Intel Fine: Advocate General Supports Appeal

October 20, 2016

The Opinion of Advocate General Wahl in Case C?413/14 P Intel Corporation Inc. v European Commission supports Intel’s appeal against the fine imposed on it by the Commission for abusing its dominant position in relation to certain types of CPUs. In a mere 349 paragraphs (with 207 footnotes) the Advocate General makes a strong case, suggesting that the reasoning of the General Court when it dismissed Intel’s appeal against the Commission fine in 2014 (Case T-286/09) was profoundly flawed. To be fair those 349 paragraphs are short and the Opinion is a model of clarity by Curia standards. The full Opinion can be read here.

Intel’s appeal stated that the General Court had erred in law in the following ways:

(i)                its legal characterisation of rebates as ‘exclusivity rebates’;

(ii)              its finding of an infringement in 2006 and 2007 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 which 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 Guidelines on the setting of fines.

It was the view of the General Court that, where rebates are classified as ‘exclusivity rebates’, then unlike other rebates and pricing practices, such rebates are inherently capable of restricting competition and thus are anticompetitive without any need to consider either the relevant circumstances of the rebates in question or the likelihood that the rebates might restrict competition. Advocate General Wahl saw that as simplistic and takes the view that the supposed rule relating to exclusivity rebates was the product of particular circumstances. Nothing, in his view, in the case law justifies removing any test of whether an action is ‘in all the circumstances’ an abuse of a dominant position: ‘context is essential’. As he states at [84]-[85]:

the General Court … [by] applying the statement of the Court in Hoffmann-La Roche to the letter, without placing that statement in its proper context, … distinguished one sub-type of loyalty rebate, which it termed ‘exclusivity rebates’, from other types of rebates that induce loyalty. In doing so, it created a ‘super category’ of rebates for which consideration of all the circumstances is not required in order to conclude that the impugned conduct amounts to an abuse of dominance contrary to Article 102 TFEU. More importantly, the abusiveness of such rebates is assumed in the abstract, based purely on their form. That is by no means a methodologically self-evident step to take.

He goes on to find that the General Court erred in law in its alternative assessment of capability by failing to establish, having regard to all the circumstances, that the rebates and payments offered by Intel had, in all likelihood, an anti-competitive foreclosure effect.

Advocate General Wahl also criticises the test applied by the General Court to establishing the crucial ingredient, ‘sufficient market coverage’, from which stems any conclusion about restrict ion of competition. He states (at [143]) ‘a market coverage of 14% may or may not have an anticompetitive foreclosure effect’ and (at [157]) ‘the assessment of duration …- which was limited to considering the overall duration of the arrangements scrutinised — is inconclusive’.

As regards the third ground of appeal, the Advocate General reiterates his view that no separate category of ‘exclusivity rebates’ exists. However, if the Court disagrees with this interpretation, the Advocate General considers that this ground of appeal should be upheld on the basis that ‘exclusivity rebates’ would be conditional upon the customer purchasing ‘all or most’ of its requirements from the dominant undertaking, which is not satisfied in the circumstances of this case. HP and Lenovo could still purchase significant quantities of 86 CPUs from AMD.

Even on the appeal ground relating to the recording of an interview (ground (iv) above), Advocate General Wahl thinks the General Court got it wrong. He does not think that the procedural irregularity could be as easily remedied as the Court suggested and rejects the contention that there should be a distinction between formal and informal interviews.

On the jurisdiction issue (appeal ground (v) above), Advocate General Wahl again identifies what he sees as ‘flawed reasoning’ on the part of the Court. He states (at [322]-[326]):

To be sure, the Lenovo agreements had an immediate and direct effect if those terms are intended to mean that those agreements influenced Lenovo’s conduct as regards the purchase of CPUs and the subsequent sale of notebooks with a x86 CPU requirement. However, the key question here is whether the anticompetitive effects stemming from those agreements were immediate and direct in the EEA. In other words, the General Court should have asked: could those agreements immediately or directly diminish Intel’s competitors’ ability to compete for x86 CPUs within the internal market? The General Court does not examine that aspect at all. It simply stated that those agreements had an impact on Lenovo’s business choices. That is something that any commercial agreement is arguably meant to have.

The same flawed reasoning was applied by the General Court in relation to the foreseeability of the effects produced by the Lenovo agreements. Yet again, the General Court focused on the effect those agreements had (or were intended to have) on Lenovo’s commercial choices. The judgment under appeal does not address the foreseeability of the anticompetitive effect those agreements (allegedly) produced in the internal market.

On the basis of the elements referred to in the judgment under appeal, far from being immediate, substantial and foreseeable, any anticompetitive effect resulting from the Lenovo agreements appears rather hypothetical, speculative and unsubstantiated. That does not mean, however, that the Lenovo agreements did not have, or could not have, any such ‘qualified’ effect in the internal market.

On the one hand, doubts may legitimately arise as to whether, for example, conduct which affected the sale in the EEA of a few thousand computers, representing an extremely limited percentage of the worldwide market for CPUs, over a particularly short time-frame, could be found to have any immediate, substantial and foreseeable effect in the EEA. On the other hand, it cannot be ruled out that the Lenovo agreements could have had a significant impact on AMD’s continuous capacity to develop, manufacture and market CPUs worldwide, including in the EEA. Seen from Intel’s perspective, the exclusion of the only viable competitor in the market for CPUs can be achieved regardless of whether it chooses to target customers that have operations in the EEA or elsewhere. The desired effect remains the same.

Regrettably, no such analysis was carried out by the General Court. The fundamental question of whether the Lenovo agreements had the capacity to produce any immediate, substantial and foreseeable anticompetitive effect in the EEA remains therefore unanswered. That is so despite its crucial importance to rule on the application of Article 102 TFEU to the alleged abuse originating from those agreements.

The sixth ground of appeal, relating to the amount of the fine and retroactive application of guidelines, was dismissed. Advocate General Wahl thought that the General Court had got something right at last.

The overall recommendation of the Advocate General is that the judgment of the General Court should be set aside. However, the Advocate General considers that the case should be referred back for the General Court to examine all the circumstances of the case and, as the case may be, the actual or potential effect of Intel’s conduct on competition within the internal market. That involves an assessment of the facts which the General Court is better placed to carry out.

Laurence Eastham writes:

Readers will be well aware that an Advocate General’s Opinion is not binding and there must be strong grounds for doubting whether this one will be followed. It is hard to know which would be the more worrying – a wide-ranging (and quite convincing) analysis that is ignored or a General Court acknowledgement that it has got almost everything wrong in such a high-profile case.