Qualcomm fine shows EU antitrust enforcers aren't daunted by Intel ruling

25 January 2018 12:46pm
EU Flag

24 January 2018. By Lewis Crofts and Matthew Newman.

Today’s fine of almost a billion euros against Qualcomm has revealed the European Commission's first full response to its setback in court last year on another big rebate case, against Intel.

While the Intel case has nudged the commission to pay more heed to economic evidence in dominance-abuse cases, today’s sanction — a fine of 997 million euros ($1.2 billion) — shows that the regulator is still confident in conducting its own economic analysis, after it rejected a study presented by Qualcomm as a defense.

Qualcomm was found to have transferred billions of dollars to Apple on the condition that it buy chips exclusively from the San Diego-based manufacturer. The case dates back to 2011, when the contract between Apple and Qualcomm was sealed.

The biggest challenge for enforcers, however, emerged last September when the EU’s highest court ordered a review of a 1.06 billion-euro fine in Intel's rebate case. That ruling quashed a lower court’s decision that had validated the commission’s approach to rebate cases. The EU Court of Justice said the General Court had failed to analyze Intel’s economic arguments.

While the commission had conducted an economic analysis on Intel’s rebates, it relied on EU jurisprudence that “loyalty” rebates to four PC makers were “by their very nature” capable of restricting competition. The lower court agreed, but the EU Court of Justice rejected that reasoning, saying the General Court should examine all of Intel’s economic arguments.

In particular, the EU's top court said, it should review whether a rival “as efficient” as Intel could apply the same rebates and still make a profit.

Today’s decision marks the first time the commission has navigated that new territory. The Intel case has given officials “guidance on how the commission has to prove its case and what tools we can rely on,” antitrust chief Margrethe Vestager said today.

“We have carefully examined the ruling and the evidence of our case, to make sure our decision fully complies with the guidance by the court,” she said.

Officials have always said that taking into account economic arguments is nothing new. The regulator did it for the Intel case and has been doing it assiduously for many years — even if it wasn’t clear what the legal framework for that analysis was.

Vestager said her staff had reviewed “qualitative and quantitative evidence” to assess the impact of Qualcomm’s conduct.

Economic evidence

This looked at the extent of the company’s dominance; the size of the payments to Apple; evidence from Apple’s files of it “seriously” considering changing suppliers; and the importance for small companies of signing deals with Apple to show their legitimacy.

But the commission rejected the findings of a “price-cost” test presented by Qualcomm. Under this test, if the price exceeds a certain measure of cost, then an “as-efficient competitor” that makes products of an equal standard could compete with the dominant company.

Clearly, the regulator doesn’t feel that the Intel judgment should tie its hands to a particular kind of economic test.

The court said that the commission is required, when examining loyalty rebates, to analyze the extent of the company’s dominant position and its market share, as well as the duration of the rebates and their amount. It must also assess “the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking.”

It doesn’t dictate which type of “as-efficient” test must be used.

In the Qualcomm case, the regulator seems to have ticked all the boxes laid out in the Intel judgment. It has assessed the extent of Qualcomm’s dominant position, the “significant amounts” paid by the chipmaker, the importance of Apple accounting for one third of demand for 4G chips, and Qualcomm’s arguments that its exclusivity condition created efficiencies.

The result, officials decided, was that Qualcomm’s behavior had a “significant detrimental” impact on competition.

Qualcomm appeal

Qualcomm said in a statement that it “strongly disagrees” with the decision and will “immediately” file an appeal. “I don’t believe they properly applied the right analysis,” Qualcomm’s general counsel Don Rosenberg told MLex in an interview. “It takes a view that’s different from accepted thinking in the exclusive dealing area.”

The fact that Apple switched its supplier to Intel in 2016 shows that there is competition, Rosenberg said. “Apple presumably negotiated with Intel a price that would offset the loss of the discount from the rebate,” he said.

The Qualcomm case picks up many of the elements of the EU’s Intel probe. But it goes further in one specific way: Qualcomm’s contract also included a clause that said if Apple moved to a different chipmaker, the iPhone maker would have to pay back the rebate it had received.

Vestager will tomorrow give a speech where she is expected to further expand on how her staff stuck to the edicts of Intel.

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