More on AG Wahl’s Opinion in Intel: The CoJ Gets – Yet Another – Chance to Clarify the Extraterritorial Reach of EU Competition Law

On October 20, 2016, AG Wahl delivered his (now famous) opinion in theIntel Corp v Commissioncase (C-413/14P). In a previous briefing, we examined AG Wahl’s innovative approach towards rebates under Article 102 TFEU. Below, we look at another key issue addressed in this opinion, namely, that of the extraterritorial reach of EU competition law.

To date, the case-law has considered two main doctrines to establish the extraterritorial reach of EU competition law, namely:

• The implementation doctrine that focuses on whether the anticompetitive conduct has been implemented in the EEA. The EU Court of Justice (CoJ) developed this doctrine in Woodpulp I, where it found that the threshold for implementation is that the party(ies) engaged in sales of the affected products within the community ‘no matter the location of the sources of supply and the production plant and where the anticompetitive arrangement was entered into.’

• The qualified effects doctrine, whereby the European Commission (EC) needs to show that the conduct had substantial, immediate, and foreseeable effects in the EEA. This doctrine has been developed by the EU General Court (GC) in Gencor, a merger control case, and has never been formally endorsed by the CoJ in antitrust cases. However, on several occasions, Advocate Generals have suggested that it may be used to establish the EC’s jurisdiction over anticompetitive activities that do not generate sales in the EEA and therefore are not caught by the implementation doctrine (g. geographic market allocation agreements).

In his opinion, AG Wahl looks at both doctrines and proposes a novel approach to the extraterritorial reach of EU competition law.

Background to the Intel Case

On May 13, 2009, the EC imposed a record fine of €1.06 billion on Intel Corporation (Intel) for engaging in abusive practices on the market for central processing units of the x86 architecture (‘x86 CPUs,’i.e.a key computer component) from 2002 to 2007.  The EC found that Intel engaged in two specific forms of illegal practices, namely: (1) exclusivity rebates,i.e.rebates granted to manufacturers on the condition that they would buy all or almost all of the x86 CPUs from Intel; and (2) so-called ‘naked restrictions,’i.e.direct payment to a retailer on condition that it stocks only computers with Intel x86 CPUs (hereafter, together, ‘the Intel rebates’).

Some of these exclusivity rebates and naked restrictions were granted to Lenovo, a Chinese manufacturer, in 2006 and 2007 (‘the Lenovo agreements’):

• The 2006 agreement encouraged Lenovo to postpone and finally cancel the launch of two products including competing CPUs on the worldwide market, in exchange for a financial incentive; and

• The 2007 agreement incentivized Lenovo to source exclusively from Intel CPUs for its notebooks, in exchange for a rebate.

Intel requested the GC to annul the decision.  Among other pleas, Intel argued that the EC had no jurisdiction over the Lenovo agreements, which had been entered into and implemented in Asia. In a judgment dated June 12, 2014 (T-286/09), the GC dismissed Intel’s argument, on the basis that the Lenovo agreements satisfied both the implementation doctrine and the effect doctrine:

• The implementation doctrine was met since the Lenovo agreements were intended to be implemented worldwide by Lenovo, including in the EEA. In this regard, the GC noted that the fact that Intel did not sell directly CPUs within the EEA did not preclude implementation at EEA level: the Lenovo agreements could also be implemented through indirect sales, e. sales of CPUs to Lenovo in Asia, which would then be incorporated into computers that Lenovo would sell within the EEA.

• The qualified effects doctrine could also apply as Intel’s conduct could have immediate, substantial and foreseeable effects in the internal market. In this regard, the GC found that, while the Lenovo agreements themselves did not necessarily have a substantial effect on the EEA market, they were part of a much broader single and continuous infringement (which arguably produced such effects).

In his opinion dated October 20, 2016, AG Wahl disagrees with the GC and takes the view that none of the above doctrines could actually apply to the Lenovo agreements.

The Lenovo Agreements Were Not Implemented in the EEA

As a preliminary remark, AG Wahl agrees with the GC that direct sales in the EEA are not the only implementation criterion; depending on the specific circumstances of the case, other types of sales, in particular, sales through transformed products by a vertically integrated undertaking, could also be regarded as implementation (this is consistent with the CoJ ruling in Innolux).

But, according to the AG, in this particular case, sales of notebooks by Lenovo within the EEA would be irrelevant to characterize implementation of the abusive conduct by Intel. Such sales would have been relevant if the infringement under examination was an anticompetitive agreement between Intel and Lenovo. However, this is not the case: the EC only found an infringement consisting in a unilateral abusive conduct by Intel. As a result, it is that unilateral conduct that must be implemented in the EEA, not the agreement with Lenovo. In this regard, AG Wahl notes that ‘[b]y tying implementation to the behavior of the customer of the undertaking accused of having breached Article 102 TFEU, almost any conduct – no matter how remotely related to the EU territory – could be construed as falling under the Commission’s jurisdiction on the basis of the criterion of implementation.’ Instead, what should have been shown is ‘an element of intra-territorial conduct,’ where ‘part of the [abusive unilateral] conduct is executed, applied or put into effect within the internal market’ by the dominant undertaking.

The Lenovo Agreement Had No Qualified Effect in the EEA

Having found no evidence of implementation of the Lenovo agreements in the EEA, AG Wahl then looks at the alternative test to establish jurisdiction, namely, the qualified effects doctrine.

From the outset, AG Wahl encourages the CoJ to explicitly address, for the first time, the relevance of the qualified effects doctrine in establishing extraterritorial jurisdiction of Articles 101 and 102 TFEU. In this regard, AG Wahl notes that, absent such doctrine, a number of behaviors that do have the object or the effect of restricting competition within the EEA would most likely escape the EC’s jurisdiction on account of the fact that they do not generate sales in the EEA (e.g. market sharing agreement or refusal to deal).

Turning to the Lenovo agreements, AG Wahl takes the view that they did not have immediate, foreseeable and substantial effects in the EEA:

• Immediate and foreseeable: according to the GC, both criteria were met as the Lenovo agreements had a direct influence on Lenovo’s business choices. AG Wahl disagrees with this approach: what matters is not the effect of the agreements on Lenovo, but on competition in the EEA – a point that the GC completely disregarded.

• Substantial effect: for the GC, the Lenovo agreements had substantial effects insofar as they were part of a broader single and continuous infringement. Again, AG Wahl takes issue with this approach: in his view, the concept of single and continuous infringement is no more than a procedural rule aimed at alleviating the evidentiary burden of competition authorities. As such, it cannot extend the geographic scope of application of EU law. Therefore, the GC should have looked at the substantial effect of each of the Lenovo agreements, separately from the rest of the infringement.

AG Wahl finally concludes that ‘any anticompetitive effect resulting from the Lenovo agreements appears rather hypothetical, speculative and unsubstantiated.’ Therefore, and as for the rebate issue addressed in our previous briefing, the AG sides with Intel: the EC had no jurisdiction over the Lenovo agreements.

Clarity at Last?

Over the years, investigated businesses have often struggled to rebut the EC’s jurisdiction over anticompetitive conducts that are initiated outside of the EEA. The issue is indeed inherently complex and sensitive, and the existing case-law has done little to clarify the boundaries of the extraterritorial reach of EU competition law, thus leaving businesses and competition lawyers in limbo (see for instance our briefing on a related issue, namely that of fines imposed in relation to extraterritorial infringements).

In this context, AG Wahl’s attempt to clarify the rules on extraterritorial jurisdiction is particularly welcome:

• Concerning the implementation doctrine, AG Wahl’s suggestion to limit the jurisdiction of the EC to unilateral conducts that are actually implemented in the EEA by the dominant undertaking is good news. This is because dominant companies are currently at risk of falling under the EC’s jurisdiction for business practices that they impose on customers situated outside of the EEA (as illustrated in the GC’s judgement in Intel). This said, AG Wahl also suggests that the outcome would have been different had the EC prosecuted the impinged conducts also under Article 101 TFEU.
  

• As for the qualified effects doctrine, AG Wahl’s proposal to finally acknowledge its relevance in establishing extra-territorial jurisdiction, if endorsed, would put an end to the ambiguity which has prevailed for the past 20 years. While several AGs have already urged – unsuccessfully – the CoJ to come to a formal view on this issue, some argue that now the time may be right for such recognition, owing in particular to Brexit (it is understood that the CoJ’s past reluctance to embrace the qualified effects doctrine may have been due to the strong opposition of the UK).¹ This said, in applying the qualified effects, AG Wahl urges the EC and the EU courts to actually look into the facts in order to determine with a sufficient degree of accuracy that the conduct under review generated substantial, immediate, and foreseeable effects in the EEA.

Finally, AG Wahl’s idea that the substantial effect of an anticompetitive behavior cannot be assessed by reference to the concept of single and continuous infringement is particularly interesting, as the EC would be forced to assess the substantial effect of each strand of conduct (as opposed to that of the single and continuous infringement under investigation). We concur with AG Wahl, as the concept of single and continuous infringement should not be used to cast the net too wide.

In short, AG Wahl, if endorsed by the CoJ, may compel antitrust enforcers to exercise restraint and be prepared to drop certain charges where the nexus with the EEA is insufficient or too weak.

¹Europa-Kolleg Hamburg, Institute for European Integration, Discussion Paper No 3/15, available at: https://www.econstor.eu/bitstream/10419/148068/1/87238506X.pdf (last consulted on April 11, 2017)