(No) clarity on exclusivity rebates – European Court of Justice ends long dispute on Intel’s rebates practice

The European Court of Justice (“ECJ”) has dismissed the European Commission’s appeal against Intel, bringing to a close a decade-long legal battle over the company’s rebate practices in the market for microprocessors (“CPUs”). The ECJ upheld the General Court’s 2022 decision which annulled the Commission’s € 1.06 billion fine, offering some important clarifications on European competition law – particularly regarding the scope of review required of the General Court as well as the application of the "as efficient competitor test” (“AEC test”).

I. Intel’s “rebate drama” in 5 chapters

Chapter 1 – beginning of a long fight

The case dates back to 2009, when the European Commission (“Commission”) fined Intel € 1.06 billion for allegedly having abused its dominant position on the worldwide market for microprocessors by using exclusivity rebates to exclude its main competitor AMD in the x86 CPU market. The Commission imputed to Intel two types of abusive conduct, namely “naked restrictions” and conditional rebates, vis-à-vis original equipment manufacturers (‘OEMs’) such as Dell, Hewlett-Packard and Lenovo as well as the retailer MSH. According to the Commission Intel’s rebate practices were designed to ensure the OEMs’ and MSH’s loyalty and prevent Intel’s competitors from gaining market share. As regards the conditional rebates (in the following “contested rebates”) more specifically, Intel was found to have granted rebates to OEMs which were conditional on those purchasing almost all of their x86 CPUs from Intel. Similarly, Intel was found to have awarded payments to MSH which were conditional on MSH selling exclusively computers containing x86 CPUs made by Intel.

The Commission took the view that the exclusivity rebates were per se infringements of competition law with the result that an assessment of any anti-competitive effects was not necessary.

Nevertheless, the Commission had carried out an AEC test to evaluate the rebates’ effects on competition. The AEC test is designed to determine whether a competitor which is as efficient as the undertaking in a dominant position and which faces the same costs as the latter, can still cover its costs when applying the same rebate scheme. The AEC test, as applied in the present case, established the price at which a competitor as efficient as Intel would have had to offer its x86 CPUs in order to compensate an OEM or MSH for the loss of any exclusivity payment granted by Intel.

Chapter 2 – invincible Commission

In 2014, the General Court dismissed Intel’s appeal in its entirety and confirmed the Commission’s view that exclusivity rebates granted by an undertaking in a dominant position were by their very nature capable of restricting competition, so that it was not necessary to consider whether the rebates had anti-competitive effects (see for details on the 2014’s ruling Noerr insight).

Chapter 3 – turnaround and new hope for Intel

On Intel’s appeal, in 2017, the ECJ overturned the ruling and found that

• a system of exclusivity rebates used by a dominant undertaking cannot automatically be considered as abusive conduct. However, such a scheme can be deemed abusive if it has the capability to foreclose competition.
• as a general rule the Commission should – and in cases where an undertaking submits evidence that its conduct does not restrict competition, the Commission must – analyse whether those rebates were capable of foreclosing a competitor as efficient as the dominant undertaking.
• the evaluation of the effects on competition includes taking into account the following criteria: (i) the extent of the undertaking’s dominant position on the relevant market, (ii) the share of the market covered by the contested rebates, (iii) the conditions and arrangements for granting those rebates, (iv) their duration, (v) their amount and (vi) the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking.

As the General Court had not considered all of Intel’s arguments on the Commission’s application of the AEC test, the ECJ referred the case back to the General Court.

Chapter 4 – Commission’s misery

Following the ECJ’s judgement, in 2022, the General Court annulled parts of the Commission’s decision. While the General Court endorsed its initial findings concerning the naked restrictions restraining competition, it found various errors in the Commission’s application of the AEC test regarding the contested rebates, in particular the criteria mentioned by the ECJ (see above). This results in the foreclosure capability of these rebates having not been demonstrated sufficiently by the Commission. As a consequence, the General Court annulled the entire fine for Intel, as it did not find itself in the position to identify which amount of the fine related solely to the naked restrictions.

Chapter 5 – Intel’s final victory, or not?

In its ruling on 24 October 2024 the ECJ upheld the General Court’s annulment of the fine and rejected both grounds of the Commission’s appeal.

However, as the entire fine was annulled by the General Court, the Commission adopted a new decision in September 2023 focusing on Intel’s naked restrictions. Currently Intel challenges that decision in a parallel set of proceedings.

II. ECJ’s new main findings

Besides referring again to its findings from its 2017’s judgement (see above), the ECJ emphasised that the AEC test is only one way in determining the capability of exclusivity rebates to foreclose competition. In addition, the ECJ made some clarifications regarding the application of the AEC test and the scope of judicial review.

Application of the AEC Test

• Consideration of all relevant data: The dominant undertaking cannot merely call into question the accuracy of the calculations made in the AEC test, but must establish a deficiency or error that is capable of altering the result, in such a way as to give rise to reasonable doubt as to the validity of the result adopted. However, it is sufficient to show that the result would have been different, if the Commission had taken into account all relevant data.
• Hypothetical "as efficient competitor": The AEC test is a “hypothetical exercise” requiring a detailed analysis of whether a hypothetical competitor with a cost structure similar to that of the dominant undertaking could compete on equal terms, considering all relevant costs and rebates.
• Non-cash benefits: When calculating the effect of rebates on competitors' ability to remain competitive, the Commission also needs to consider non-cash benefits offered by a competitor as efficient as the dominant undertaking, such as warranty extensions. In addition, these non-cash benefits do not necessarily need to have a value equal to cash benefits offered by the dominant undertaking.

Scope of judicial review

The ECJ clarified the scope of the judicial review to be carried out when examining the Commission’s analysis of the foreclosure capability of contested rebates. It is the General Court’s task to identify errors in the Commission’s analysis without substituting its reasoning. This means in particular:

• If the Commission applies the AEC test, the General Court has to examine whether the Commission considered properly the ECJ’s criteria for applying the AEC test (see above).
• The General Court may not examine whether parts of the Commission’s decision could be used to “construct a line of reasoning that demonstrates the capability of the contested rebates to have an anticompetitive foreclosure effect“ other than those which the Commission had relied on to establish that capability.

III. Practical implications of the Intel drama

1. The Intel judgements provide certainty in that way that exclusivity rebates granted by a dominant undertaking are not automatically considered an infringement of EU competition law. The Commission needs to carefully assess the rebates’ effects on competition, in particular foreclosure. A defence is therefore generally possible.
2. The requirements for the Commission to correctly analyse the effects on competition are high (e.g. by using the AEC test). It is possible that the Commission makes mistakes when applying the test. Therefore, the companies concerned should take a close look at the analysis and in particular check whether the AEC test is being applied correctly by the Commission.
3. The judgments do not provide any further detailed guidance when exclusivity rebates are considered having anticompetitive effects. However, companies should carefully evaluate their rebate schemes to ensure they do not inadvertently foreclose competition. We provide some guidance on this topic in one of NOERR’s insights.