European Union: Advocate General Wahl Recommends That CJEU Grant Intel's Appeal

Last Updated: 18 November 2016
Article by Tim Kasten

Most Read Contributor in Belgium, February 2017

On 20 October 2016, Advocate General Wahl rendered his opinion on Intel's appeal before the Court of Justice of the European Union ("CJEU") against the judgement of the General Court, which had upheld a decision of the European Commission of 13 May 2009 imposing a fine of € 1.06 billion for abuse of a dominant position on the worldwide market for x86 central processing units ("CPUs").

The Commission alleged in its decision that Intel had abused its dominance by implementing a strategy aimed at foreclosing a competitor, Advanced Micro Devices Inc. ("AMD"), in particular by way of the following measures: (i) granting rebates and payments to OEM customers on the condition that they purchase, from Intel, all or almost all of their x86 CPUs (either in total or for a particular segment of the OEM market); (ii) granting rebates and payments to OEM customers on the condition that they delay or postpone the sale of computers containing AMD's chips; and (iii) making payments to retailer Media-Saturn conditional on the exclusive sale of computers containing Intel's x86 CPUs (see VBB on Competition Law, Volume 2009, No. 5, available at www.vbb.com).

Following an appeal brought by Intel against the Commission's decision, the General Court dismissed Intel's action for annulment in its entirety, and accepted virtually all of the Commission's findings and legal conclusions (see VBB on Competition Law, Volume 2014, No. 6, available at www.vbb.com). Intel then appealed this judgment to the CJEU on the basis that the General Court had erred in law in: (i) the legal characterisation of rebates as "exclusivity rebates"; (ii) the finding of an infringement for the final two years and in the assessment of the relevance of market coverage; (iii) the classification as "exclusivity rebates" of certain rebate arrangements that covered a minority of a customer's purchases; (iv) the interpretation of EU law concerning the absence of an obligation to record an interview with the Commission held with an executive of Dell; (v) the Commission's jurisdiction regarding Intel's arrangements in China with Lenovo; and (vi) the amount of the fine and the retroactive application of the 2006 Fining Guidelines.

In advance of the CJEU's final judgment on the matter, the Advocate General agreed with Intel's first five grounds of appeal and, therefore, advised the CJEU to uphold Intel's appeal.

With regard to Intel's first ground of appeal, the General Court had previously found that there was no need to consider all the circumstances of the present case before holding that Intel's allegedly exclusivity rebates could be regarded as having anticompetitive effects. The Advocate General disagreed with the General Court's finding and concluded that the General Court erred in law by re-characterising "exclusivity rebates" as per se abusive without examining the capacity of the conduct to restrict competition within the circumstances of any given case.  According to the Advocate General, such an erroneous approach would: (i) create an irrebuttable presumption of illegality; (ii) undermine and/or hamper potentially beneficial and pro-competitive conducts; (iii) overlook the context-dependent nature of such rebates; and finally, (iv) create an inconsistency with existing case-law on other price based exclusions, such as margin squeeze and predatory pricing. In particular, the Advocate General stressed that reiterating the principle of the presumptive abusiveness of loyalty rebates is not the same thing as failing to consider the relevant circumstances in concrete cases, which had also been done by the CJEU in previous case law.

In addition, the Advocate General rejected the General Court's alternative assessment of whether the rebates and payments in the present case were capable of restricting competition on the basis of all the circumstances. While he agreed with the General Court that evidence of the actual restrictive effects of rebate arrangements did not need to be presented, the Advocate General stressed that their capability to foreclose should nevertheless be more than a mere hypothetical or theoretical possibility. In this respect, the Advocate General opined that: (i) impugned conduct should be shown to result in an anticompetitive foreclosure effect "in all likelihood"; and that (ii) an overly-inclusive approach should be avoided by ascertaining that the conduct does not just have ambivalent or ancillary effects. In this respect, the Advocate General concluded that the General Court failed to carry out a proper assessment on the capability of restrictive effects. Interestingly, the Advocate General specifically faulted the General Court for failing to consider the as-efficient competitor test that the Commission applied, noting that although such a test was not always required, its results could not be ignored if it was in fact carried out.

As to the second ground of appeal, the Advocate General concluded that a tied market share of fourteen percent could not establish, to the requisite legal standard, that the impugned conduct was capable of restricting competition. Moreover, he added that the concept of a "single and continuous infringement" could not be used by the Commission as an instrument to elevate otherwise lawful conduct to the status of an infringement. He therefore advised also upholding this ground of the appeal.

In the third ground of appeal, the Advocate General concluded that, if there was a class of "exclusivity rebates" subject to a different analysis, it could only be applied if the rebate was conditional on the customer purchasing "all or most" of its requirements from the dominant undertaking. The Commission and General Court could not, as they did in the present case, apply this requirement to only a sub-segment of the customer's total purchases.

The fourth ground of appeal brought by Intel, with which the Advocate General again agreed, concerned a failure of the Commission to record a meeting held with a Dell executive in 2006. Contrary to what the General Court had previously held, the Advocate General determined that the meeting in question was an interview within the meaning of Article 19 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles [101] and [102] of the Treaty, and therefore, should have been recorded. Accordingly, the Advocate General rejected the General Court's interpretation of a distinction between "formal" and "informal" interviews in the context of recording obligations. Rather, he said that the criterion to determine whether a recording obligation exists depends on whether the interview relates to the subject matter of the investigation. Secondly, the Advocate General found that an internal document of the Commission, subsequently disclosed to Intel, could not remedy the breach of the essential procedural requirement since it was silent on the content and substance of the information submitted by the executive of Dell during the meeting.

Importantly, the Advocate General opined that Intel, in order to obtain the annulment of the decision due to this procedural irregularity, should simply show that the withheld evidence could, in one way or another, have been used for its defence; a finding consistent with Solvay and other settled case law of the Court of Justice. Accordingly, the Advocate General rejected the conclusion of the General Court, which required Intel to prove that the Commission had "failed to record exculpatory evidence which was at variance with the thrust of the direct documentary evidence... or, at very least, sheds different light on it". According to him, the latter test did not apply to the appeal at hand because: (i) it would place on Intel a burden of proof that would be impossible to fulfil since information regarding what took place during the meeting remained mere speculation and (ii) evidence relied upon by the Commission to establish the conditionality of the rebates was of a circumstantial and presumptive nature, and therefore, could not be perceived as "direct documentary evidence".

As regards the fifth ground of appeal, concerning the appropriate test to determine the jurisdiction of EU competition rules, the Advocate General endorsed the test in Gencor, which provides that EU competition rules applying to specific conduct can be justified only when the conduct has "foreseeable, immediate and substantial effects in the internal market". Upholding the arguments of Intel, the Advocate General found that the company's alleged abusive conduct as regards the sale of x86 CPUs to a computer manufacturer in China was not shown to meet the necessary conditions.

In giving his opinion on the final ground of appeal, the Advocate General rejected Intel's argument that the amount of the fine was disproportionate and was a "retroactive" application of the 2006 Fining Guidelines. He stressed that the record-breaking nature of the fine did not make it disproportionate in the absence of any legal error pointed out by Intel.

For all the above reasons, the Advocate General proposed that the CJEU set aside the judgment of the General Court and refer the case back to the latter Court for a further examination of the various circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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