Intel’s victory in EU court opinion may prove short-lived

20th October 2016. By Matthew Newman

Intel should be very pleased with today’s recommendation from Advocate General Nils Wahl on an EU court appeal against a 1.06 billion euro ($1.16 billion) antitrust fine.

Wahl has done more than support most of the US chipmaker’s arguments against the penalty. He has also said the EU’s lower-tier General Court “erred in law” by using the wrong legal test to find that Intel abused its market power by offering rebates on its semiconductors to computer makers.

But Intel executives should keep their champagne bottles corked for now. The European Commission’s landmark decision against Intel is grounded in 40 years of jurisprudence showing that loyalty-enhancing rebates are illegal, suggesting that Europe’s highest court may well disagree with Wahl’s opinion.

Even if EU judges follow Wahl’s advice and send the case back to the General Court, Intel might not carry the day. Judges at the tribunal would then need to re-examine the commission’s exhaustive 516-page antitrust decision, and that review — involving an analysis of “all the circumstances” of the case — might end up validating the commission’s decision.

Legal test

In his 75-page opinion today, Wahl’s main point is that the General Court failed to correctly apply the case law on rebates, starting with the Hoffmann-La Roche case in 1979. In that case, the Court of Justice condemned the drugmaker for offering loyalty rebates.

Condemning rebates is tricky business. Some rebates are fine in the eyes of the Court of Justice: Those offering customers discounts based on the amount of goods they purchase, for example, are legal.

But the court has also found that rebates harm competition if a dominant company makes them conditional by requiring a customer to purchase all, or almost all, of a certain product from that company.

In the Intel case, the General Court classified the chipmaker’s rebates to four major PC makers — Dell, Lenovo, Hewlett-Packard and NEC — as “exclusivity rebates.” According to the commission, these rebates were conditional upon the computer makers buying all or most of their chips from Intel.

EU courts have found this practice to be inherently harmful to competition, because customers are prevented from using an alternative supplier. As a result, there was no need to consider the case’s circumstances to establish a violation of EU law.

In his opinion, Wahl said the General Court took a “strict approach” to exclusivity rebates. For the first time, the court directly quoted the Hoffmann-La Roche decision “without examining the circumstances of the case,” he said.

He then examined how the General Court “misses an important point” in that landmark case. The Hoffmann-La Roche decision “examined in commendable detail” the drug market and thus considered the “legal and economic context” of the rebates, he said.

Effects-based analysis

Wahl is making an important point about a long-running debate in antitrust circles.

For many years, lawyers and economists have sparred over whether the commission should move away from its “form”-based approach to antitrust law and adopt a more “effects”-based practice.

The debate boils down to whether the commission must conduct a thorough analysis on whether alleged anticompetitive behavior actually harms the market and not just assume a practice restricts competition.

Wahl acknowledges in today’s opinion that it’s easy to conclude that EU case law stretching back decades — including cases involving Michelin and British Airways — backs up the idea that loyalty rebates are inherently illegal and there’s no need to look at the circumstances.

But the advocate general faults the General Court for applying the case law “to the letter” and creating a “super category” of “exclusivity” rebates. This error means that such rebates are “assumed” to be abusive “based purely on their form.”

Wahl goes on to argue that recent Court of Justice case law in rebates, including those extended by Post Danmark, supports the idea that rebates must be assessed “in light of all the circumstances” without distinguishing what kind of rebates they are.

Persuasive

While these arguments seem persuasive, the Court of Justice is a conservative institution. Wahl has a history of trying to stretch the boundaries of antitrust law, and his opinions haven’t always been followed by other members of the court.

Take his opinion in a case involving Swiss consultancy AC Treuhand. Wahl said the commission was wrong to find that the consultancy should be condemned for organizing meetings for a chemicals cartel, because it didn’t exert “competitive pressure” on the participants. The court sided with the commission, ruling against AC Treuhand.

It may be that Wahl is trying to jolt the Court of Justice into the 21st century. He’s giving judges an opportunity to say that the case law on rebates has always supported economic analysis, and now the General Court needs to take a profound look at how Intel’s behavior actually harmed the market.

But the more likely scenario is that the Court of Justice will ignore Wahl’s opinion. The case law on rebates is too entrenched. To shift the focus away from case law, the commission would have to pursue a rebates case based solely on economic analysis.

That’s not likely to happen anytime soon. The commission’s legal service wants to win cases, and it will use all the jurisprudence at its disposal to find that loyalty rebates are illegal by their very nature.

So, while the commission’s competition staff will continue to analyze the economic effects of rebates, the case law makes their lives much easier when appeals finally land on EU judges’ desks in Luxembourg.

	Eliot Gao