In May 2009, the European Commission (EC) fined Intel EUR1.06 billion for abusing its dominant position in the x86 microprocessor market (CPUs). The EC concluded that Intel had granted anticompetitive loyalty rebates to computer manufacturers, and paid manufacturers to halt or delay the launch of products containing rivals’ x86 CPUs and limited the sales channels available to those products (so-called “naked restrictions”).
Following appeals by Intel (leading to an initial dismissal by the General Court in 2014 and the annulment of the General Court’s judgment by the ECJ in 2017), the General Court eventually annulled the rebates part of the EC’s decision and quashed the fine of EUR 1.06bn (the Renvoi decision).
The ECJ has now dismissed the EC’s subsequent appeal, upholding the General Court's Renvoi decision. The EC had argued that the General Court's review of its assessment of the as-efficient-competitor test (AEC) test was flawed for reasons of procedural irregularities, errors of reasoning, and evidence distortion. The ECJ rejected all the EC's grounds of appeal, and provided much needed guidance on open questions relating to (i) the role of the AEC test in finding that conduct constitutes an abuse and (ii) the burden of proof in establishing loyalty rebates as an infringement under Article 102 TFEU. Significantly, the judgment sends the EC’s August 2024 draft guidelines on exclusionary abuses (Draft Guidelines) back to the drawing board, as the presumptions-based approach to loyalty rebates seems incompatible with the conclusions reached by the ECJ.
The AEC test once again takes center stage
A key issue the ECJ was called upon to examine was the role of the AEC test in assessing the potential abusive nature of loyalty rebates.
The ECJ notes that the capability of loyalty rebates to foreclose a competitor as efficient as the dominant undertaking “must be assessed, as a general rule, using the AEC test”, even though the test is “merely one of the ways” to assess the undertaking’s conduct (paragraph 181). The ECJ clarifies that the positive or negative result of the AEC test is determined by:
- A comparison of the “contestable share” and the “required share” of the rebate. The contestable share is the share of their demand that customers were willing and able to switch to (an) alternative supplier(s), whereas the required share is the proportion of a customer’s requirements that a competitor as efficient as Intel must obtain in order for it to be able to enter the market profitably.
- The “effective price” and its foreclosure effects.
- The effective price is determined by what a competitor as efficient as Intel would have had to offer to an Original Equipment Manufacturer (OEM), in order to compensate the OEM in the long term for the loss of the advantage granted by Intel.
- Foreclosure occurs when the effective price is below Intel’s average avoidable cost (i.e., all costs, including both variable costs and product-specific fixed costs, that could have been avoided by not engaging in a predatory strategy—see paragraph 308 of the Judgment).
- Finally, the assessment needs to take into account the wider economic context of the rebate scheme, including the period of time during which the rebate scheme was applied, and its overall market coverage.
Protecting competition, not competitors
The Judgment recalls the principle that competition law protects competition and not competitors. The requirement to apply the AEC test when assessing loyalty rebates under Article 102 TFEU is a manifestation of this principle, but the principle itself is also reiterated numerous times by the ECJ.
In very clear terms, the ECJ states that it is not the purpose of Article 102 TFEU to (i) prevent an undertaking from gaining a dominant position on its own merits, (ii) ensure that less efficient competitors stay active on the market, and (iii) prohibit every conduct with exclusionary effects, as exclusion or marginalization, based on vigorous competition on the merits, of competitors that are less efficient, and so less attractive to consumers, is not detrimental to competition (paragraph 175).
Bad timing? Presumptions and (draft) guidelines
The timing of the Judgment will have a significant impact. The ECJ has ruled in the wake of the EC’s consultation round on the Draft Guidelines on exclusionary abuses—our alert discusses in detail the approach taken by the EC in the Draft Guidelines. Significantly, the Draft Guidelines take a presumption-based approach, by categorizing different forms of abuse as (i) “naked restrictions”, (ii) conduct that is likely to constitute an abuse and (iii) other types of behavior with a specific legal test or subject to an effects-based analysis by the EC.
While the new approach taken by the EC is far from uncontroversial, this framework of analysis seemed to be consistent with the General Court’s Renvoi decision, at least when it comes to loyalty rebate schemes. The General Court stated that while “a system of rebates set up by an undertaking in a dominant position on the market may be characterized as a restriction of competition, since, given its nature, it may be assumed to have restrictive effects on competition, the fact remains that what is involved is, in that regard, a mere presumption and not a per se infringement of Article 102 TFEU (…)”. This initial conclusion by the General Court did not go so far as to qualify loyalty rebates as naked restrictions, but it did classify such schemes as conduct that is presumed to be illegal (see paragraph 124 of the Renvoi decision). Logically, such a conclusion has far-reaching consequences, as the undertaking bears the burden of providing evidence with sufficient probative value to reverse the presumption of illegality (see paragraphs 165-166 of the Renvoi decision).
However, this presumption-based analysis of loyalty rebates appears to have been overturned by the ECJ. The ECJ asserts that, in order to find an abuse, “it is necessary, as a rule, to demonstrate” that the relevant conduct (i) does not entail competition on the merits; and (ii) has the actual or potential effect of restricting competition by excluding, or hindering the growth of, competitors that are as efficient as the dominant undertaking (paragraphs 176-177). Moreover, the “actual or potential [restrictive] effect” of the relevant conduct must be demonstrated based on “specific, tangible points of analysis and evidence, that that conduct, at the very least, is capable of producing exclusionary effects” (paragraph 179).
Next steps
The Judgment is not the final word, and will likely impact two other pending cases between Intel and the EC:
- An annulment procedure against a EUR376 million fine the EC reimposed in September 2023 in relation to the “naked restrictions”, involving Intel’s payments to three computer manufacturers to delay the sales of products that contain microprocessors of competitors. Intel is claiming that the fine is disproportionate on the basis of the annulment decisions of the loyalty rebate schemes (see application in case T-1129/23).
- An additional claim for compensation of approx. EUR593m default interest on the repaid fine, on top of the EUR38m interest amount already paid by the EC to Intel (see application in case T-417/22).
