Sandra Marco Colino: Competition Law of the EU and UK 7e

Key case 14.3

Intel COMP/C- 3/37.990 [2009] OJ C227/13—Commission decision (art. 102)

Facts

Acting on a complaint fi led by Advanced Micro Devices (AMD) in 2000, the EU

Commission opened an investigation into Intel-the world's largest microprocessor
manufacturer and AMD's competitor-for potential exclusionary practices. The alleged
breaches related to central processing units, the 'brains' of computers, 'of the x86
architecture' (hereinafter CPU x86). The Commission examined Intel's sales of this
product to original equipment manufacturers (OEMs) on the one hand (such as Dell, HP,
and NEC), and retailers on the other (particularly Media- Saturn- Holding GmbH, based in
Germany).

Intel offered OEM discounts from its general 'Customer Authorized Price'. These rebates
were mainly of two types: contra revenue discounts (direct reduction in the price paid for
the CPU x86) and marketing programme discounts (which include the reimbursement of
promotion expenses). With regard to the retailer based in Germany, Intel paid it
considerable amounts of money for stocking only Intel's CPU x86; it also benefited from
marketing contributions for advertising campaigns. The complex investigations (there were
two) into the potential abusive rebates went on for almost nine years, during which the
Commission gathered evidence by interviewing Intel's clients, conducting inspections, and
requesting information.

Findings

In its 542- page decision, the Commission found that, in the worldwide market for CPU
x86 (considered to be the relevant market in this case), Intel had a dominant position from
October 2002 to December 2007. This is justified with reference to Intel's market share in
the relevant market, which was 'in excess of or around 70 per cent', as well as the
existence of barriers to entry and expansion in the market.

It further estimated that two of Intel's practices were abusive: the discounts offered to
OEMs and the retailer in Germany for purchasing most or all of their CPU x86 from Intel
on the one hand (which are conditional and amount to fidelity rebates similar to those in
the Hoffmann- La Roche case above) e and the payments made by Intel to its customers
for not launching or postponing the launch of products that contained CPUs manufactured
by its competitor, AMD (rather innovatively referred to as 'naked restrictions' in the
decision).

As a consequence, Intel was fined a record €1.06 billion-4.15 per cent of the firm's
turnover in 2008. This is, to date, the biggest fi ne ever imposed on a single company.
In addition, the Commission ordered Intel to cease the illegal practices with immediate
effect.

© Sandra Marco Colino, 2011.

 Sandra Marco Colino: Competition Law of the EU and UK 7e

Comment

This is one of the few occasions in which a major investigation has been conducted under
art. 102 TFEU. The tough stance taken in this decision seems to fi t into what has been
described as an 'unofficial policy of reserving the use of Article [102] for "big fish" in “high
profile” markets’ (‘The European Commission’s Intel Decision’ (December 2009)
Greenberg Traurig Maher). The outcome is somewhat surprising in the light of the recent
review of art. 102, which advocates for a more effects- based approach to abuse of
dominance. However, as the Commission has insisted, the recent guidance is not
applicable given that proceedings initiated long before it was adopted.

These and other aspects are criticized by Geradin in 'The Decision of the Commission of
13 of May 2009 in the Intel Case: Where is the Foreclosure and the Consumer Harm?',
(2010) TILEC Discussion Paper Series 2010-022). He identifies six strands of criticism:

First, the Commission decision could be read as endorsing the formalistic, quasi-
per se case- law of the [Union] courts on rebates. This approach is based on the
(fundamentally unsound) proposition that it is not necessary for the Commission to
demonstrate the presence of foreclosure effects to find that rebates granted by a
dominant firm constitute an abuse incompatible with Article [102 TFEU].

Second, the Commission's argument that it does not have to conduct an effects-
based analysis ... is again formalistic and wrong.

Third, the Commission theory of harm whereby the harm to competition would arise
from the OEM's understanding that the rebates they receive from Intel would be
disproportionately reduced should they decide to purchase AMD CPUs, and the
impact of this understanding on their actual purchasing strategy, is highly
speculative and not a sound basis for an antitrust investigation.

Fourth, some aspects of the way the Commission is assessing the evidence at its
disposal are troubling and might create the impression that the Commission's
analysis may have been biased. Every doubtful question is resolved against Intel;
every inference goes against Intel; … This also raises questions about who bears
the burden of proof. While the Commission bears that burden, some passages of
the decision seem to suggest the opposite.

Fifth, while it is impossible for an outside observer to determine whether the

Commission's "as effective competitor" analysis is adequate, the Commission's
determination of the "contestable share" of the respective demands of the OEMs is
flawed. Moreover, this test is insufficient to form the basis of a decision to condemn
a given rebates regime. …

Finally, the Commission's analysis of the "harm to competition and consumers" is

entirely theoretical. The concrete effects of Intel's rebates on competition and
consumers are not demonstrated, and yet it is clear based on price and
performance trends over the last decade that the microprocessor market is very
healthy. …

© Sandra Marco Colino, 2011.

 Sandra Marco Colino: Competition Law of the EU and UK 7e

Further reading

Articles

BANASEVIC, N., AND HELLSTRÖM, P., ‘When the Chips are Down: Some Reflections
on the European Commission’s Intel Decision’, (2010) 1 Journal of European Competition
Law and Practice 301–10

GERADIN, D., ‘The Decision of the Commission of 13 May 2009 in the Intel Case: Where
is the Foreclosure and the Consumer Harm?’, (2010) TILEC Discussion Paper Series
2010–022

© Sandra Marco Colino, 2011.