A history of challenging big tech – Part II: CPUs & Rebates

A month ago, we started our new series about the history of challenging big tech with a post on Microsoft’s interoperability and Media Player case. Since we cover the cases in this series by their start date rather than their end date, today we report on a case that has not ended yet but began a long time ago: The Intel case has now run for over 13 years (and thus even longer than the already very long legal education in Germany).

The prehistory

The case started more than 20 years ago. On 18 October 2000 Advanced Micro Devices, better known as AMD, launched a complaint with the European Commission, which was supplemented in November 2003. The supplementation of the complaint led the European Commission to initiate an investigation against Intel at the beginning of 2004 which ultimately picked up steam when complaints about Intel also reached the German Federal Cartel Office in 2006.

The product concerned

The complaint concerned Central Processing Units (CPUs) of the x86 architecture. CPUs are one of the key components of any computer and are designed to handle a wide variety of general computing tasks. The x86 family was initially developed by Intel but also produced by other companies. Its architecture is used in most laptops and personal computers until today. While there had been several manufacturers of x86 CPUs initially, essentially only Intel and AMD were left in the year 2000.

The European Commission decision

On 13 May 2009 (a Thursday, not a Friday) the European Commission imposed a fine of EUR 1.06 billion on Intel. It held that Intel had abused its dominant position in x86 CPUs by engaging in two different conducts: First, it granted rebates to computer manufacturers on the condition that they bought all or the vast majority of their x86 CPUs from Intel. Second, Intel made payments to certain customers conditional on halting or delaying the sale of products with AMD CPUs. The latter were called “naked restrictions”.

The European Commission found that the relevant market was the market for x86 CPUs and that Intel had held a market share around 70% in the years between 1997 and 2007 and thus also a dominant position in the years covered by the decision (2002 to 2007). With regard to the rebates, the European Commission argued that Intel had tried to conceal its terms by not including them in its contracts with computer manufacturers. The European Commission found that the practices in question matched the case law in which the European Courts had found certain rebates abusive, e.g. the Hoffmann-La Roche case. In addition to that, the European Commission also conducted an “as efficient competitor analysis”, i.e. (who cannot remember?) comparing the costs of an as-efficient competitor and the price a competitor would have to set to compete effectively. If the comparison shows that the costs are higher than the prices that could be achieved in the market, such a competitor would not be able to compete effectively.

The aftermath

Unsurprisingly, Intel was not too fond of the decision and challenged it in front of the General Court (GC). Among other things, Intel claimed that the European Commission misapplied the “as efficient competitor test” and precisely failed to prove that a “hypothetical competitor” with the same production costs as Intel would not have been able to sell its x86 CPUs at a competitive price while maintaining profitability.

In 2014, the GC dismissed the appeal. The GC held that the rebate schemes operated by Intel restricted competition by their very nature and thus the European Commission had not been obliged to apply the “as efficient competitor test”. The GC very much relied on previous judgements like Hoffmann-La Roche. 

However, Intel still felt that the penalty was too high they had been wronged and appealed the GC’s ruling to the European Court of Justice (EJC). The ECJ set aside the GC ruling on 6 September 2017 and held that in case an undertaking submitted evidence during the European Commission’s procedure that their rebates were not capable of restricting competition, this evidence must be taken into account by the European Commission and therefore the GC erred in law when considering the “as efficient competitor test” irrelevant for the case at hand.

In particular, the ECJ held that the European Commission was required to conduct an in depth analysis, consisting of: “first, the extent of the undertaking’s dominant position on the relevant market and, secondly, 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; it is also required to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market” (para 139 of the decision). Thus, the case was referred back to the GC.

On 26 January 2022 the GC annulled the 2009 decision of the European Commission, applying the guidance it had received from the ECJ. It held that conditional rebates cannot be treated as abusive per se and the European Commission therefore had to establish that the rebates lead to foreclosure effects. To prove this, the GC held, that the European Commission does not have to conduct the “as efficient competitor test”, but if the Commission decided to conduct the test, the GC could also evaluate whether the test was conducted correctly. The GC then concluded that the test itself was not properly conducted by the European Commission in this case and therefore did not show that the rebates of Intel could lead to foreclosure effects.

Key takeaways

Puh, there are many and most of them deal with the interpretation of the law in so much detail that it does not fit in a blog. Important: It can be worthwhile to fight against decisions of the Commission and to have a long breath (this recommendation is of course also valid for the above mentioned law students). Also, the case very much shows how rebates and similar conduct will be assessed by the European courts in the future. However, the European Commission has already announced that it will appeal the GC decision and the ultimate outcome of the case will likely have an effect on other cases the European Commission brought against big tech, e.g. the Google or the Qualcomm cases, on which we will report on in further posts of this series.

Photo by Alexandru-Bogdan Ghita on Unsplash