Our Take on Intel's Billion-Dollar Fine Overturned: New Rules for Exclusivity Rebates in EU Competition Law

Introduction

With its recent judgment of October 24, the Court of Justice of the European Union (CJEU) has definitively settled a 15-years-long saga, in which the European Commission's infringement decision against Intel was appealed and referred back on several occasions. The CJEU upheld the annulment by the General Court of the decision of the European Commission (EC) that fined Intel €1.06 billion for abusing its allegedly dominant position in the worldwide market for central processing units (CPUs). The CJEU ruling is important as it clarifies (i) the EC’s burden of proof under Article 102 TFEU; (ii) the use of the as-efficient-competitor test (AEC); and (iii) the end of the era in which exclusivity rebates granted by dominant undertakings were presumed to harm competition.

Legal Battle

After years of appeals and back-and-forth between the EU courts, the CJEU has now definitively ruled on the matter. The central issue in this long-running legal battle concerned whether, and then the extent to which, the EC needed to prove that Intel's rebates restricted competition. To put this in context, the background to the case is below.

1. In 2004, the EC initiated an investigation against Intel, a US-based microprocessor manufacturer, following complaints from Intel's main competitor in the supply of x86 CPUs.
2. In May 2009, the EC imposed a (then-record) fine of €1.06 billion on Intel for alleged abuse of a dominant position between 2002 and 2007 in the worldwide market for x86 CPUs (in which Intel held approximately 70% market share). In particular, the EC decided to use the AEC test to examine whether an equally efficient competitor could compete notwithstanding the rebates granted by Intel to its customers. The EC concluded – despite the contrary evidence submitted by Intel – that Intel’s practices were capable of producing exclusionary effects. The EC therefore held that Intel infringed Article 102 TFEU by (i) imposing naked restrictions on original equipment manufacturers, consisting of awarding payments to delay and restrict the launch of competing products and (ii) granting conditional loyalty rebates to its customers (computer manufacturers) and the European retailer of microelectronic devices (Media-Saturn-Holding)¹.
3. Intel appealed the EC's decision before the General Court (GC), arguing that the AEC test used by the EC failed to establish that Intel’s rebates were capable of foreclosing as-efficient competitors and seeking the annulment of the EC's decision or, at least, a substantial reduction of the fine.
4. In June 2014, the GC dismissed Intel's appeal in its entirety and thus upheld the EC's original fining decision². In particular, the GC found that the rebates granted to the four major computer manufacturers were exclusivity rebates which, if applied by a dominant undertaking, (i) are incompatible with the objective of undistorted competition within the common market; (ii) are designed to remove or restrict the purchaser's freedom to choose his sources of supply and to deny other producers access to the market; and (iii) constitute by their very nature ("by object") an abuse of dominance.
   
   Considering exclusivity rebates a ("by object") abuse of dominance, the GC held that it was not necessary to examine, through the AEC test, whether the EC had correctly assessed the ability of the rebates to foreclose competitors from the market³.
   
   The GC also asserted that:

   a. the EC had jurisdiction to punish Intel for its alleged anti-competitive conduct (as Intel’s alleged conduct was capable of having a substantial, immediate and foreseeable effect within the EEA); and

   b. none of the arguments presented by Intel demonstrated that the imposed fine was disproportionate in relation to the facts of the case.

5. In 2017, following Intel's appeal, the CJEU set aside the GC's judgment and referred the case back to the GC in order for it to examine Intel’s arguments concerning the ability of the rebates to restrict competition⁴. Specifically, the CJEU:
   
   • outlined a comprehensive framework for assessing exclusivity rebates and clarified that such rebates by dominant undertaking are presumptively, but not per se, illegal under Article 102 TFEU;
   • deemed it necessary to examine the arguments and evidence supporting the dominant firm's claim that its rebates are not anticompetitive⁵;
   • noted that the GC upheld the EC's argument that loyalty rebates were, by their very nature, restrictive of competition and thus the AEC test was not necessary;
   • highlighted that the EC "nevertheless carried out an in-depth examination of those circumstances, setting out […] a very detailed analysis of the AEC test, which led it to conclude […] that an as efficient competitor would have had to offer prices which would not have been viable and that, accordingly, the rebate scheme at issue was capable of having foreclosure effects on such a competitor"⁶;
   • concluded that, therefore, the AEC test played an important role in the assessment of whether the rebate scheme had foreclosure effects on competitors; and
   • observed that the GC was required to examine all of Intel’s arguments concerning that test (such as the errors allegedly committed by the EC as regards that test), which the GC failed to do⁷.
6. In 2022, the GC, hearing the case referred back to it, set aside the EC's decision concerning exclusivity rebates and annulled the fine of €1.06 billion in its entirety⁸. The GC determined that the EC's analysis was incomplete and insufficient to establish whether the rebates were capable of having anti-competitive effects. The GC concluded that: 

   i. the EC had erred in law by taking the view that exclusivity rebates were by their nature abusive, without considering the effects the rebates had on competition;

   ii. the AEC test carried out was vitiated by errors;

   iii.  the EC did not properly assess the market coverage and duration of the exclusivity rebates.
   The GC did not challenge the EC's 2009 decision regarding naked restrictions, but annulled the whole of the original fine because it was not possible to allocate a particular portion of the fine to the naked restrictions (see below).

7. In September 2023, the EC readopted its infringement decision in, so far as it concerned, naked restrictions (i.e. awarding payments made to delay and restrict competing product launches) that were not challenged by the GC in its 2022 renvoi judgment and fined Intel €376 million.
8. The EC also appealed against the GC's 2022 judgment arguing that the judgment contained several errors of law and that the criticism of its AEC test was vitiated by procedural irregularities and distortions of the evidence.
9. Intel appealed the EC 2023 decision regarding the naked restrictions (see paragraph 7 above). This appeal is still pending.

The Court of Justice's Final Judgment

In its latest judgment⁹, the CJEU rejected the presumption that exclusivity rebates inherently restrict competition and required the EC to conduct a detailed analysis to demonstrate any such restriction.

A. Exclusionary Effects

The CJEU re-affirmed that Article 102 TFEU does not aim to "to prevent an undertaking from acquiring […] a dominant position on one or more markets or to ensure that competitors less efficient than the undertaking with such a position should remain on the market"; thus "not every exclusionary effect is necessarily detrimental to competition." Consequently, in order to characterise conduct as an abuse of a dominant position, it is necessary "to demonstrate, through the use of methods other than those which are part of competition on the merits between undertakings, that that conduct has the actual or potential effect of restricting that competition by excluding equally efficient competing undertakings from the market." Such demonstration must be:

i. made "in the light of all the relevant factual circumstances, irrespective of whether they concern the conduct itself, the market or markets in question or the functioning of competition on that market or those markets"; and

ii. aimed at "establishing, on the basis of specific, tangible points of analysis and evidence, that that conduct, at the very least, is capable of producing exclusionary effects"¹⁰.

In the judgment, the CJEU ruled that the EC, in order to determine that the granting of loyalty rebates had anti-competitive effects, had "to analyse not only factors such as the extent of the dominant position of the undertaking in question, the share of market covered by the contested rebates and the conditions and arrangements for granting the rebates in question, their duration and their amount, but also the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market" and that the rebates’ capability to foreclose a competitor must be assessed, as a general rule, using the AEC test¹¹.

B. The EC's Burden of Proof

The CJEU emphasised that the EC has to prove infringements under Article 102 TFEU to the requisite legal standard and, in doing so, the EC must "take into account all the relevant evidence"¹², such as:

1. 1. 1. 1. the extent of the company's dominant position on the relevant market;
         2. the share of the market covered by the loyalty rebates;
         3. the conditions for granting the loyalty rebates; and
         4. the duration and amount of the loyalty rebates.

Additionally, the Court noted that "the Commission is required to assess, inter alia, the possible existence of a strategy aiming to exclude, through the grant of loyalty rebates, competitors that are at least as efficient as the dominant undertaking from the market where that undertaking submits, […] that its conduct was not capable of restricting competition." Therefore, it followed that the Commission was entitled to base its assessment on the same premises and evidence as those submitted by Intel (or those obtained during its investigation)¹³.

C. AEC Test

The CJEU stated that the AEC test is "merely one of the ways" to evaluate whether a given conduct constitutes "competition on the merits." However, it also emphasised that the EC has a duty of care if it decides to deploy the AEC test¹⁴. The CJEU confirmed that the AEC test used by the EC to assess Intel's rebates contained multiple errors in its application and, therefore, those errors affected the EC's conclusion that Intel's rebates had a foreclosure effect. Specifically, the EC failed to adequately analyse the contestable share of the market covered by Intel's rebates, the duration of these rebates and their potential impact on market foreclosure.

D. Intel's Countervailing Evidence

As noted above, the CJEU held that, where a dominant firm submits supporting evidence showing that its conduct did not have foreclosure effects, the EC is required to properly evaluate that evidence and establish that an as-efficient competitor could not compete with the dominant company. The CJEU found that the EC had failed to convincingly rebut Intel’s countervailing evidence and accordingly, the GC had not erred in annulling the EC’s decision. In other words, the EC had failed to properly consider Intel’s economic evidence, which validly challenged the accuracy of the EC’s assessment of the case and, in particular, its AEC test.

The CJEU dismissed the EC’s appeal and upheld the judgment of the GC that annulled the fine imposed on Intel in its entirety.

Conclusions

The CJEU’s Intel judgment is a significant decision in a number of respects. Firstly, it has firmly rejected the approach taken by the EC and followed thus far by the GC, that there is a presumption that exclusivity rebates granted by a dominant undertaking restrict competition. Secondly, it held that the AEC test is one of the tools available to the EC to determine illegality of such rebates and that it should, 'as a general rule' deploy this test. Thirdly, where the undertaking under investigation submits countervailing evidence, the EC must undertake a detailed examination of that countervailing evidence and provide evidence to rebut it, if it is to make a finding of anticompetitive rebates. The EC must demonstrate the actual or potentially restrictive effect through specific, tangible points of analysis and evidence that the conduct must at the very least be capable of producing exclusionary effects.

In addition, this landmark ruling endorsing the effect-based approach comes at a key moment in the EC's enforcement policy of Article 102 TFEU. Not only are we on the cusp of a new EC, with a new mandate; but the EC is currently focusing on the review of a new set of guidelines on exclusionary abuses ("Draft Guidelines")¹⁵.  Specifically, the recently published Draft Guidelines provide that loyalty rebates (i) can be considered de facto exclusive dealing practices (ii) have a high potential to produce exclusionary effects and (iii) can therefore be presumed to be capable of producing exclusionary effects. The Draft Guidelines thus introduce rebuttable enforcement presumptions that may reverse the burden of proof for certain categories of conduct (if the legal tests established by the CJEU are met).

The impact of this ruling is wide-ranging, as it is likely to force the EC to rethink the presumption-based approach for fidelity rebates provided in the Draft Guidelines, which will impact the approach that the new Commission takes to enforcement policy in this area.

¹ Commission Decision C(2009) 3726 final relating to a proceeding under Article [102 TFEU] and Article 54 of the EEA Agreement (Case COMP/C-3/37.990 – Intel).

² Judgment of the General Court of 12 June 2014, Intel v Commission, T-286/09 (see also Press Release No 82/14).

³ AEC test establishes at what price a competitor, as efficient as the dominant firm, would need to offer its products in order to offset the loss of the rebate granted by the dominant undertaking. Given that exclusivity rebates from a dominant firm restrict competition, the EC was not required to demonstrate, in its case analysis, that Intel’s rebates were capable of foreclosing competitors from the market, even if market access was not economically impossible.

⁴ Judgment of the Court of Justice of 6 September 2017, Intel v Commission, C-413/14 P (see also Press Release No 90/17).

⁵ Ibid, paragraphs 138-141, in which the CJEU ruled that where a dominant firm submits evidence that its rebates are not anticompetitive, the EC must assess their foreclosure effects by considering (i) the extent of the dominant position; (ii) the share of the market covered by the rebates; (iii) the conditions and arrangements for granting the rebate; (iv) their duration and amount; and (v) the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant firm.

⁶ Ibid, paragraph 142.

⁷ Ibid, paragraph 147 "in its analysis of whether the rebates at issue were capable of restricting competition, the General Court wrongly failed to take into consideration Intel’s line of argument seeking to expose alleged errors committed by the Commission in the AEC test".

⁸ Judgment of the General Court of 26 January 2022, Intel v Commission, T-286/09 RENV (see also Press Release No 16/22).

⁹ Judgment of the Court of 24 October 2024, Commission v Intel Corporation, C-240/22 P.

¹⁰ Ibid, paragraphs 175-179.

¹¹ Ibid, paragraphs 180-181.

¹² Ibid, paragraphs 214.

¹³ Ibid, paragraphs 273-274.

¹⁴ Ibid, paragraph 181 "The capability of such rebates to foreclose a competitor as efficient as the dominant undertaking, which competitor is supposed to meet the same costs as those borne by that undertaking, must be assessed, as a general rule, using the AEC test. Even though that test is merely one of the ways of assessing whether an undertaking in a dominant position has used means other than those that come within the scope of ‘normal’ competition, it seeks specifically to assess whether such an as-efficient competitor, considered in abstracto, is capable of reproducing the conduct of the undertaking in a dominant position and, consequently, whether that conduct must be considered to come within the scope of normal competition, that is to say, competition on the merits".

¹⁵ Draft guidelines on exclusionary conduct by dominant companies under article 102 TFEU.