Intel denounces ‘huge expansion’ of EU’s legal reach in antitrust-fine appeal
21 June 2016. By Lewis Crofts.
Intel told judges at the EU’s highest court today that antitrust investigators were over-reaching when prosecuting the chipmaker for rebate deals in China. Challenging a record 1.06 billion euro fine, the company said “minuscule” sales had reached Europe, while the European Commission rejected attempts to reframe the “exclusionary” rebates as “low prices.”
The judge leading the court’s questions explored why a meeting with a Dell executive wasn’t recorded. Meanwhile, another senior member of the panel probed the jurisdiction of EU antitrust law and the legal categorization of rebates.
The commission fined Intel in May 2009 for abusing its power on the market for x86 central processing units, or CPUs, to the detriment of a rival manufacturer Advanced Micro Devices, or AMD.
According to the commission, Intel’s illegal conduct was two-fold: firstly, giving rebates to computer manufacturers — Dell, HP, NEC and Lenovo — if they bought all, or almost all, of their processors from Intel. This was also combined with direct payments to a German retailer Media Saturn Holding for stocking only Intel products.
Secondly, Intel paid HP, Acer and Lenovo to limit or delay rival AMD-equipped products and squeeze them out of sales channels, the commission found.
At a four-day hearing in 2012, Intel tried to overturn the fine, arguing its rebate strategy — once called the “mother of all programs” — didn’t fall foul of antitrust law. In 2014, the lower-tier General Court dismissed Intel’s appeal in its entirety.
Today, the chipmaker came before judges at the Court of Justice, making a final attempt to defeat the commission’s case.
The litigation is closely followed because a future ruling will set out the legal boundaries of the thorny issue of rebates, and establish how far the EU can go in applying its antitrust laws to behavior on other continents.
The major flashpoint between the two sides is whether EU law can catch rebate payments made by Intel to computer makers in China.
Intel had argued that the chips were sold outside of Europe. The fact that some computers with Intel chips had ended up in Europe didn’t amount to an illegal rebates scheme on EU soil, it said. The lower-court disagreed, ruling that Intel’s conduct was indeed implemented in Europe and had effects there, and therefore the commission had cleared the necessary hurdle for wielding EU antitrust law.
The commission said the rebate scheme had changed the structure of the world market and compared it to “stay-at-home” cartels — previously punished in the EU — where Japanese companies had purposely kept out of Europe. In short, conduct in foreign climes can impact European consumers.
Daniel Beard, for Intel, stressed that the “decisive factor” was where the implementation took place: in this case, China. He added that a second strand of case law that assesses whether foreign conduct had “qualified effects” in Europe didn’t “expand” beyond the initial implementation test.
“The commission didn’t have jurisdiction over the Lenovo agreement, in line with the principles of international law,” Beard said. “Any other approach would be a huge expansion of the extra-territorial effect of EU law over conduct around the world.”
Nicholas Khan, for the commission, said Intel never raised concerns over jurisdiction during the long-running probe.
“The commission is not asserting some sort of universal jurisdiction,” he told judges. Rather, Intel’s agreement with Lenovo specifically referenced “worldwide” sales, he said.
There would be a “circumvention risk” if massive global companies with large market shares could evade prosecution, Khan argued. “The effects of Intel’s conduct were immediate and foreseeable. The effect on the [European] market was direct and not merely a knock-on effect.”
Jean-François Bellis, appearing for the Association for Competitive Technology — a trade group of 3,000 tech firms — supported Intel, stressing the conduct took place in China.
He said the association was “very concerned” about the judgment, given it would broaden EU jurisdiction and open the door to multiple probes and multiple private lawsuits.
Advocate General Nils Wahl asked Khan if the commission was “stretching” the idea of “implementation” even beyond “stay-at-home” cartels to capture the kind of behavior perpetrated by Intel.
Khan said it was important to look at the kind of conduct at issue, whether it was a cartel or the abuse of market power.
“By securing the exclusion of AMD through what we said was an abusive method, then it follows that the conduct is implemented,” he said.
The case centers on Intel’s system of “exclusivity rebates,” which, according to the commission, bought the loyalty of computer makers and squeezed out rival AMD. Intel’s program meant that for AMD to enter the market it not only had to offer rebates on its own products, but it also had to make up for buyers losing their Intel rebates by switching providers.
This conduct was illegal in itself and so judges at the General Court ruled EU investigators didn’t have to run a full investigation into the economic effects. It meant there was no need to analyze whether a similar company with the same costs could have offered the same rebates.
That test — known as the “as-efficient-competitor test” — wasn’t necessary to rule Intel had broken antitrust law, they said. With that statement, the court effectively made it easier for EU officials to punish such behavior, saying the 150 pages of economists’ number-crunching in the decision weren’t necessary.
Much of this morning’s hearing went over the formal classification of rebates under previous EU judgments. These set out how far officials must go in assessing the general context of the rebates — such as how long they last and how much of the market they cover — to rule them illegal.
Beard, for Intel, said the company’s rebates affected a “minuscule” amount of sales into Europe and it was necessary to examine “all the relevant facts and circumstances” of the scheme, not just rule the system was illegal.
He said the commission ran an “as-efficient-competitor test” and then chose to ignore it because it “no longer helped them.” The regulator couldn’t “simply ignore an inconvenient truth,” he said.
Advocate-General Wahl examined the importance of an October ruling concerning postal rebates in Denmark, asking if it a shone new light on the legality of Intel’s behavior.
In that case, the Court of Justice said that the rebate scheme run by Post Danmark for advertising mail — which involved a payment depending on volumes of mail sent — needed to be analyzed in full to see if it restricted competition.
The judgment set out categories for certain kinds of rebates, implying that exclusivity rebates — potentially such as those used by Intel — could be deemed illegal without the need for such a full assessment.
Khan argued the ruling “reinforced the correctness” of the commission’s case. “A loyalty rebate, such as in the present case, infringes [competition law] without the need for any further assessment,” he said.
The commission’s lawyer said it was “difficult to think of a better established category of abuse,” and Intel had pursued a strategy of “marginalizing” AMD.
Bellis stressed that the Post Danmark judgment required loyalty rebates be “coupled with an obligation for, or promise by, purchasers to obtain all or a given proportion of their supplies from the supplier.”
Khan said the threat from Intel was clear: “It is not correct that Dell was left simply with an impression as to what might happen to its rebates . . . if it broke with Intel,” he said. “Intel made clear to Dell the price of disloyalty.”
Advocate-General Wahl pushed the commission on why such a rebate scheme was illegal without the need for a full assessment of the circumstances, such a market coverage or duration.
He said the commission’s approach — supported by the lower-court — seemed “very strict.”
“I cannot see any other instance of an abuse of a dominant position where the commission or the case law of the court, as you interpret it, has such a strict approach,” he said. “Is this the most damaging thing we can see or is this just tip of the iceberg [of conduct] that would be prohibited simply due to its form?”
“This is a matter of an abuse by the nature of the arrangements made,” Khan answered. He stressed EU law allowed for companies to “objectively justify” their behavior, but that Intel hadn’t tried to do this.
Eugene Regan, a judge, asked whether the court could feel “comfortable” with the imposition of a large fine on the basis of an “assumption” — about the lawfulness of the rebates — and “without an appropriate analysis of all the other elements.”
Khan argued that the commission’s work had gathered a wealth of evidence that proved Intel’s conduct had changed the market structure and restricted choice.
Moreover, Intel was a huge company with a turnover of $175 billion during the period of the infringement. “On the facts of this case, this is clearly an abuse and the decision and the fine are entirely justified,” he said.
Meeting Mr. D1
José Luís da Cruz Vilaça, the judge leading the panel’s questions, focused on why the commission hadn’t documented a meeting with a Dell executive — referred to in court as Mr. D1.
During the probe, the commission spoke to the man for five hours, gathering information on Intel’s rebate scheme.
Intel complained the meeting should have been recorded and it should have obtained his statement, which could have helped it defend itself against the EU investigation.
Beard, for Intel, was scathing of the commission’s procedures, saying his client’s rights of defense had been abused. He said the lower-court was wrong to conclude that Mr. D1’s evidence could be “reconstituted” from other submissions.
“Kafka would be proud,” Beard submitted. “You can’t know what was in the absent material. That is not fair procedure. That is not justice.”
Khan argued Mr. D1 was simply representing Dell’s position — later obtained in writing — and he wasn’t “some sort of maverick who [was] able to shed fresh light on information that was received from Dell in its corporate capacity.”
Da Cruz Vilaça pushed the commission on the legal basis for its interview with Mr. D1, asking why it was classified as a conversation and not a formal interview that would be documented.
Khan said Mr. D1 wasn’t formally “convoked” for the meeting and the regulator was free to choose its investigative steps. The procedural laws allowed for different means of gathering evidence and a formal written request to the company was the most powerful.
“How can you establish in advance which type of interview — formal or informal — you will be carrying out in a specific instance?” da Cruz Vilaça asked, casting doubt over how officials could switch between one form and another mid-interview.
“The commission obtained information in the usual way from Dell through requests for information,” Khan said. “An informal meeting with a person is something that is of preparatory nature. It was to explore further avenues for investigation in relation to Dell.”
Advocate-General Wahl didn’t give a date for when he would issue his non-binding opinion on the case.
The case reference is C-413/13 P.