Highest ever anti-trust fine upheld for exclusivity rebates

16 June 2014

Richard Eccles

The European General Court has given its judgment on Intel's appeal against the European Commission's decision finding that it had abused its dominant position in the supply of x86 central processing units (CPUs), a type of computer chip, by paying financial incentives or rebates to customers. The customers were mostly computer manufacturers and they were given incentives to purchase all or most of their CPU requirements from Intel. The fine imposed by the Commission of €1.06 billion was the highest ever fine imposed for an EU anti-trust infringement and this fine has been upheld by the General Court. The General Court's judgment is strongly worded and focuses on the inevitability of  foreclosure of the market due to the nature of the conduct and rebates in question, without needing to show actual anti-competitive effects.

The Court stated that a finding that an exclusivity rebate (granted by a dominant undertaking) is illegal does not necessitate an examination of the circumstances of the case. There is no need to show foreclosure on a case by case basis and no need to show actual anti-competitive effects in this instance. It was enough that the conduct of Intel, as a dominant undertaking, was capable of restricting competition.

It is interesting to note that that over five years elapsed from the date of the European Commission's decision, 13 May 2009, to the date of the General Court's judgment on Intel's appeal (12 June 2014). The Commission found that Intel had abused a dominant position during a total period of over five years by giving rebates to computer manufacturers such as Dell, HP, Lenovo and NEC, conditional on the manufacturer purchasing exclusively from Intel or purchasing at least specified proportions of its CPU needs for desktop and notebook computers or 95% of its CPU needs for business desktop computers from Intel. Such rebates foreclosed the main competitor and complainant, AMD. In other instances, Intel was found to have made payments to a computer manufacturer on condition of postponing the launch of a notebook computer containing AMD’s CPUs and in another instance Intel was found to have made payments to another computer manufacturer based on that manufacturer supplying computers containing AMD CPUs only to specified types of customer.

The General Court found that such rebates and financial incentives, being provided by Intel as a dominant undertaking and an unavoidable trading partner, had an inherent capability of making market access more difficult for competitors such as AMD. Such exclusivity rebates made it structurally more difficult for a competitor to offer an attractive price and thus gain market access. The competitor would need not only to offer a more attractive price than Intel's, but also to compensate the customer for the loss of the exclusivity rebate that it would obtain from Intel for purchasing the relevant requirements from Intel.

These conclusions were not affected by the fact that in certain instances, the relevant supply contracts were terminable by the customer on short notice, for example 30 days, because such financial incentives for exclusive purchasing nonetheless by their nature interfered with competition.  Also there is no need for any formal obligation of exclusive purchasing to be shown, rather it was sufficient that the financial incentives provided by Intel, or the financial disadvantages avoided as a result of Intel's payments, had the same or a similar result.  Further, the General Court stated that an undertaking in a dominant position cannot justify exclusivity rebates or quasi-exclusive purchasing requirements in a specific segment by saying that the customer is free to obtain the relevant product from its competitors in other segments. Competitors should, the Court stated, have the opportunity to compete on the merits in the entire market.

Importantly, the General Court stated that there is no need for the European Commission to prove direct damage to customers as a result of the payments made by Intel. The fact that customers might have decided to purchase from Intel for independent business reasons did not mean that the rebates were not capable of inducing customers to buy exclusively from Intel. Any financial advantage granted by a dominant supplier on condition of exclusivity was necessarily capable of inducing the customer to opt for that supplier, and the Court stated that it was irrelevant that the customer might also have opted to use the dominant undertaking as its sole supplier in the absence of the exclusivity rebate.

The Court stated that a finding that an exclusivity rebate (granted by a dominant undertaking) is illegal does not necessitate an examination of the circumstances of the case. There is no need to show foreclosure on a case by case basis and no need to show actual anti-competitive effects in this instance. It was enough that the conduct of Intel, as a dominant undertaking, was capable of restricting competition.

The fine of €1.06 billion which had been imposed by the European Commission represented 4.15% of Intel's annual turnover. The General Court concluded that the level of the fine was appropriate to the circumstances of the case and upheld the full amount of the fine.

For further information, please contact Richard Eccles (richard.eccles@twobirds.com) or your usual EU & Competition Group contact.

Authors