20 September 2017

Exclusivity discounts: the Intel case, including record-high fine is remitted

On 6 September 2017, the European Court of Justice ruled that a dominant company’s use of exclusivity discounts does not always constitute abuse of the company’s dominant position. If the company can present evidence substantiating that the behaviour does not restrict competition or exclude competitors, the competition authorities will be obligated to investigate the matter in detail.

The present case shows that analyses of the significance of the discounts for competition are also relevant in cases concerning exclusivity discounts if the company can prove that the discounts are not suited for excluding a similarly effective competitor from the market.

BRIEF DESCRIPTION OF THE INTEL CASE

In 2009, Intel was ordered to pay a record-high fine of EUR 1.06 billion for abuse of its dominant position in the market for CPUs, microprocessors for computers. Intel had granted exclusivity discounts to computer manufacturers, which covered their purchase of microprocessors fully or partly from Intel. The European Commission found that the discounts were suited for restricting competition, and an analysis of the effect was therefore unnecessary. Still, the European Commission carried out the so-called AEC test (as efficient competitor test) to assess the ability of the discounts to exclude a similarly effective competitor.

Subsequently, Intel brought legal action claiming cancellation of the European Commission’s decision. The court ruled in favour of the European Commission in June 2014 stating that the discounts were exclusivity discounts the purpose of which was to restrict competition. The court therefore found that it was not necessary to investigate the anti-competitive effect and the European Commission’s AEC test as these were irrelevant for the assessment as to whether the discounts were illegal.

THE EUROPEAN COURT OF JUSTICE: EXCLUSIVITY DISCOUNTS ARE NOT ALWAYS RESTRICTIVE

Intel brought the court's ruling before the European Court of Justice claiming that the court had not taken all relevant facts into consideration when investigating Intel’s discounts.

The European Court of Justice stated that it is correct that it appears from case law that exclusivity discounts constitute abuse of a dominant position covered by article 102 of the TEUF. The European Court of Justice found, however, that it was necessary to emphasise the case law in a situation where "the undertaking concerned submits, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged exclusionary effects”.

The European Court of Justice found that, in this situation, the European Commission was obligated to make an investigation of the exclusion capacity covering the following:

  1. The importance of the dominant position on the market.
  2. The market coverage of the investigated behaviour.
  3. The size of the discounts, the duration and the conditions for grant.
  4. Whether an exclusion strategy is to exclude a similarly effective competitor.


The European Court of Justice then ruled that the investigation of the exclusion ability is also relevant for the assessment as to whether discounts may be objectively justified or result in efficiency advantages which may counterbalance the effect of exclusion. As soon as the European Commission has concluded this investigation and established that the conduct constitutes abuse, it is for the court to investigate all the company’s arguments that may question the European Commission’s conclusion concerning the exclusion capacity .

The AEC test had had actual impact on the European Commission’s decision. The European Court of Justice therefore found that the court was obligated to investigate Intel’s arguments which questioned the European Commission’s conclusions. The European Court of Justice therefore cancelled the court’s decision and remitted the case for reconsideration.

FINANCIAL ANALYSES ARE IMPORTANT, BUT THE BURDEN OF PROOF IS ON THE COMPANY

The ruling shows that it cannot be taken into account that dominant companies’ exclusivity discounts are always restrictive. There is an assumption that the discounts are restrictive, but the company may present proof which may lead to the opposite conclusion. When companies present proof supporting that conduct  is not suited for restricting competition, the competition authorities and subsequent appeal bodies must investigate the arguments.
    
For dominant companies, the ruling means that it is possible to defend exclusivity discounts, but it is for the dominant company to prove that the discounts do not restrict competition and exclude competitors from the market.

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