Third time lucky: Intel wins loyalty rebate battle at EU top court
In 2009, the European Commission fined Intel EUR 1.06 billion for abusing its dominant position through loyalty rebates and certain ‘naked restrictions’. Fifteen years and four EU court rulings later, the EU top court has found that the Commission’s assessment of the anti-competitive effects of Intel’s loyalty rebates was flawed. This brings the long-running loyalty rebate battle to an end. But Intel is not done trying its luck. Its appeal against the ‘naked restrictions’ fine is pending.
Following the General Court’s judgment (see our February 2022 Newsletter), the ECJ has confirmed that the Commission must carefully consider evidence from dominant companies if they contest that their loyalty rebates were capable of restricting competition. The Commission cannot simply ignore such evidence by relying on the allegedly anti-competitive nature of such rebates and/or its as efficient competitor (AEC) test if that test is contested.
The judgment
The Commission fined Intel for two types of abusive behaviour: (i) loyalty rebates and (ii) naked restrictions consisting of awarding payments to delay and restrict the launch of competing products (‘naked restrictions’). To assess whether the loyalty rebates were capable of restricting competition, the Commission applied an AEC-test and, despite Intel’s evidence to the contrary, concluded that they were. After years of appeals and back-and-forth between the EU courts, it was up to the ECJ to have a final say on the matter.
The ECJ reaffirmed that where a dominant company submits sufficient evidence that its loyalty rebates are not capable of restricting competition, the Commission is obliged to counter this challenge with a thorough economic analysis. The Commission must analyse the following criteria:
- the extent of the company’s dominant position on the relevant market;
- the share of the market covered by the loyalty rebates;
- the conditions for granting the loyalty rebates;
- the duration and amount of the loyalty rebates; and
- the possible existence of a strategy to exclude ‘as efficient competitors’ from the market, for which, as a general rule, the AEC-test is used.
In this case, the Commission failed to take into account Intel’s economic evidence, which validly challenged the accuracy of the Commission’s assessment of the case and in particular its AEC-test. The ECJ therefore upheld the annulment of the fine imposed on Intel in its entirety.
Judgment vs Commission Guidelines
The impact of this ruling goes beyond Intel as it may force the Commission to rethink some of the paragraphs in its recently published draft guidelines on exclusionary abuse (see our September 2024 Newsletter).
According to the draft guidelines, loyalty rebates can be considered de facto exclusive dealing practices. Such practices have a high potential to produce exclusionary effects and can therefore be presumed to be capable of producing exclusionary effects. However, the draft guidelines recognise that if the dominant company provides sufficient evidence that the loyalty rebates are not capable of producing exclusionary effects, the Commission must assess this evidence. They also refer to the five criteria for analysis listed above. The question is whether these guidelines are fully in line with the ECJ’s judgment:
- First, the ECJ does not explicitly use the term ‘presumption’ when it explains the framework for assessing loyalty rebates. It is, however, unclear whether the ECJ does so implicitly when referring to the thorough analysis that the Commission is required to carry out if countervailing evidence is submitted. In any event, this case may not be the best test case for the presumption element of the draft guidelines. Although the Commission found that Intel’s loyalty rebates were abusive on account of their form and therefore did not require an examination of all of the circumstances of the case, it nevertheless did conduct such an examination and carried out an AEC-test. The Commission therefore did not rely on a mere presumption, which may be why the ECJ did not address this issue.
- Second, in relation to the fifth criterion above, the draft guidelines refer to a strategy aimed at excluding “actual or potential competitors” rather than “as efficient competitors”. It is relatively clear from the judgment that only the latter are relevant.
What’s next?
The loyalty rebate battle seems to have come to an end, but the naked restrictions battle continues. After the General Court annulled Intel’s fine in its entirety, the Commission issued a new decision fining Intel only for the second type of allegedly abusive behaviour: the naked restrictions consisting of awarding payments made to delay and restrict competing product launches. Intel’s appeal against this decision is still pending. It is a matter of time before we find out whether Intel will luck out on this one too.
