In a previous article dated the 13th of September 2024, and titled ‘THE ‘GOOGLE’ CASE: THE CJEU CONFIRMS FINE FOR ABUSE OF DOMINANT INTERNET POSITION’, we reported on the Court of Justice of the European Union’s (CJEU) upholding of the 2.4 billion Euro fine imposed by the European Commission (the “Commission”) against Google in 2017, for the company’s abuse of its dominant internet position by means of preferential indexing in its comparison service and online product offers. Now, in this article, we will report on the CJEU’s judgment of the 24th of October (C-240/22 P) (“the Judgment”), which, by contrast to the ‘Google Case’, repeals a fine imposed on another multinational company on the same legal grounds: an abuse of dominant position.
For context, we must first recapitulate the twenty-year history behind this legal dispute: Intel Corporation Inc. (“Intel”) is a company incorporated in 1989 in Wilmington, Delaware (U.S.A.) and dedicated to the development and manufacturing of computer microchips and processing units (CPUs). Following a complaint lodged by Advanced Micro Devices Inc. (“AMD”) on the 18th of October 2000, – AMD being the main competitor of Intel in the x86 CPU microprocessors (“x86 CPUs”) market – the Commission launched an investigation into Intel’s alleged breaches of EU antitrust law. Some years later, on the 13th of May 2009, the Commission adopted a decision in which Intel was found guilty of a continuous infraction of Article 102 of the Treaty on the Functioning of the European Union (TFEU) and Article 54 of the Agreement on the European Economic Area (EEA) (C(2009) 3726) (the “Decision”). Both Articles prohibit the abuse of a dominant position within the internal market.
At this stage, it is worth referring to the definition of abuse of dominant position provided in our previous article:
“An abuse of dominant position occurs when a company with a position of domination in a market behaves in such a way that may eliminate or restrict free
competition, both in the market in which it principally operates, as well as
in other markets into which it may expand.
A dominant position in a market is not deemed illegal under the laws of the European Union. However, companies which find themselves in such a position must take extra care to avoid that their dominant position does not become an abuse thereof.”
In this Decision, Intel was deemed to have been in breach of Articles 102 TFEU and 54 EEA on the grounds that, between October 2002 and December 2007, it implemented a strategy aimed at foreclosing its main competitor, AMD, from the market for x86 CPUs.
This strategy was two-fold: firstly, Intel granted loyalty rebates to four original equipment manufacturers (“OEMs”) of x86 CPUs – namely Dell, Lenovo Group Ltd. (Lenovo), Hewlett-Packard Company (HP), and NEC Corp. – on the condition that those OEMs exclusively sold computers containing Intel’s x86 CPUs. Intel also awarded payments to Media-Saturn Holding GmbH (“MSH”), the largest desktop computer distributor in Europe, on the same condition. Secondly, Intel was found to have undertaken practices constituting, in EU antitrust terms, ‘naked restrictions’. In the EU Directorate General for Competition’s new draft guidelines on the application of Article 102 TFEU (issued on the 20th of August 2024), these are defined in paras. 54 and 60(c) as conduct by a dominant undertaking that holds no economic interest for that undertaking except that of restricting competition. Briefly put, the practices imputed to Intel included paying three OEMs (HP, Acer Inc., and Lenovo) to postpone or cancel the launch of AMD’s x86 CPU-based products, or to place restrictions on their distribution.
The result of this Decision was the imposition of a EUR 1.06 billion fine on Intel. This is the point at which Intel and the Commission began to lodge various appeals contesting the fine, and which have only just been partially resolved by the Judgment issued last month. The appeal proceedings may be summarised chronologically:
- 22 July 2009: Intel brings an action before the European General Court (EGC) and CJEU for the annulment of the Decision.
- 12 June 2014: the EGC dismisses the action in its entirety, on the basis that the Commission was not required to demonstrate the foreclosure capability of Intel’s loyalty rebates on a case-by-case basis (this capability is demonstrated by applying the as-efficient competitor test (“AEC test”)). The Commission had successfully applied the AEC test, without the need to consider the case-specific circumstances proposed by Intel, and, therefore, sufficiently proved that said rebates restricted competition.
- 26 August 2014: Intel lodges an appeal against the EGC’s judgment of 12 June 2014.
- 6 September 2017: the CJEU sets aside the EGC’s judgment of 12 June 2014, and refers the case back to the EGC for reconsideration. Significantly, in paras. 138-39, the CJEU ruled that loyalty rebate schemes may be lawful if the company applying them proves that they are not capable of restricting competition by producing foreclosure effects against its competitors. See our article of the 27th of January 2023, titled: ‘CAN COMPANIES WITH A DOMINANT MARKET POSITION USE EXCLUSIVITY CLAUSES IN THEIR DISTRIBUTION SYSTEMS?’ Therefore, the EGC was ordered to rerun the AEC test, this time including the case-specific circumstances proposed by Intel.
- 26 January 2022: the EGC partially throws out the Decision, admitting in par. 482 that the AEC test was incorrectly run by the Commission, since (according to paras. 525-27) it considered neither the market share covered by Intel’s loyalty rebates, nor the duration of said rebates. The market share covered by the rebates was negligible (0.2-3% per year), and they were only granted for a few months, with the OEMs being able to terminate the rebate agreements with 30 days’ notice (paras. 102-5). Therefore, the Commission could not have accurately determined that Intel’s loyalty rebates and payments to MSH were capable of having the anticompetitive foreclosure effects which would have resulted in an infringement of Articles 102 TFEU and 54 EEA. Since Intel’s violation of naked restrictions were upheld, the EGC merely reduced the fine to EUR 376 million, rather than throw it out entirely.
- 5 April 2022: the Commission lodges an appeal against the EGC’s partial throwing out of the Decision. The Commission contends that the CJEU should: (i) set aside the EGC’s judgment of 26 January 2022; and (ii) refer the case back to the EGC.
- 5 August 2022: the Federal Republic of Germany is granted leave to intervene in the proceedings in support of the order sought by the Commission.
This now brings us to the present day, when, on the 24th of October 2024, the CJEU dismissed the appeal lodged by the Commission and the Federal Republic of Germany, ordering both parties to bear their own costs, as well as those incurred by Intel. The significant findings of the court are as follows:
- In order to find that the conduct of the dominant undertaking is abusive, “it is necessary, as a rule, to demonstrate, […] that the conduct has the actual or potential effect of restricting that competition by excluding equally efficient competing undertakings from the market” (par. 176).
- Said demonstration, which may entail the use of different analytical templates depending on the type of conduct at issue in a given case, “must be made, in all cases, in the light of all the relevant factual circumstances, irrespective of whether they concern the conduct itself, the market or markets in question, or the functioning of competition on that market. The demonstration must, moreover, be aimed at establishing, on the basis of specific, tangible points of analysis and evidence, that the conduct, at the very least, is capable of producing exclusionary effects” (par. 179).
- The AEC test is the first port of call for assessing the capability of loyalty rebates to foreclose a competitor as efficient as the dominant undertaking (par. 181).
- Nevertheless, the AEC test is merely one of the ways of conducting such assessment, since it seeks to consider, in abstracto, whether the as-efficient competitor is capable of reproducing the conduct of the dominant undertaking (par. 181).
- Notwithstanding point (4) above, if an undertaking submits evidence that its impugned conduct was incapable of restricting free competition (in particular, of producing the alleged foreclosure effects), then the Commission must carry out an analysis to determine the existence of that capability, in the light of all relevant factual circumstances (par. 330).
After twenty years of litigation, the end to this dispute appears to be on the horizon. However, this Judgment is not the final word on the matter, since Intel’s annulment procedure against the Commission in respect of the EUR 376 million fine imposed for Intel’s infringement of ‘naked restrictions’ is still pending.
And yet, to be sure, the commercial scale of this dispute should not be underestimated: Intel remains – by far – the global leader in the manufacture of x86 CPUs, with a nigh 70% market share, and has managed to avoid a fine of some EUR 700 million. However, the crucial point here is that the legal ramifications of this case will be as equally wide-reaching as its commercial ones: the conclusions to both the ‘Intel case’ and the ‘Google case’ (explained in our previous article) have coincided in the wake of the issuance of the new draft guidelines on the application of Article 102 TFEU.
The guidelines set forth, a priori, three categories of conduct which are presumed to create foreclosure effects: (i) “conduct for which it is necessary to demonstrate a capability to produce exclusionary effects” (par. 60(a)); (ii) “conduct that is presumed to lead to exclusionary effects” (par. 60(b)); and (iii) “naked restrictions” (par. 60(c)).
The key point here is that, in par. 60(b), “rebates conditional upon exclusivity” is listed as one of the examples of conduct that is presumed to lead to exclusionary effects. However, paras. 176 and 179 of the Judgment has now rendered this approach invalid, since it establishes the requirement to demonstrate said exclusionary effects.
In this way, the guidelines are incompatible with the presumption-based approach to the possible foreclosure effects of loyalty rebates taken in said guidelines. It seems inevitable, therefore, that the new guidelines will be required to implement the rulings set forth in the judgments to both cases, especially the former. The tectonic plates of EU antitrust law are shifting once again.
Sebastian Ricks
Vilá Abogados
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8th of November 2024
