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Intel’s billion-euro fight puts EU’s winning streak in jeopardy

The Brussels-based commission hasn’t lost a big antitrust case in court in more than 20 years. But, rather than agree to settle cases with the EU’s antitrust enforcers, Intel would be more likely to head to court to appeal any fines, a Brussels-based lawyer said.

By: Bloomberg | Published: September 4, 2017 12:57:31 pm
Intel, European Union, Intel EU chip pricing case, EU investigation, European Commission monopolies cases, EU monopoly case records, Intel chip rebates, legal uncertainty, EU allegation, Qualcomm impact, Dell, Acer, HP, Lenovo, Apple Ireland tax, Intel case Victory for Intel would encourage others “to switch to a fighter mode” said Georg Berrisch, a lawyer for Baker Botts LLP in Brussels (Image Source: Bloomberg)

Intel Corp.’s eight-year clash with the European Union over chip pricing has dragged on so long that the 1.06 billion-euro ($1.26 billion) antitrust fine, a record at the time, now seems like a distant memory. But Wednesday’s ruling in the case at the EU Court of Justice could be a blast from the past if it ends the European Commission’s decades-long winning streak in cases about monopolies.

Victory for Intel would encourage others “to switch to a fighter mode” said Georg Berrisch, a lawyer for Baker Botts LLP in Brussels. Rather than agree to settle cases with the EU’s antitrust enforcers, they would be more likely to head to court to appeal any fines, he said.

The Brussels-based commission hasn’t lost a big antitrust case in court in more than 20 years. Knowing that and facing likely defeat, most companies being probed for monopoly abuse tend to cave in. They agree to a binding deal to change their behavior, shutting down the EU investigation early to avoid fines or get a reduced penalty.

“This may be the case to disturb that trend,” said Pat Treacy, a competition lawyer specializing in intellectual property and technology at Bristows LLP in London.

Qualcomm, Google

Qualcomm Inc. could be the most directly affected by the ruling. The EU is probing whether the company unfairly paid Apple Inc. to only use Qualcomm chipsets in its products. Google, under investigation for inducing phone makers to use its Android software, will also be watching closely.

Intel continued its battle against the commission’s 2009 penalty for using discounts to push out Advanced Micro Devices Inc., and a decision by the EU’s second highest court to back the regulator. Giving hope to the chipmaker, Nils Wahl, an adviser at the bloc’s top tribunal, in October said the earlier ruling mistakenly dismissed the need for regulators to prove that Intel’s payments to manufacturers – or rebates – for buying its chips were illegal.

Intel is one of the longest-running cases in the commission’s history and one of the few to reach the EU’s top court. It’s been closely watched “because it deals with one of the most common and commercially relevant issues, rebates” and deals with “one of the current hot-topics in competition law” about the level of proof needed with infringements, said Treacy.

The EU’s investigation found that Intel impeded competition by giving rebates to computer makers from 2002 until 2005 on the condition that they buy at least 95 percent of chips for PCs from Intel. It said Intel imposed “restrictive conditions” for the remaining 5 percent, supplied by AMD, which struggled to overcome Intel’s hold on the market for processors that run PCs.

Dell, HP

The computer makers coaxed to not use AMD’s chips included Acer Inc., Dell Inc., Hewlett-Packard Co., Lenovo Group Ltd. and NEC Corp., the commission said in 2009. The EU also said Intel made payments to electronics retailer Media Markt on the condition that it only sell Intel-based PCs. It ordered Intel to stop using illegal rebates to thwart competitors, an instruction that Intel complained was unclear.

The company settled an antitrust case with the U.S. Federal Trade Commission in 2010 and agreed not to give PC makers discounts or other inducements in exchange for promises they will buy chips exclusively from Intel. Intel, which declined to comment on the EU case, has said all along that its ‘Market Development Funds’ are volume discounts that are in line with typical industry practices. The EU commission also declined to comment.

Intel’s antitrust fine was the EU’s biggest at the time, more than double the 497 million-euro penalty against Microsoft Corp. in 2004. It represented about 4 percent of Intel’s $37.6 billion in sales in 2008, below the maximum penalty of 10 percent of yearly sales regulators can impose. The record stood until June, when the EU slapped Google with a 2.4 billion-euro penalty for skewing results to thwart smaller shopping search services.

Clarity sought

Lawyers are hoping that the EU court will deliver clarity on each of the issues raised by Intel. The advocate general did exactly this, chiding the lower court over its analysis on rebates, but also on procedural questions where Wahl was critical of the EU’s handling of evidence it gathered against Intel.

To have a ruling that wouldn’t address all these points would “be extremely unsatisfactory,’’ said Berrisch. It would create “huge legal uncertainty.” A key issue is how dominant companies can offer rebates and loyalty bonuses to companies purchasing from them without automatically infringing competition law. “It will be interesting to see what kinds of rebates are automatically illegal, and which can only be found illegal after an analysis of the economic effects,” said Treacy.

Still, Intel could also end up winning on procedural points, without the court addressing the deeper legal questions. In October, Wahl seemed to back Intel’s arguments that its rights to a defense in court were harmed when the EU failed to note details of a meeting with a Dell executive to gather evidence. The lower court was mistaken to say the EU did nothing wrong and that any problems were remedied by providing the information later on, he said.

Apple Tax

A ruling on this point could embolden pending court challenges by Apple and Ireland in which they argue having been unfairly kept in the dark on the process of an EU state aid probe into their tax affairs. Whether an Intel victory ends up emboldening companies to take on a long court appeal in the end comes down to money and stamina.

“To fight the substance of a case, companies need to have a deep conviction that they are in the right, and deep pockets too,” said Treacy. “The legal costs, plus significant business uncertainty over the lengthy period it takes to challenge a commission decision, will undoubtedly continue to be off-putting to many potential challengers.”

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