European Union: EU General Court Dismisses Intel’s Appeal

On 12 June 2014, the General Court issued a judgment dismissing Intel's appeal against the Commission decision of 13 May 2009 finding that the company abused its dominant position on the market for x86 central processing units ("CPUs"), and imposing a fine of € 1.06 billion.

In its original decision, the Commission contended that Intel abused this dominant position by implementing a strategy aimed at foreclosing Advanced Micro Devices ("AMD") from the market. This strategy allegedly consisted of: (i) granting rebates and payments to OEM customers on the condition that they purchase, from Intel, all or almost all of their x86 CPUs (either in total or for a particular segment of the OEM market); (ii) granting rebates and payments to OEM customers on the condition that they delay or postpone the sale of computers containing AMD chips; and (iii) awarding payments to retailer Media-Saturn, conditional on the exclusive sale of computers containing Intel's x86 CPUs (see VBB on Competition Law, Volume 2009, No. 5, available at www.vbb.com).

The General Court's judgment accepted virtually all of the Commission's findings and legal conclusions. Assessing the available evidence, the General Court first considered that the Commission had discharged its burden of proof that Intel had subjected its rebates to an unwritten condition for exclusivity.

With respect to its legal assessment, the General Court applied a form-based approach, concluding that exclusivity rebates are essentially a per se abuse, unless they are objectively justified. According to the Court, exclusivity-based rebates are by their nature capable of restricting competition without any need to assess the relevant facts and circumstances surrounding the rebate. This is because competitors for the contestable share of a customer's requirements would always face a disadvantage as their pricing would also have to account for the loss of the customer's discount for the non-contestable share of the market. According to the Court, even if the competitor could cover its costs (as under an as-efficient competitor test) and make an attractive offer, an abuse existed solely because exclusivity made it more difficult for the competitor to compete.

Because the Court concluded that it was not necessary to assess the relevant facts and circumstances surrounding the rebate, the Court found that the actual amount of the rebate was irrelevant. According to the Court, exclusivity rebates involving very small amounts were still capable of restricting competition even if as-efficient competitors were able to match Intel's pricing. Similarly, the Court concluded that the market coverage of the rebates was irrelevant (although it added an alternative conclusion that exclusivity rebates covering 14% of the total market were "significant"). The Court also concluded that rebates could be subject to these strict rules even if they were not conditional on a customer obtaining all or most of its purchases on the relevant market from the dominant company, concluding that it was sufficient to show that they were conditional on a customer obtaining "all or most" of its purchases in a particular segment from the dominant company.

The Court also appears to have significantly expanded the EU's jurisdiction, concluding that the Commission had jurisdiction even over Intel's sale of x86 CPUs to customers outside the EEA. The Court considered that Intel's actions were at least capable of affecting the structure of competition in the EEA for downstream products and, thus, had substantial, immediate and foreseeable effects in the EEA, at least when all affected products were taken into account. In addition, the Court found that Intel's practices were "implemented" in the EEA based on the fact that its customers sold, in the EEA, products (i.e., computers) incorporating Intel's products, even if those customers purchased Intel's products outside the EEA.

Finally, the Court concluded that the fine imposed by the Commission was proportionate, finding that it was appropriate in light of the facts of the case.

The case would indicate that any incentive by a dominant firm that might be seen as linked to loyalty risks attracting a large fine regardless of its likely effects on the market. Indeed, the Court declined to investigate the Commission's application of the as-efficient competitor test, deeming it irrelevant, and failed to distinguish other cases where the Commission and Courts indicated that some degree of market foreclosure was required. Although the Commission prevailed before the Court, the judgment raises serious questions about the EU's jurisdiction and the legitimacy of the way the Commission sometimes attempts to infuse some form of economic thinking into abuse of dominance cases.

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