The Intel saga – A View from Counsel

Report
THE INTEL JUDGMENT - SELECTED ISSUES
JAMES S. VENIT
30 SEPTEMBER
2014
Summary of the Commission’s Decision
of 13 May 2009
2
•
•
•
Single continuous infringement of Article 82 from October 2002
until December 2007
Strategy to foreclose AMD from the market for x86 CPUs consisting
of two forms of anti-competitive conduct
o Granting discounts to four OEMs (Dell, HP, NEC, Lenovo) on
condition that they purchase all or almost all of their x86 CPU
requirements from Intel, and granting discounts to a retailer
(MSH)on condition that it sell only computers containing Intel
x86 CPUs; and
o Imposing “naked restrictions” on three OEMs (HP, Acer, Lenovo)
by making payments to get them to stop or delay the launch of,
or limit sales channels for, specific products containing AMD x86
CPUs
Intel was fined a record €1.06 billion
Background
3
•
While it was pursuing enforcement action against Intel, DG Comp sought to
introduce an economically sound ‘effects-based’ approach to the application of
Article 82
o Report of the EAGCP
July 2005
o Adoption of the Guidance Paper
•
February 2009
The Intel decision was the first case in which the Commission performed a
price/cost test to support its finding of exclusionary conduct
o "This workability [of an effects-based approach] is proven by its application in such
cases as the Intel rebate prohibition decision (from May 2009). We applied the
equally efficient competitor test using the methodology set out in the Article 82
Guidance.“
Commissioner Kroes, July 2009
4
Legal and Economic Analysis
of Intel’s Discounts
The Decision’s Key Conclusions about Intel’s
Discounts
5
•
Intel’s discounts were de facto conditional on customers purchasing all or
almost all of their product requirements from Intel
o
In the case of HP the ‘exclusivity’ (for 95% of HP’s corporate desktops) represented
28% of HP’s x86 CPU demand
•
•
De facto conditionality is sufficient to establish an infringement of Article 82
•
Despite it being a de facto case, the Commission does not have to show a
causal link between Intel’s discounts and its customers’ purchasing decisions.
Intel’s discounts were capable of causing or likely to cause anticompetitive
foreclosure but no need to show actual effects
o
•
The Commission can ignore factors such as product quality, suitability and availability
or the cost of dual sourcing which may have impacted customer choice
Intel’s discounts do not pass an ‘as efficient competitor’ (AEC) test
o
The AEC test confirms the legal conclusion that Intel’s discounts were exclusionary
6
THE GENERAL COURT’S JUDGMENT
The Intel Judgment
7
•
Fully upholds the Commission’s decision on all legal (and factual) points:
o
o
Contractual or de facto exclusive or quasi-exclusive discounts (even if only applicable to certain
market segments) infringe Article 102 without any need to show actual foreclosure or
consumer harm even in an ex post case
The Commission is not required to employ a cost-based (AEC Test) to establish the potential to
foreclose

AEC test too lenient because even if possible, access may made be more difficult
o
The Commission does not have to establish a direct causal link between the discount and
customer’s purchasing decision
o
No de minimis threshold under Article 102, but foreclosure of 14% of worldwide demand is
‘significant’
o
The competitive performance of the dominant firm’s rival (which outperformed itself during the
infringement period) is not relevant to the assessment of abuse
o
The fact that customers may offer exclusivity in order to get more favorable pricing is irrelevant
The Intel Judgment
8
 “In reaching these conclusions the Court distinguished
between three types of rebate systems:




Type one – presumptively legal quantity rebates. Non-retroactive
quantity rebate systems linked solely to the volume of purchases in which
the dominant supplier passes on the costs savings from higher volume
purchases.
Type two – per se illegal exclusive/quasi exclusive rebates
conditioned on the customer's purchasing all or most of its requirements
from the dominant firm which will always infringe Article 102 except in
exceptional circumstances where they can be objectively justified by
efficiencies.
Type three loyalty-inducing rebates which are not directly conditioned
on near or total exclusivity but which may have a loyalty-inducing effect
(Michelin I and Tomra). If, after consideration of "all the circumstances”
(how the rebate is structured and its economic justifications), a loyaltyinducing effect is established, the rebate is per se illegal.
With both Type 2 and Type 3 rebates there is no need to show actual
foreclosure or apply an AEC test and there is no de minimis threshold.
The Intel Judgment
9
o Naked restrictions. Pricing conduct that has no
objective justification other than to exclude a rival
constitutes a naked restriction and infringes Article 102
o Intel’s conduct was part of a long-term comprehensive
strategy to foreclose AMD from the strategically most
important sales channels
o
The Commission does not have to produce direct evidence of
the existence of a coherent anti-competitive plan but may
demonstrate the existence of such a plan by a body of
evidence
10
The Significance of the Court’s Judgment
The Significance of the Court’s Judgment
11
•
What’s new
o
No need for price/cost test to establish infringement; price cost test is too lenient since even
if access possible it may still be more difficult
o
o
Extension of Hoffmann-LaRoche to a de facto case with murky facts
Finding that purchase requirement for 95% of HP corporate desktop was exclusive even
though it represented only 28% of HP’s demand for x86 CPUS

o
o
•
95% requirement is different than 28% requirement
Length of contractual exclusivity not relevant
Use of term ‘naked restriction” Pricing conduct that has no objective justification other than
to exclude a rival constitutes a naked restriction and infringes Article 102
What’s not new
•
Exclusivity rebates per se illegal if not objectively justified
•
•
•
No need to show actual effects, causality or consumer harm
No de minimis threshold under Art 102
Reaffirms special obligations of dominant firms and static view of dominance
The Significance of the Court’s Judgment
12
 The Intel judgment has been defended on the grounds that:



It is economically coherent because it is consistent with the
Treaty’s goal of preserving undistorted competition (as opposed to
enhancing consumer welfare)
It is « effects based » because it considers the impact of
exclusivity on the goal of preserving undistorted competition
An effects based analysis should consider not only the effects of
the business practice but also other effects such as enforcement
costs, legal certainty and allocation of risk

The Intel Court applies standards that are clear, predictable and
administerable
The Significance of the Court’s Judgment
13
 The AEC test has been criticized on the grounds that:

It is not suited to the purpose of ensuring undistorted competition

It is inconsistent with the objectives of the EU Treaties because it would tolerate
exclusion of competitors that are not sufficiently efficient

It conflates exclusivity with predatory pricing by assuming that exclusivity involves
discounting

It assumes that customers value price to the exclusion of quality or
diversity of supply

The competitive process is also harmed if rivals’ profitability is reduced
or their market access is made more difficult

It is resource-intensive and hard to administer
The Significance of the Court’s Judgment
14
 These criticisms raise the following questions:

What do we mean by ‘undistorted competition’?

What is the goal of antitrust enforcement?

Does intervention absent evidence of harm best
protect the competitive process and its discovery
potential?
The Significance of the Court’s Judgment
15
 On the latter point, Giuliano Amato notes that
In the US, antitrust law delays intervention to the last, leaving the
market to provide as far as possible by itself for a definition of its
own dynamics and its own equilibria: only imminent risk, with no
alternatives, of output restriction justifies and permits
intervention. The EU seeks to prevent the risk emerging and
inserts itself more frequently and earlier into ongoing market
dynamics, seeking to influence their structure. The first approach
sets the boundary of public power as far ahead as possible,
accepting the risk of private power; the second does not accept
that risk and instead runs the risk of preventive intrusions by
public power.
The Guidance Paper
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 Consequences for the Article 102 Guidance
Paper

Withdrawal

Await outcome of Intel ECJ appeal

Continued use of AEC as a priority screen but not in
decisions

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