Intel judgment - more than one way to skin a rebate?!

On 24 October 2024, the Court of Justice of the European Union (CJEU) confirmed that the European Commission’s (the EC) 2009 decision, which imposed a (then record) €1.06 billion fine on Intel, was flawed as far as it found that loyalty rebates granted by Intel had anti-competitive effects. The EU top Court held that the EC wrongly relied on the presumption of the anti-competitive nature of royalty rebates and the results of its “as-efficient competitor” (AEC) test while failing to carefully consider evidence presented by Intel that challenged the EC’s assessment. 

While the wording of the judgment leaves some room for the debate about the presumption of the anti-competitive nature of loyalty rebates, it clearly confirms that economic evidence and the AEC test should be used to determine whether rebates are capable of foreclosing competitors from the relevant market. 

Background

In 2009, the EC fined Intel for two practices:

• Naked restrictions which consisted in making payments to original equipment manufacturers (OEMs) conditional upon the OEMs delaying, cancelling, or in some other way restricting the marketing of certain products of one of Intel’s competitors.
• Conditional loyalty rebates which Intel granted to several OEMs and one distributor in exchange for the commitment to purchase all or almost all of their x86 CPUs from Intel. 

Intel’s appeal of the 2009 EC decision started a 15-years long court saga that centred around the burden and standard of proof in determining the exclusionary effects of loyalty rebates and in particular, the role of economic evidence submitted by the dominant undertaking in questioning the conclusions of the AEC test conducted by the EC.

Intel Judgment 

The judgment is a reminder that competition law protects competition rather than competitors and that Article 102 TFEU does not seek to ensure that competitors less efficient than the dominant undertaking should remain on the market. By contrast, dominant undertakings are prohibited from engaging in practices other than those which come within the scope of competition on the merits and should avoid conduct that has exclusionary effects on competitors as efficient as the dominant undertaking itself.

The judgment also echoed previous case law explaining that as a general rule, the restrictive effect on competition, actual or potential, must be demonstrated in light of all the relevant factual circumstances and that this demonstration should be made on the basis of ‘tangible points of analysis and evidence’.

With regards to the conduct at the heart of the dispute, i.e. the granting of loyalty rebates, the court’s reasoning and guidance has been restricted to the facts of the case, i.e. the scope of the EC’s review of the evidence presented by a dominant undertaking to evidence that the rebates in question are not capable of foreclosing competition. In such circumstances, the Court explained, to assess the foreclosure capability, the EC’s analysis cannot be restricted to isolated elements, such as the market share held by the dominant undertaking but should involve: (i) the extent of the company’s dominant position on the relevant market; (ii) the share of the market covered by the loyalty rebates; (iii) the conditions for granting the loyalty rebates; (iv) the duration and amount of the loyalty rebates; but also (v) the existence of a possible strategy to exclude ‘as efficient competitors’ from the market. 

The Court also confirmed that the AEC test is the preferred tool in the assessment of whether the rebates at issue are capable of producing exclusionary effects and that the application of the AEC test by the EC does not escape judicial review. 

The judgment also confirms that the EC cannot conclude that a rebate scheme is capable of producing exclusionary effects in a situation where the results of the AEC test conducted do not confirm such finding. With regards to the application of the AEC test to Intel's rebates, the Court upheld the General Court's findings regarding the errors made by the EC and its failure to take into account the relevant evidence submitted by Intel, and consequently confirmed that the EC had failed to prove to the requisite standard that Intel's loyalty rebates had the potential to foreclose competition.

Judgment vs draft Article 102 TFEU Guidelines¹   

The judgment, which was handed down shortly after the publication of the draft Article 102 TFEU Guidelines, does not mirror the methodology for the assessment of loyalty rebates proposed for the Guidelines by the EC. While the draft Guidelines consider loyalty rebates as de facto exclusive dealing practices with a high potential to produce exclusionary effects and thus, introduces a presumption of such effects, the judgment does not rely on “presumptions”.

However, at the same time, the judgment does not explicitly set the minimum standard for the EC’s analysis of the foreclosure effects in a situation where its presumption or preliminary findings are not contested by the dominant undertaking with economic evidence.

Given that in the 2009 Intel decision, the EC did apply the AEC test – even if incorrectly – the judgment focused on the flaws of the EC’s analysis and did not discuss other means to assess whether the rebates in question are capable of foreclosing equally efficient competitors. Consequently, the Court did not exclude the possibility of finding the rebates to be anti-competitive without applying the AEC test but did not provide suggestions regarding an alternative methodology.

Key take-aways and next steps

While the Intel judgment mostly confirms the position taken by the General Court in its renvoi decision, several key conclusions from the Intel saga are worth reiterating:

• First, not all loyalty rebates granted by dominant undertakings are capable of foreclosing equally efficient competitors and thus, are anti-competitive;
• Second, when designing loyalty rebate schemes, dominant undertakings can assess their potential market effects using the AEC test;
• Third, in rebutting allegations of abuse of dominance, dominant firms can effectively defend themselves by using economic evidence showing the absence of foreclosure effects; 
• Fourth, abuse of dominance allegations may be rebutted by evidence showing the absence of a strategy aimed at excluding as efficient competitors from the market; and
• Fifth, it remains to be seen whether the EC will try to rely on the presumption of anti-competitive effects of royalty rebates or will try to prove their capability to foreclose competitors by means other than AEC test; the impact of the Intel judgment on the EC’s approach to the assessment of loyalty rebates will be clear from the updated Article 102 TFEU Guidelines due in 2025.

While the judgment has ended the debate over the legality of Intel’s loyalty rebates, the saga will continue for a little longer given the 2023 EC decision reimposing a fine for paying Intel’s clients to restrict marketing of rival products is without prejudice to this decision.  

The outcome of the litigation also supports Intel's claim for approximately €593 million in outstanding default interest on the repaid fine, demonstrating the very tangible - and dire for taxpayers - consequences of prolonged judicial review.

The authors wish to thank Amiya Doabia, Trainee Solicitor, Norton Rose Fulbright LLP Brussels for her contribution.