising business and its Android operating system.

The AdSense probe involves how Google has arrangements with websites such as newspapers or retailers for displaying advertisements when users enter a search query in the websites' search box. The commission is concerned about exclusivity clauses in the contracts with websites that prevent rival search engines from breaking into the market.

The commission has also been investigating exclusive contracts between Google and handset makers that use Android. In particular, the regulator has charged Google with abusing its market power to oblige handset makers to include Google apps in their devices.

Google could argue that its behavior in both cases wasn't capable of restricting competition, thus obliging the commission to look at "all the circumstances" of the advertising and smartphone maker contracts.

One could ask whether the Intel judgment changes anything for the commission. The regulator could argue that it's already conducting in-depth economic reviews and the Intel judgment won't oblige it to alter its practices.

But today's ruling shows that the antitrust world has moved on. Judges expect a thorough economic analysis. The commission's days of relying on 1970s case law are over.

The case reference is C-413/13 P.

Joh Sung-Wook Interview