Intel victory creates legal, financial headaches for EU antitrust enforcers

Intel’s massive win in the EU courts today after a 13 year battle over the legality of chip rebates will give hope to the likes of Qualcomm and Google, who have argued their investigations were riven with similar shortcomings.

The European Commission could argue that both the law and its practices have moved on since this 2009 case. But there will still be a potentially large bill to pay when returning the 1.06 billion-euro fine ($1.2 billion today) and default interest on top.

Intel scored its victory on one of the most hotly-contested areas of antitrust policy of recent decades: what role should economic analysis play in the behavior of dominant companies?

In the 2000s, the EU antitrust watchdog started giving greater prominence to a more “effects-based” investigative approach that looked into market reality rather than pure legalistic categories. Policy debates inside the commission were rife at the time, and the Intel fine was the culmination of that discussion: it took a legal approach and supplemented it with its own economic analysis.

Now, on its third appearance before EU judges, that uneasy policy position had its reckoning: Intel convinced the court that the level of economic analysis was unsatisfactory and its 1.06 billion euro fine was toppled. But what next for the commission?

Appeal?

Practically, it will have to decide whether to file an appeal at the Court of Justice. Given the “as efficient competitor test” — the economic model in question for Intel — also features, at least partially, in court fights involving Qualcomm and Google, the regulator might want to fight on.

Other dominant companies facing antitrust scrutiny will also jump on today’s ruling, hoping it shows up holes in commission investigative practice.

Last May, Qualcomm made the commission’s economic analysis — and its alleged failings — one of the main planks of a court appeal against a 997 million euros ($1.2 billion) fine over its own chip rebate scheme.

In September, Google spent a day deploying similar arguments about the AEC test in a bid to overturn a 4.34 billion euro fine related to its Android operating system. Google argued that agreements where it shares search-advertising revenues with phonemakers weren’t significant enough to exclude other search apps.

The EU executive contested both of those arguments, and would likely insist that the kind of error highlighted today in the Intel case doesn’t afflict the Qualcomm and Google proceedings. That’s because those two decisions came a decade after Intel, and in the wake of a key 2017 judgment from the EU’s top court that established the framework for economic analysis.

Defending those decisions in court, EU lawyers have already stated that they are in line with the 2017 judicial edict on how to look at this kind of behavior.

It is not just the commission that needs to decide on a possible appeal. While Intel annulled the entire fine today, it was still left on the hook for part of its strategy that covered “naked restrictions.” Intel has the right to contest that part, if it wants to.

Revisit the decision?

More immediately, the regulator faces a decision to re-impose a fine. Even when it loses in court, it is rare that the story ends there. Its normal policy is to go back to the decision, correct the mistakes and re-impose a fine.

Yesterday, it re-imposed a fine on Iberian telecoms operators five years after the EU’s highest court faulted its antitrust investigation. The new fine imposed was almost identical to the original one. In a separate investigation into fixing the prices of steel bars, the commission has made three attempts to fine companies despite repeated court setbacks.

To fine Intel again, the commission would have to conduct a new analysis and correct the errors highlighted today. That will be no easy task and will likely trigger a fresh battle of economists.

While EU investigators pursue intense investigations into Apple, Google, Amazon, Facebook, Microsoft and others, their bosses might consider it a poor use of resources to go back to a 15-year old probe into laptop chips and start prodding around again.

EU competition chief Margrethe Vestager was sanguine about the court “loss” today, telling journalists she would look at the judgment and decide on the next steps. It will be her decision on whether this old battle, waged by a group of staff that to a large extent pre-date her tenure, is worth pursuing.

Interest

An immediate headache for the commission will be not just paying back the 1.06 billion euro fine that has been sitting in an EU bank account for 13 years. It will be the obligation to pay default interest on it.

A ruling from the EU’s top court last week established the principle that the commission needs to pay back default interest on sums it wrongly held, even if that money wasn’t making interest in the meantime.

It’s unclear how this new precedent will apply to Intel’s fine and how much the final sum could be. The commission didn’t respond to a request for comment on its calculations.

AEC tests

Many companies and their lawyers will be full of praise for the General Court today: It got its hands dirty on the spreadsheets and number-crunching that underpinned the watchdog’s economic test. Antitrust abusers appearing in court will take heart from the judges’ engagement with the nitty-gritty and hope that their own cases get a similar level of scrutiny.

Some at the commission may feel aggrieved that the economic analysis they conducted in the late 2000s was faulted today due to a new framework established by a 2017 judgment. How could they have foreseen the kind of analysis needed?

That’s one of the risks of being a regulator subject to court review: newer precedents undermine earlier work. Usually, this leads to a decision getting dented; rarely does it mean one getting toppled.

For the commission, the Achilles heel of this case was that it conducted an economic test which it said it didn’t need to do. And it did this because of the policy debate inside the executive at the time. In subsequent cases, it has repeatedly argued there is no legal requirement to do an “as efficient competitor test.”

Today, judges confirmed: if you are going to do such analysis, you will be held to it and it has to stand up to scrutiny. If there’s one lesson from today, it could be that the commission won’t put itself in that position again.

The case number is T-286/09 RENV.