Qualcomm falls prey to EU court’s predatory pricing ruling

Background

On 18 July 2019, the European Commission imposed an EUR 242 million fine on Qualcomm for predatory pricing practices. Qualcomm sold certain chipsets below its Long-Run Average Incremental Cost (LRAIC) to two key customers, Huawei and ZTE. According to the Commission, several of Qualcomm’s internal documents showed that this strategy was designed to eliminate its main competitor at the time, Icera (later acquired by Nvidia). Qualcomm appealed the Commission’s decision before the General Court on several procedural and substantive grounds. 

LRAIC is an appropriate benchmark 

One of Qualcomm’s main arguments was against the Commission’s use of the LRAIC to determine that Qualcomm had priced its chipsets below cost. Qualcomm argued that LRAIC was not an appropriate cost benchmark and that the Commission should have used its Average Variable Cost (AVC) or Average Avoidable Cost (AAC) as a benchmark instead. 

The General Court rejected this argument by reiterating established case law:

1. Prices below AVC: in principle, these must be regarded as abusive, since it is presumed that an undertaking in a dominant position has no economic purpose in applying such prices other than to eliminate its competitors.
2. Prices between AVC and ATC: prices above AVC but below Average Total Costs (ATC) can be considered abusive only if they are part of a plan intended to eliminate competition. 

If the Commission bases a case on the second point, it must prove (a) that prices are below ATC and (b) that this pricing strategy is intended to eliminate a competitor:

1. Prices below ATC: the General Court explained that LRAIC is an appropriate cost benchmark in the semiconductor industry, which is characterised by low variable costs and high fixed costs. The General Court also clarified that LRAIC can never exceed ATC. Therefore, by demonstrating that Qualcomm’s prices were below LRAIC, the Commission automatically demonstrated that the prices were below ATC. This approach aligns with the Commission’s draft guidelines on exclusionary abuse (see our September 2024 newsletter), which explicitly mention LRAIC as an appropriate cost benchmark. 
2. Intention to eliminate a competitor: the General Court found that the Commission could infer from internal Qualcomm documents that the company used this below-LRAIC pricing to exclude Icera from the market. For example, internal emails indicated that Qualcomm aimed ‘to make sure we have a 100% share in Huawei’ and ‘crush Icera at ZTE’.

An implicit AEC test suffices

According to the General Court, the Commission is not required to perform an ‘As Efficient Competitor’ (AEC) test. It therefore dismissed Qualcomm’s appeal on this ground. Prices below ATC but above AVC are by definition capable of driving equally efficient competitors from the market. Consequently, if the Commission proves that prices were below ATC but above AVC, it implicitly applies the AEC test. This supports the Commission’s move away from explicitly applying the AEC test, as stated in the Commission’s draft guidelines on exclusionary abuse (see our September 2024 newsletter).

Rights of defence

Qualcomm also attempted to overturn the Commission’s decision on procedural grounds. In a previous abuse of dominance case, Qualcomm succeeded because the Commission failed to provide notes of interviews with third parties during the administrative stage (see our July 2022 newsletter). Qualcomm was unsuccessful in the present case: 

1. Missing notes: Qualcomm complained that the file lacked notes of certain calls and meetings. The General Court found that Qualcomm had not explained how this affected its defence. Since Qualcomm was present at these meetings, it was fully aware of their content and subjects. Moreover, it could have shared its own notes to leave a written record of any potential exculpatory evidence in the file.  
2. Delayed access to notes: Qualcomm argued that it received certain meeting notes too late. However, the General Court noted that Qualcomm received these notes shortly after the Supplementary Statement of Objections (SSO), giving it sufficient time to review and rely on them in its reply. This differed from the previous case, where Qualcomm received the notes only after the decision had been issued. 
3. Brevity of the notes: Qualcomm complained that certain notes of calls between the Commission and third parties were too brief. The General Court acknowledged this, but found that Qualcomm had failed to show how this affected its defence. This differed from the previous case, where Qualcomm provided a detailed overview of how certain notes could have aided its defence. 

Slight reduction of the fine

Despite multiple unsuccessful pleas, Qualcomm managed to get its fine reduced by approximately EUR 4 million. However, this reduction was unrelated to the substantive and procedural pleas, but was due to the Commission incorrectly applying its 2006 Fining Guidelines. The Commission had based the fine on total sales made during the two-year infringement period. Instead, it should have multiplied the sales made in the last calendar year by two.

Conclusion

As the judgment is the first of its kind in over a decade, it provides useful guidance on predatory pricing practices. The judgment confirms that dominant undertakings pricing below cost will have a hard time escaping predatory pricing allegations. Moreover, it shows that an applicant must present a strong case to have a decision overturned on procedural grounds.