CJEU mandates effects-based assessment of loyalty rebates under Article 102 TFEU

In June 2014, the General Court upheld the Commission's decision that the rebate system in that case was unlawful. The Court considered that rebates given in return for loyalty were automatically illegal and that it was not necessary to show, as the Commission did, that the rebates restricted competition.

The appeal to the CJEU

Intel appealed the General Court's ruling to the CJEU and argued that the General Court erred in law by concluding that the rebates in question were inherently capable of restricting competition; it was wrong to proceed on the basis of "abstract considerations rather than likely or actual effects"; and it should have taken into account a number of factors such as the market coverage of the practices, their duration, falling prices and a lack of foreclosure, as well as the conclusions that should properly have been drawn from the Commission's analysis of the 'as-efficient competitor' test.

The CJEU's judgment

Largely following the position of Advocate General Wahl, the CJEU enumerated the principles from Hoffman-La-Roche but specified that the "case-law must be further clarified in the case where the undertaking concerned submits, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects."

The Court makes explicit that when supporting evidence is produced, the Commission and the reviewing Courts must take seriously any arguments showing that the practice is not capable of having exclusionary effects on competition. The Commission shall analyse "all the circumstances" of the rebates and is required to take into account the extent of the undertaking's dominant position, the share of the market covered by the challenged practice, the conditions and arrangements for granting the rebates, their duration, their amount and "the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market."

A parallel can be drawn with the restrictions by object under Article 101(1) TFEU for which the parties can also show under Article 101(3) TFEU that an agreement is not capable of having restrictive effects on competition and therefore escape the prohibition. The CJEU has now clarified that a similar principle applies in Article 102 TFEU. The CJEU insists on the fact that Article 102 TFEU is not designed to prevent an undertaking from acquiring a dominant position in a market, nor does it seek to ensure that less efficient competitors should remain on the market, noting that "it is in no way the purpose of Article 102 TFEU to prevent an undertaking from acquiring, on its own merits, the dominant position in a market" and that "not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation". 

The resurgence of the Commission Guidance Paper on Article 102

There is an undeniable alignment of the reasoning by the CJEU in its Intel judgment and the Commission Guidance on enforcement priorities under Article 102[1].

Thus, for those who would like to obtain more guidance on how to apply the 'effect-based' test to exclusivity rebates and exclusionary abusive practices, in general, the Guidance paper would definitely be of great relevance.

The outstanding question of the "duration" of the exclusivity rebates

Advocate General Wahl stated in his opinion that the "overall period during which the appellant applies exclusivity rebates and payments vis-à-vis a customer" should be irrelevant and only the stricto sensu duration of the rebate arrangement contained in the agreement should be looked at. He also indicated that "the short duration of an arrangement does not exclude that the arrangement is capable of having anticompetitive effects"[2].

Unfortunately, the CJEU did not bring further clarity on this point and only stated that 'duration' should be assessed without providing any further guidance.

Within the context of competition investigations, no such a thing as an informal interview exists

The Intel case will also have an impact on the way the Commission runs future competition investigations by forcing the investigators to redesign the way they gather evidence.

First, the CJEU considers that within the context of a competition law investigation the General Court erred in making a distinction between formal interviews that should be recorded, and informal interviews that do not have to be.

The CJEU points out that, during one interview, questions were asked to the most senior executives of Intel's largest customer and had an objective link to the substance of the investigation. Thus, the Commission's interview "was aimed at the collection of information relating to the subject matter of its investigation concerning Intel".

Thus, according to the CJEU, such an interview should not be characterised as an informal interview. No distinction should be made among the interviews and "the Commission is required to record, in a form of its choosing, any interview which it conducts, under Article 19 of Regulation No 1/2003, for the purpose of collecting information relating to the subject matter of an investigation".

The CJEU also considers that the General Court erred in accepting that the disclosure, during the administrative procedure, of a non-confidential version of an internal Commission note about the interview, had remedied the lack of a record of that meeting.

The qualified effects test to establish jurisdiction is confirmed

The CJEU confirmed for the first time the jurisprudence of the General Court that the so-called "qualified effects test" is valid to establish jurisdiction, i.e., conduct implemented outside Europe, when "it is foreseeable that the conduct in question will have an immediate and substantial effect in the European Union".

The CJEU further clarified that "probable effects" were sufficient to demonstrate the "foreseeability criteria", and that the test should be applied to the company’s strategy as a whole, and not to individual parts of such strategy.

Departing from the advisory opinion by Advocate General Wahl, the CJEU threw out Intel’s jurisdiction claims that the Commission lacked jurisdiction over the agreements concluded with Lenovo for China because their effects in Europe were negligible. Due to its relevance, one would have expected further reasoning and guidance from the CJEU on this point.

What are the next procedural steps?

For those who are wondering whether the parties can argue their case further or whether the General Court will render its judgment directly, the rules of procedure of the General Court[3] provide that the parties "may lodge their written observations on the conclusions to be drawn from the decision of the Court of Justice for the outcome of the proceedings within two months". The Commission will certainly refer to the 574 paragraphs in its decision dedicated to the 'as-efficient competitor' test in order to prove the exclusionary effect of the rebates. On the other hand, we can expect that Intel will refresh its arguments that the rebates did not have any exclusionary effects in practice.

Furthermore, a possibility exists that another round of pleadings will take place as "The President may, if the circumstances so justify, allow supplementary statements of written observations to be lodged." Finally, an oral hearing will take place.