- Professional News
- 15 September 2017
The Intel case: The European Court of Justice refers the case back to the General Court
The European Court of Justice has in its judgment of 6 September 2017 set aside the judgment of the General Court of the European Union in the Intel case, stating that the General Court erred in law by not examining all Intel's arguments with regarding to the AEC test (as efficient competitor test), which the Commission had also taken into consideration in the contested Commission decision.
The Commission had – in spite of its decision that the contested rebates were by their very nature capable of restricting competition and that it was therefore not necessary to examine all the circumstances of the case – nevertheless carried out an in-depth examination of those circumstances, including applying an AEC test to assess whether Intel's rebate practice was suitable for foreclosing as efficient competitors.
The General Court had in its judgment found that it was not necessary to examine whether the Commission had applied the AEC test in the right way and that it was therefore not necessary to examine the correctness of the alternative calculations argued by Intel.
The Court of Justice disagreed. The Court of Justice held that the test had been of real significance in the contested Commission decision for assessing the foreclosure effect of the rebates. The General Court had therefore been required to examine the AEC test in question, why the case was referred back to the General Court.
In 2009, the Commission imposed on Intel a fine of EUR 1.06 billion for abuse of Intel’s dominant position on the world market for CPUs. The Commission found that Intel had abused its dominant position by offering Dell, Lenovo, HP and NEC rebates if these companies covered all or nearly all of their requirements at Intel. Furthermore, the distributor Media-Saturn received payment solely for selling computers with Intel components. Finally, Intel paid HP, Acer and Lenovo for postponing or restricting the distribution of products with CPUs from AMD.
In the Commission's opinion, these rebates and payments constituted an overall strategy aimed at foreclosing the competitor AMD from the market.
Intel then brought an action before the General Court for the annulment of the Commission’s decision or at least a substantial reduction of the fine. In 2014, The General Court found for the Commission, and Intel subsequently appealed this decision to the Court of Justice.
Intel submitted in its appeal to the Court of Justice that the General Court erred in law by not examining the disputed rebates taking into account all the relevant circumstances, and Intel also put forward a number of procedural pleas.
The Opinion of the Advocate General
Advocate General Wahl delivered in October 2016 his Opinion in the matter. The Advocate General considered that the General Court erred in law by finding that exclusivity rebates constitute a se¬parate category of rebates which do not require examination of all the circumstances, and thereby a third category of rebates which are inherently illegal. According to the Advocate General, there are only two types of rebates; namely quantity-based rebates, that are presumed to be legal, and loyalty rebates, which are presumed to be illegal. The Court should therefore have examined the rebates like any other form of loyalty rebate, including whether the rebates had efficiency gains that could outweigh the negative effects of the rebates. Against this background, the Advocate General found that the case should be referred back to the General Court.
The decision of the European Court of Justice
Initially, the European Court of Justice states that Article 102 TFEU is not intended to prevent un-dertakings from acquiring a dominant position on their own merit, nor is it intended to ensure that competitors less efficient than the dominant undertaking remain on the market. The Court of Justice then goes on to state that Article 102 prohibits practices of dominant undertakings having the effect of excluding competitors as efficient as the dominant undertaking, why not all price competition is legitimate.
In this connection, the Court of Justice recalls – and with reference to the Hoffmann-La Roche judgment – that it has already been established in the case law of the Court of Justice that a dominant undertaking which ties purchasers by an obligation or promise on their part to cover all or a significant part of their requirements exclusively from the dominant undertaking abuses its dominant position contrary to Article 102. This is the case whether the obligation is matched by a rebate or not. The same applies if the undertaking – without tying the purchaser by a formal obligation – applies a loyalty rebate scheme which is conditional on the purchaser obtaining all or most of its requirements from the dominant undertaking.
However, the Court of Justice clarifies this case law by stating that when in the course of the ad-ministrative procedure, evidence of the dominant undertaking is provided in support of its conduct not being capable of restricting competition and not producing the foreclosure effects, then the Commission is required to examine all the circumstances of the case, including (i) the extent of the undertaking’s dominant position on the relevant market; (ii) the share of the market covered by the challenged practice; (iii) conditions and arrangements for granting the rebates in question; (iv) the duration and the size of the rebates; as well as (v) the possible existence of a strategy designed to exclude competitors that are at least as efficient.
The Court of Justice thus states that it is possible for dominant undertakings to rebut the presumption of anti-competitive effects in relation to loyalty-enhancing rebates and that in such ca¬ses the Commission is required to examine the ability of the rebate scheme to exclude as efficient competitors from the market.
The capacity of the rebate scheme to foreclose
The Court of Justice also emphasises that an effects-based analysis of the exclusion capacity of the rebate scheme is also of great importance for assessing whether the rebate scheme can be considered objectively justified, because the anti-competitive foreclosure effects of the rebate scheme are outweighed by efficiency gains for the benefit of the consumers. This balancing of the positive and negative effects of the rebate scheme can only be carried out if an examination of the exclusion capacity in relation to at least as efficient competitors has been carried out.
The Commission had in its decision found that the rebates in question by their very nature were capable of restricting competition, and that it was therefore not necessary to examine all circumstances of the case. Nevertheless, the Commission carried out an in-depth examination of the circumstances, including applying an AEC test to assess whether Intel's rebate practice was capable of excluding as efficient competitors.
The European Court of Justice refers the case back to the General Court
The General Court found in its judgment that it was not necessary to examine whether the Com-mission had applied the AEC test in the right way and that it was also not necessary to examine whether the alternative calculations put forward by Intel were correct as the exclusivity rebates according to the General Court by their very nature were so detrimental that it was not necessary to demonstrate that they were suitable for excluding as efficient competitors.
The Court of Justice did not agree. The Court of Justice found that the AEC test had had a significant impact on the Commission's decision and stated that if the Commission conducts an examination of the capacity of the rebate scheme to foreclose competitors that are at least as efficient, the General Court is required to examine all arguments that raise doubts about the Commission's conclusion regarding the capacity to foreclose.
Since the General Court had not examined Intel's arguments regarding the AEC test, the Court of Justice referred the case back to the General Court.
Comments by Bech-Bruun
The judgment has been awaited for a long time and for good reason. The Court of Justice has set aside the judgment of the General Court, referring to a question that has been vehemently debated, namely whether and to what extent it is necessary to examine the effects of loyalty rebates.
The Court of Justice has referred the case back to the General Court, which shall now examine the factual and economic evidence in the case in order to assess whether the rebates in question were capable of having foreclosure effects on as efficient competitors. Thus, it will take several years before the case again reaches the Court of Justice.
The judgement will be regarded as a victory for the proponents of a more effects-based approach to the assessment of rebate schemes established by dominant undertakings. Even though the Court of Justice confirms existing case law according to which exclusivity rebates are presumed to have anti-competitive effects, the Court of Justice makes it clear that dominant undertakings, however, have the possibility of rebutting this presumption if they can provide evidence to support that the rebate scheme in question is not capable of restricting competition.
If the dominant undertaking provides such evidence, it must be taken into account for the assessment of the legality of the rebate scheme. However, instead of introducing a requirement that the competition authorities demonstrate the anti-competitive effects of the rebate scheme, it follows from the judgment that it is for the dominant undertaking to demonstrate that the rebate scheme does not have such effects.
The judgment can also be seen as a confirmation that the AEC test may also be relevant in relation to the assessment of loyalty rebates, however to a still unknown extent. The European Court of Justice has already established in previous case law that the AEC test is re¬levant in relation to anti-competitive pricing practices (e.g. Post Danmark I) and margin squeeze (e.g. TeliaSonera and Deutsche Telekom), but this judgment confirms that the AEC test can also be relevant in relation to rebates that may potentially lead to foreclosure effects on competitors.
Finally, the judgment is a confirmation that dominant undertakings have access to an efficiency defense in relation to loyalty rebates if these can be objectively justified.
However, the judgment also leaves certain questions unanswered.
The Court of Justice does not clarify what is meant by the concept of “capability to restrict competition”. While it is clear from case law that it is not necessary to demonstrate actual adverse effects on competition, previous case law seems to suggest that the anti-competitive effects must be likely in order to infringe Article 102. The Court of Justice does not directly deal with this question, but it is noted that, in its own observations, the Court of Justice has only used the term "capable of restricting competition" and does not state that the effects must be likely.
The Court of Justice also does not directly state how many different categories rebate schemes can be divided into under EU competition law. The judgment, however, appears to be an end to the General Court's introduction of a third category of rebates which never requires an examination of the circumstances of the case. Thus, practice again seems to be the existence of quantity-based rebates that are presumed to be legal and loyalty rebates that are presumed to be illegal