Case T-286/09 Intel : Characterisation of rebates

It is time to get deeper into the frenzy of the judgment in Case T-286/09 Intel which we summarised very quickly here in our first post on the case. Let us start by looking at the characterisation of rebate schemes by the General Court.

The big question which is on lots of people’s minds is where the judgment leaves the more “economic approach” adumbrated by the Commission in its Guidance on the Commission’s enforcement priorities in applying Article 82 [EC] to abusive exclusionary conduct by dominant undertakings (OJ 2009 C 45 p. 7; ‘the Article 82 Guidance’) ?

The Court answers that question in two parts.

It provides a formal answer by pointing out that the Article 82 Guidance is intended to set priorities for the cases that the Commission will focus upon in the future, and does not apply to proceedings that had already been initiated before it was published. Since it decided to initiate proceedings against Intel on 26 July 2007, the Commission was not therefore required to follow the Article 82 Guidance in the present case. The fact that the Commission provides indications on the enforcement priorities that will guide its action in the future cannot oblige it to reconsider whether it deal with a case as a priority that it had already decided to deal with as a priority and the treatment of which, moreover, is at an advanced stage. Thus, the Court finds that it is  unnecessary to consider whether the contested decision is in line with the Article 82 Guidance.

So much for a formal answer.

The Court also provides a more substantive answer by characterising rebate schemes in three ways.

1. Quantity rebates linked solely to the volume of purchases made from an undertaking occupying a dominant position. They are generally considered not to have the foreclosure effect prohibited by Article 102 TFEU. If increasing the quantity supplied results in lower costs for the supplier, the latter is entitled to pass on that reduction to the customer in the form of a more favourable tariff. Quantity rebates are therefore deemed to reflect gains in efficiency and economies of scale made by the dominant  undertaking (Case T‑203/01 Michelin v Commission EU:T:2003:250 (‘Michelin II’), paragraph 58).

2. Exclusivity rebates, the grant of which is conditional on the customer’s obtaining all or most of its requirements from the dominant undertaking.

Exclusivity rebates, when applied by an undertaking in a dominant position, are incompatible with the objective of undistorted competition within the common market, because they are not based — save in exceptional circumstances — on an economic transaction which justifies this burden or benefit but are designed to remove or restrict the purchaser’s freedom to choose his sources of supply and to deny other producers access to the market  (Case 85/76 Hoffmann-La Roche, EU:C:1979:36, paragraph 90, and Case T‑155/06 Tomra, paragraph 209). Such rebates are designed, through the grant of a financial advantage, to prevent customers from obtaining their supplies from competing producers (Hoffmann-La Roche, paragraph 71 above, paragraph 90, and Case T‑155/06 Tomra, paragraph 72 above, paragraph 210).

Thus, no need for an economic approach to exclusivity rebates.

3. Other rebate systems where the grant of a financial incentive is not directly linked to a condition of exclusive or quasi-exclusive supply from the undertaking in a dominant position, but where the mechanism for granting the rebate may also have a fidelity-building effect (‘rebates falling within the third category’). That category of rebates includes inter alia rebate systems depending on the attainment of individual sales objectives which do not constitute exclusivity rebates, since those systems do not contain any obligation to obtain all or a given proportion of supplies from the dominant undertaking. In examining whether the application of such a rebate constitutes an abuse of dominant position, it is necessary to consider all the circumstances, particularly the criteria and rules governing the grant of the rebate, and to investigate whether, in providing an advantage not based on any economic service justifying it, that rebate tends to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors from access to the market, or to strengthen the dominant position by distorting competition (see, to that effect, Michelin I, paragraph 74 above, paragraph 73; Case C‑95/04 P British Airways, EU:C:2007:166, paragraphs 65 and 67; and Case C‑549/10 P Tomra, EU:C:2012:221, paragraph 71). Thus an economic examination may be required for that category of rebates.

The Court also held that, according to the case-law, it is only in the case of rebates falling within the third category that it is necessary to assess all the circumstances, and not in the case of exclusivity rebates falling within the second category : exclusivity rebates granted by an undertaking in a dominant position are by their very nature capable of restricting competition.

So what were the main rebates in issue in this case ? The Court agreed with the characterisation of the rebates granted to Dell, HP, NEC and Lenovo made by the Commission as exclusivity rebates falling into the second category.  According to the Commission’s findings set out in the contested decision, those rebates were conditional upon customers’ purchasing from Intel, at least in a certain segment, either all their x86 CPU requirements, in the case of Dell and Lenovo, or most of their requirements, namely 95% in the case of HP and 80% in the case of NEC.

The Court looked more deeply into the nature of exclusivity rebates. It recalled that It follows from Hoffmann-La Roche,  (paragraphs 89 and 90), that an exclusivity rebate constitutes an abuse of a dominant position if there is no objective justification for granting it. The Court of Justice did not require proof of a capacity to restrict competition depending on the circumstances of the case.

Tying customers to the undertaking in a dominant position is inherent in exclusivity rebates. The grant by a dominant undertaking of a rebate in consideration of a customer’s obtaining all or most of its requirements implies that the undertaking in a dominant position grants a financial advantage designed to prevent customers from obtaining their supplies from competing producers. There is thus no need to examine the circumstances of the case in order to determine whether that rebate is designed to prevent customers from obtaining their supplies from competitors.

The Court adds that exclusivity rebates granted by an undertaking in a dominant position are by their very nature capable of foreclosing competitors. A financial advantage granted for the purpose of inducing a customer to obtain all or most of its requirements from the undertaking in a dominant position means that that customer has an incentive not to obtain, in respect of the part of its requirements concerned by the exclusivity condition, supplies from competitors of the undertaking in a dominant position.

A foreclosure effect occurs not only where access to the market is made impossible for competitors, but also where that access is made more difficult (Michelin I, paragraph 85; Case C‑52/09 TeliaSonera Sverige EU:C:2011:83 (‘TeliaSonera’), paragraph 63, and Case 322/81 Michelin II, EU:C:1983:313, paragraph 244). A financial incentive granted by an undertaking in a dominant position in order to induce a customer not to obtain, in respect of the part of its requirements concerned by the exclusivity condition, supplies from its competitors is by its very nature capable of making access to the market more difficult for those competitors.

Although exclusivity conditions may, in principle, have beneficial effects for competition, so that in a normal situation on a competitive market, it is necessary to assess their effects on the market in their specific context (Case C‑234/89 Delimitis EU:C:1991:91, paragraphs 14 to 27), those considerations cannot be accepted in the case of a market where, precisely because of the dominant position of one of the economic operators, competition is already restricted (Case C‑310/93 P BPB Industries and British Gypsum v Commission EU:C:1995:101 (‘Case C‑310/93 P BPB Industries and British Gypsum’), paragraph 11, and the Opinion of Advocate General Léger in that case, points 42 to 45).

While exclusivity rebates look pretty much like a per se offence, the General Court does add it is open to the dominant undertaking to justify the use of an exclusivity rebate system, in particular by showing that its conduct is objectively necessary or that the potential foreclosure effect that it brings about may be counterbalanced, outweighed even, by advantages in terms of efficiency that also benefit consumers (Hoffmann-La Roche, paragraph 90; Case C‑95/04 P British Airways, paragraphs 85 and 86; and Case C‑209/10 Post Danmark EU:C:2012:172 (‘Post Danmark’), paragraphs 40 and 41 (In which I represented the EFTA Surveillance Authority). The Court remarks rather pointedly that the applicant has put forward no argument in that regard in this case.

 

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