The Ruling of the EU Court of Justice in Intel
By Giuseppe Colangelo
Almost ten years have passed since the Commission began its proceeding against Intel. However, the lawfulness of Intel’s practices remains inconclusive. In its recent judgment (Case C-413/14 P), the Grand Chamber of the Court of Justice of the European Union (CJEU) set aside a previous ruling in which the General Court affirmed the decision of the Commission to prohibit Intel’s practices, and referred the case back to the General Court.
The judgment turns on efficiency-enhancing justifications. The Grand Chamber of the CJEU, just as in Post Danmark I (Case C-209/10), reiterates that antitrust enforcement cannot disregard procompetitive effects even in the case of unilateral conduct, such as loyalty rebates. Although Article 102 does not reproduce the prohibition-exemption structure of Article 101, for the sake of consistency there must be room to allow unilateral practices as well. Therefore, like agreements restrictive by object, unilateral conduct which is presumed to be unlawful, as loyalty rebates are, can also be justified and rehabilitated because of the efficiency and consumer welfare benefits it can produce. The General Court’s formalistic approach towards Intel’s rebates demonstrated the need for the CJEU to clarify the role that assessing procompetitive effects must play in the analysis of dominant firms’ practices.
To this end, the CJEU suggests ‘clarifying’ the interpretation of Hoffman-La Roche (Case 85/76), one of the totems of EU antitrust orthodoxy. Unfortunately, it accomplishes exactly the opposite. Intel clearly supports the economic approach by denying a formalist, or per se, shortcut to the authorities. The abusive character of a behavior cannot be established simply on the basis of its form.
In Hoffman-La Roche, the CJEU pronounced that it considered any form of exclusive dealing anathema. To make the link to the exclusive dealing scenarios depicted in Hoffman-La Roche apparent, the General Court introduced a class of ‘exclusivity rebates’ in its ruling on Intel’s pricing practices. This is a new category of discounts different from the previously defined classes of quantity and fidelity rebates.
However, in its judgment the CJEU offers a different interpretation of the law on fidelity rebates. For those cases where dominant firms offer substantive procompetitive justifications for their fidelity rebates, the CJEU requires the Commission to proffer evidence showing the foreclosure effects of the allegedly abusive practice, and to analyze: (i) the extent of the undertaking’s dominant position on the relevant market; (ii) the share of the market covered by the challenged practice as well as the conditions and arrangements for granting the rebates in question, their duration and their amount; (iii) the possible existence of a strategy aimed at excluding from the market competitors that are at least as efficient as the dominant undertaking. As expressly acknowledged by the CJEU, it is this third prong – that is, the assessment of the practice’s capacity to foreclose – which is pivotal, because it “is also relevant in assessing whether a system of rebates which, in principle, falls within the scope of the prohibition laid down in Article 102 TFEU, may be objectively justified.”
The Intel ruling is also a significant step towards greater legal certainty. In addition to being able to effectively assert efficient justifications to overturn the presumption of anti-competitiveness, firms also know that for the CJEU the ‘as efficient competitor test’ (AEC test) represents a reliable proxy (although not the single or decisive criterion) of analysis that cannot be ignored, especially when used by the Commission in its evaluations.
The application of the effect-based approach to all unilateral conduct of dominant firms brings the European experience closer to the rule of reason analysis carried out under Section 2 of the Sherman Act. As indeed is explained by the Court of Appeals in Microsoft [253 F.3d 34 (D.C. Circuit 2001)], when it comes to monopolistic conduct, where the task of plaintiffs complaining about the violation of antitrust law is to show the exclusionary effects of the conduct at stake and how this has negatively affected consumer welfare, the task of the dominant firm is to highlight the objective justifications of its behavior.