Ireland: European Court Of Justice Provides Important Clarification On When Rebates Can Be An Abuse Of Dominance

INTRODUCTION

On 6 September 2017, the European Court of Justice ("ECJ") handed down judgment in Intel v. Commission,¹ one of the most important abuse of dominance cases to come before the courts in recent years. The ECJ's decision, which overturns in part an earlier ruling of the EU General Court ("GC"), moves the analysis of rebates offered by dominant companies away from a strict form-based approach and endorses an effects-based approach. The decision is likely to have a significant impact on the manner in which such cases are investigated by competition authorities in the future.

BACKGROUND

The case arose from a challenge brought by Intel against a European Commission decision in 2009 in which the Commission found that Intel had abused its dominant position in the market for x86 central processing microchips through a system of "exclusivity" rebates. The Commission had found that the rebates granted by Intel were conditional on customers buying all or most of their x86 processors from Intel, and formed part of a strategy by Intel to drive its rival AMD from the market. The Commission imposed a then-record fi ne of €1.06 billion for breach of Article 102 of the Treaty on the Functioning of the European Union, which prohibits abuse of dominance.

Intel appealed to the GC, which dismissed Intel's case in its entirety in June 2014.² Notably, the GC found that loyalty rebates of the kind used by Intel when granted by dominant companies were "by their very nature" exclusionary without the need for the Commission to investigate their competitive effect or the circumstances in which they were granted.

Intel appealed the GC's judgment to ECJ, asserting that the GC had erred in law in failing to examine the rebates at issue in light of all the relevant circumstances. Intel also cited fi ve other grounds of appeal, including in relation to alleged procedural flaws in the Commission's treatment of information obtained from third parties during the course of the investigation.

THE ECJ'S JUDGMENT

In a judgment notable for its brevity and clarity, the ECJ upheld Intel's primary ground of appeal that the GC had failed to examine the rebates in light of all the relevant circumstances of the case. The ECJ clarified that exclusivity rebates granted by a dominant company are not per se anticompetitive, but instead must be analysed by the Commission to determine, on the basis of factual and economic evidence available, whether they are capable of restricting competition taking into account all the circumstances of the case.

The ECJ gave further guidance on the circumstances to be taken into account. It found that the Commission was required to consider not only the extent of the company's dominant position, but also the share of the market covered by the challenged practice, the conditions and arrangements for granting the rebates in question, their duration and their amount, as well as the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market.

The Commission is also required to consider whether the exclusivity rebates are objectively justified on the ground that the exclusionary effects arising from them are counterbalanced, or outweighed, by advantages in terms of efficiency which also benefit the consumer. The ECJ held that this balancing of favourable and unfavourable effects can be carried out only after an analysis of the intrinsic capacity of the rebates to foreclose competitors which are at least as efficient as the dominant undertaking, known as the "as efficient competitor test" ("AEC test").

The ECJ was particularly critical of the GC's failure to consider Intel's arguments concerning the manner in which the AEC test had been applied by the Commission.

The ECJ has remitted the case back to the GC to decide whether to uphold the Commission decision finding that Intel had abused a dominant position taking account of the ECJ's guidance on how to assess rebates.

NO DISTINCTION BETWEEN "FORMAL" AND "INFORMAL" INTERVIEWS

While the ECJ ultimately dismissed the procedural challenges brought by Intel, it nonetheless made an important clarification on the treatment of evidence obtained by the Commission during third party interviews in the course of the investigation. The ECJ rejected a distinction between "informal" and "formal" interviews and reiterated that the Commission must comply in all cases with the requirements under applicable legislation³ to record interviews when gathering information for the purposes of its investigation.

COMMENT

The ECJ's decision is a significant development as it endorses categorically an "effects-based" approach to enforcement in abuse of dominance cases, in particular those relating to pricing behaviours. As a result, the Commission will no longer be able to rely on a simple assertion that certain pricing or rebate practices are inherently anti-competitive.

Similarly, at a national enforcement level, competition authorities, including the Competition and Consumer Protection Commission in Ireland, are likely to have to focus to a much greater degree on the evidence of anti-competitive effect underpinning any allegation of abuse of dominance through rebates or other pricing policies.

For businesses which have dominant market positions, the ECJ's judgment is welcome as it clarifies that rebates granted by those companies cannot be deemed illegal per se under EU competition rules simply on the basis of the form that they take. It emphasises the importance of taking into account all of the relevant circumstances when assessing the competitive impact of a particular pricing policy. Dominant companies should nonetheless continue to adopt a careful approach to their pricing policies, in particular in ensuring that there is a clear and objectively justifiable basis underpinning their rebates for customers.

Footnotes

1 Case C-413/14P Intel v. Commission, 6 September 2017.

2 Case T-286/09 Intel v. Commission, 12 June 2014.

3 Council Regulation (EC) No 1/2003 on the implementation of the rules on competition laid down in Articles 101 and 102 of the Treaty (16 December 2002) and Commission Regulation (EC) No 773/2004 relating to the conduct of proceedings by the Commission pursuant to Articles 101 and 102 of the Treaty (7 April 2004).

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.