CN01 - General Court overturns Intels fine for conditional rebates

On 26 January 2022, the General Court ("GC") partially annulled the European Commission's decision to impose a EUR 1.06 billion fine on Intel for abusing its dominant position ("Decision"). The fine was annulled in full. Applying the principles outlined in the European Court of Justice's ("ECJ") 2017 landmark ruling, the GC concluded that the Decision failed to show that the rebates implemented by Intel were capable of foreclosure.

Key takeaways

• The Commission can presume that loyalty rebates are abusive. However, where the dominant company provides evidence of lack of anti-competitive effects, the Commission is required to conduct an analysis of the foreclosure capability of the rebates.
• The analysis should, at a minimum, have regard to five criteria: (i) the extent of the dominant position; (ii) the market coverage of the conduct; (iii) the conditions and arrangements for granting the rebates; (iv) their duration and amount; and (v) the possible existence of an exclusionary strategy.
• While the Commission is not required to conduct an as efficient competitor ("AEC") test, if it does so then the conclusion must be taken into account when assessing whether the conduct is capable of anti-competitive foreclosure.

Background

In 2009, the Commission found that Intel abused its dominant position by: (i) offering rebates to four original equipment manufacturers ("OEMs") and an electronics retailer (Media-Saturn-Holding GmbH) conditional on these customers purchasing all or almost all their requirements from Intel and (ii) imposing "naked restrictions" by making payments to three OEMs to delay the launch of products. The Commission fined Intel EUR 1.06 billion. While the Commission considered the exclusivity rebates to be per se abusive, it presented an economic analysis  applying the AEC test.

Intel's appeal was rejected by the GC in 2014. It held that loyalty rebates are by their very nature abusive and therefore there was no need to have regard to the AEC test.

In 2017, the ECJ's seminal judgment set aside the GC initial judgment on the basis that the GC had wrongly failed to take into consideration Intel's arguments relating to the AEC test carried out by the Commission. It referred the case back to the GC for a re-examination of the evidence (see our September 2017 newsletter). 

GC ruling

The method for assessing rebates

The GC first set out "three instructive inferences" drawn from the ECJ ruling on the method for assessing rebates. 

First, the Commission may assume that loyalty rebates are by their nature anti-competitive. However, this is a mere presumption which does not relieve the Commission from an effects analysis if a company submits evidence that it's conduct is not capable of restricting competition. 

Second, where the dominant company argues, and provides supporting evidence, that the rebates are not capable of restricting competition the Commission must analyse the foreclosure capability of the rebates by reference to five criteria: 

1. the extent of the dominant position;
2. the share of the market covered by the practices;
3. the conditions and arrangements for granting the rebates;
4. their duration and their amount; and
5. the possible existence of an exclusionary strategy.

In this respect, the GC clarified that the Commission must have regard, as a minimum, to all five criteria.

Third, the Commission does not need to conduct an AEC test. However, where the Commission does so, its economic analysis is one of the relevant factors of the foreclosure analysis. 

Burden and standard of proof

In its ruling, the GC set out important statements on the standard of proof in competition cases: 

• the presumption of innocence applies in all competition cases, which implies that any doubt should benefit the alleged infringer;
• where the Commission's decision is based on the "supposition" that the practice under consideration cannot be explained on grounds other than the restriction of competition, the decision will necessarily be annulled where the undertaking concerned provides evidence casting the facts in a different light; and
• where the Commission relies on evidence that is in principle capable of demonstrating the existence of an infringement, it is for the undertaking concerned to show that the probative value of that evidence is insufficient.

Errors in the assessment of the anti-competitive effects of Intel's rebates 

The judgment contains a thorough assessment of the AEC test applied by the Commission. The GC found that the evidence adduced by Intel gave rise to doubts as to whether the rebates were capable of foreclosure. According to the GC, the AEC test is vitiated by a number of errors, affecting in particular the calculation of the contestable shares (i.e. the proportion of a customer's demand that could be captured by an as-efficient-competitor) and the value of the conditional rebates. 

It is worth noting that the judgment clarifies which data can be taken into account when determining the contestable share for an AEC test applied to rebates. In principle, the Commission should primarily rely on data known to the dominant undertaking during the relevant period. However, the Commission can take account of data known to other economic operators (including internal data from customers), where it is not possible to rely on data known to the dominant undertaking.

In addition to the flaws in the economic analysis, the GC concluded that the Commission had failed to take proper account of at least two of the five criteria to establish a foreclosure capability:

• The Commission failed to determine the share of the market covered by the conduct by only considering two OEM's market shares and excluding others concerned by the conduct and by only considering market shares for part of the relevant time period.
• The Commission did not examine the duration of the rebates as a factor intrinsically relevant to determining foreclosure capability.

Accordingly, the GC annulled the Decision in so far as it concerns the loyalty rebates. It also annulled the entirety of the fine imposed on Intel as it was not possible to identify the amount of the fine relating to the other alleged abuse (i.e. the so called "naked restrictions"). 

Comments

The GC ruling, which is subject to appeal, puts a significant burden on the Commission when carrying out its analysis to take into account all relevant evidence. Following the GC's judgment, where the dominant undertaking submits evidence that there was no anti-competitive effect the Commission will be required to conduct a robust analysis of the foreclosure capability of the conduct. The GC's judgment is also of relevance to two pending cases (Qualcomm and Google Android) which relate to rebates and exclusivity payments. 

Whilst the GC and ECJ rulings in Intel relate to loyalty rebates, it is likely that some of the principles set out will extend to other price-based conduct and possibly beyond. In particular, the extent of the practice (including its market coverage and duration) appears relevant to determine the foreclosure capability of any allegedly abusive conduct. This would be in line with the principles set out in the Commission's 2009 Guidance on enforcement priorities in abuse of dominance cases. 

With thanks to Jessica Bracker of Ashurst for her contribution.