1. Introduction

Companies commonly use rebates to maximise sales. From a competition law perspective, such rebate schemes are ordinarily unproblematic. However, dominant companies may apply rebates in a way that distorts competition, in particular when applied in a discriminatory or arbitrary manner or – under certain circumstances – if they secure de facto exclusivity for the supplier.

In a highly anticipated judgment, the Court of Justice of the European Union (CJEU) has now had its say in the long-running abuse of dominance case concerning Intel’s past rebate practices in relation to its computer processing chips (CPUs). This follows the 2009 imposition of a €1.06 billion fine by the European Commission (Commission) on Intel and an appeal by Intel to the General Court (GC) in 2014, which upheld the Commission's finding that the rebates were abusive in the sense of Article 102 Treaty on the Functioning of the European Union (TFEU).

The CJEU has overturned the GC's 2014 judgment, instead endorsing Advocate General (AG) Wahl’s opinion, and held that the abusive character of exclusive rebates needs to be established based on all circumstances of the case. If the argument is put forward by the company, this has to include a so-called as efficient competitor analysis.

The CJEU’s judgment does not mark the end of the dispute as the GC will now have to re-assess whether, under the guidance issued by the CJEU, Intel’s behavior was in fact abusive. Nevertheless, the judgment will have an immediate impact, as the additional scope it offers for the lawful use of exclusive rebates is likely to see many (potentially) dominant companies review their use of such rebates. 

2. The CJEU Judgment

In its ruling, the CJEU essentially dispenses with the GC's automatic illegal categorisation of exclusivity rebates and directs that, to establish whether Intel’s rebates were capable of having foreclosure effects, all relevant circumstances must be re-assessed by the GC.

According to the CJEU, such circumstances include the extent of Intel’s dominant position on the relevant market, the market coverage of the rebates and the conditions and arrangements for granting the rebates in question, as well as their duration and value. Moreover, the CJEU confirms that rebates may be objectively justified by advantages and efficiencies, which benefit the consumer. Favourable and unfavourable effects must be carefully balanced to reach a conclusion on the legality of the rebates.

In connection with the assessment of actual foreclosure effects and potential justifications for such effects, the CJEU invokes the as efficient competitor test, i.e. to what extent equally efficient competitors can still compete despite the rebates offered by the dominant firm – it being generally accepted that competition rules should not protect less efficient companies. The CJEU ruled that, if the as efficient competitor test is advanced as a justification, the Commission (and the GC) must assess in detail whether the rebates would prevent an equally efficient competitor from competing with the dominant company.

Intel’s further procedural and jurisdictional challenges were rejected by the CJEU:

• Intel argued that the Commission had committed procedural irregularities affecting Intel's right of defence by failing to record interviews with a key witness. While the CJEU confirmed that such interviews, formal or informal, must be recorded, this did not have an impact on the finding and the complaint was hence rejected. 
• Further, Intel argued that the Commission lacked territorial jurisdiction to bring proceedings against it for alleged anti-competitive conduct in relation to its customer Lenovo in China. The rebates in question concerned CPUs sold to China and used in personal computers, which were then imported into Europe by Lenovo. The CJEU confirmed both the Commission’s and GC’s views that requirements for transnational anticompetitive effects and foreseeability of such effects must not be too high. 

3. Practical consequences

The CJEU's judgment offers an important clarification on the assessment of exclusivity rebates. That clarification is likely to trigger reviews of pricing strategies by (potentially) dominant companies. To date, a reasonable – if not mandatory – approach from a compliance perspective has been not to apply exclusive – or “nearly” exclusive – rebates at all, in case such rebates automatically infringed Article 102 of the TFEU, potentially leading to significant fines. Companies may now seek to assess whether such rebates might actually not have foreclosure effects or, if they do, nevertheless be justified through efficiencies. This assessment needs to be undertaken with great care, having regard to the economic context in which the rebates are being offered and closely observing the next developments in the Intel case.

As for the Intel case itself, it remains to be seen how the GC will put the CJEU’s guidelines into practice, re-assessing the alternative facts-based analysis the Commission undertook back in 2009.

4. Background

In 2009, the Commission found that Intel infringed Article 102 of the TFEU by abusing its dominant position for CPUs between 2002 and 2007. The Commission's €1.06 billion fine was, until very recently (Google), the highest fine ever imposed on a single company.

The Commission identified two forms of abusive conduct:

• Conditional rebates and payments: Intel granted a series of rebates to four computer manufacturers (Dell, HP, Lenovo and NEC), which were conditional on the manufacturers purchasing all or almost all of their CPUs from Intel. In addition, Intel awarded payments to Media Saturn Holding, Europe's largest PC retailer, conditional on them exclusively selling computers with Intel x86 CPUs.
• Other – so called “naked” – restrictions: Intel also made direct payments to three manufacturers (HP, Acer, and Lenovo) to stop or delay the launch of specific products of its competitor, AMD, and to limit the sales channels available to AMD.

In 2014, the GC rejected Intel’s appeal and upheld the Commission’s decision in its entirety. It categorised rebates into three categories for the purposes of assessing whether they infringe competition law when offered by dominant companies:

• Quantity rebates, which are linked solely to the volume of purchase, are in principle permissible as they do not foreclose the market to competitors.
• Exclusivity rebates, conditional on customers purchasing all – or most – of their requirements from a dominant company, are by their very nature capable of restricting competition and as such are abusive.
• Other loyalty enhancing rebates that do not fall within either of the above two categories have to be assessed on a case-by-case basis (i.e. taking into account all circumstances of the individual case).

The GC held that Intel’s rebates fell into the "exclusivity" category and were therefore illegal per se, i.e. irrespective of their actual effects. Having done so, the GC therefore declined to examine the effects analysis undertaken by the Commission.

Intel took the case to the CJEU, appealing the legal characterisation of exclusivity rebates by the GC, as well as further jurisdictional and procedural points. In his opinion published on October 20, 2016 the AG largely supported Intel’s arguments.