Procedural lapses saved the day for Intel

It all started in the year 2009, when the European Commission (the 'Commission') imposed a fine of ?€1.06 billion (highest ever during that time) on Intel for abusing its dominant position across the globe in the market for sale of 'processors' also known as Central Processing Units (CPUs) from October 2002 till December 2007.

The Commission found that Intel implemented a strategy which excluded Advanced Micro Devices Inc. (AMD) who was the only competitor of Intel in the market for sale of processors, worldwide.

What Intel did was, it engaged in a strategy of offering rebates (a kind of discount) to Original Equipment Manufacturers (‘OEMs’) i.e., Dell, Lenovo, Hewlett-Packard (HP) and NEC on a condition that they will exclusively use Intel's processors for all the Personal Computers (PCs) manufactured by them. Interestingly, aforesaid OEMs were the major players in the market for manufacturing of PCs across countries, including in India. This strategy was implemented during the year October 2002 and December 2007 when the demand for PCs across the world was booming.

The Commission found Intel's strategy of offering rebate, to be anti-competitive as it excluded competitors from the market for processors and resulted in reduction in consumer choice and innovation.

Intel, being aggrieved, challenged the order of the Commission before the General Court of the European Union. The General Court concurred with the findings and decisions of the Commission and dismissed Intel's case in its entirety on 12 June 2014.

Intel went ahead and filed an Appeal before the Court of Justice of the European Union. The Court of Justice concluded that the General Court and the Commission erred in assuming that rebates offered to OEMs by Intel, a dominant player, were capable of restricting competition in the market for processors. The Court of Justice further held that the General Court and Commission ought to have considered all the relevant circumstance and facts before deciding the case.

Among others, the Court of Justice also observed that the Commission heavily relied on 'As-Efficient Competitor' (AEC) test while passing the initial judgment. But, neither the General Court nor the Commission examined the line of arguments set forth by Intel challenging the AEC test conducted by the Commission. Since, the General Court failed to examine Intel's line of argument, the Court of Justice referred the case back to General Court for deciding the case after examining the arguments put forth by Intel with regard to AEC test.

Lets take a pause here and understand what is 'As-Efficient Competitor' (AEC) test?

AEC test is a method by which the possible harm to competition can be measured while keeping the degree of competition at highest in a market. This method is applied in cases where the competition is reduced by the presence of a dominating undertaking. The aim of the "as-efficient-competitor"?test?is to assess whether the alleged strategy is capable of excluding a?competitor?which is?as efficient as?the dominant company.

Resuming, the case was referred back to General Court on 6 September 2017 with aforesaid observations.

Now, on 26 January 2022, the General Court has announced its decision holding that Commission's judgment was liable for annulment on the ground that Commission failed to take Intel's line of arguments challenging the Commission's AEC analysis into consideration while passing the initial judgment.

Broadly speaking, the General Court gave 5 reasons before setting aside the initial judgment of the Commission and reducing the penalty from €1.06 billion to nothing. Those 5 reasons are as follows: -

1. The Commission presumed that offering of rebate by Intel to OEMs was anti-competitive without actually examining anti-competitive effects arising out of the alleged strategy; and
2. The Commission erred in law by holding that AEC was not necessary to enable the Commission to establish that Intel’s rebates were abusive; and
3. The Commission was required to establish the existence of infringement with direct evidence(s) and should have observed that the anti-competitive behavior emerging out of the strategy of rebates was successfully defended by Intel by putting forth plausible explanation for such strategy; and
4. The Commission failed to meet the legal standard required to prove that rebates offered to OEMs by Intel had foreclosure effects.
5. The Commission did not properly consider the extend and the period of rebates offered to OEMs by Intel.

On the basis of the above reasoning, the General Court annulled the initial judgment of the Commission and reduced the penalty to 0.

I believe that, Intel used the rebate strategy at a time (2002-2007) when the market for PCs was booming across the globe. Intel, by indirectly entering into exclusive agreements with OEMs, abused it market power in the downstream market.

On the consumer side, the demand for PCs was at a rise and Intel foreclosed the competition by entering into exclusive supply contracts with all the big manufacturers of PCs i.e., Dell, Lenovo, Hewlett-Packard (HP) and NEC.

As far as India is concerned, Intel had the monopoly in the market for processors in the last decade.

Let alone AMD, the market reality in India still shows that other than Intel no CPU manufacturer has ever emerged/entered in the market. It is rational to assume that increase in demand for PCs would have tempted other manufacturers to enter the market to meet the rising demand by the consumers but how can a manufacturer enter a market when OEMs were bound to make all their purchases from Intel? Where would and to whom the new entrant would sell their processors, if not the leading OEMs?