Intel Round 2: Starting from square one

Senior Vice Presidents Lau Nilausen and Rameet Sangha co-authored a paper in the Competition Law & Policy Debate Journal. The paper analyses the details of the General Court’s assessment of the AEC test in the context of the January 2022 Intel judgement.

Abstract

This article explains how the General Court’s January 2022 Intel judgment raises the bar for assessments of as-efficient competitor (AEC) tests, with reference to six specific aspects of the European Commission’s (the Commission’s) analysis.

Introduction

This article explains how the General Court’s January 2022 Intel judgment raises the bar for assessments of as-efficient competitor (AEC) tests, with reference to six specific aspects of the European Commission’s (the Commission’s) analysis.

On 13 May 2009, the Commission adopted a decision finding that the Intel Corporation Inc (Intel) had infringed Article 102 TFEU and Article 54 of the Agreement on the European Economic Area (EEA) through the use of a combination of conditional rebates and naked restrictions in agreements with five original equipment manufacturers (OEMs) and one retailer. The relevant market was that for x86 CPU microprocessors. The objective was allegedly to foreclose Intel’s only meaningful competitor, AMD. The Commission found that Intel’s abuse of dominance lasted from October 2002 until December 2007.

Intel unsuccessfully appealed the Commission’s decision to the General Court in 2014. The Court of Justice of the European Union (CJEU) subsequently set aside the General Court’s judgment. In doing so, the CJEU clarified that the General Court was required to examine all of Intel’s arguments concerning an AEC test that Intel had submitted during the administrative procedure.

The General Court did so in its decision of 26 January 2022. This is the first time that the General Court engages with the details of an AEC test in a case concerning conditional rebates. The General Court concluded that ‘the AEC test carried out in the contested decision is vitiated by errors’.

Intel challenged in its appeal numerous issues in relation to the Commission’s AEC test. The General Court did not address all of these but limited itself to identifying critical errors in each test undertaken by the Commission. The General Court identified issues in relation to the Commission’s: (i) use of specific point estimates when a range of reasonable assumptions lead to results contradicting the Commission’s conclusions, (ii) reliance on opportunity costs rather than direct cost of supply, (iii) finding of potential foreclosure when the AEC test is passed, (iv) use of failure of the AEC test in one period to find potential foreclosure in a separate period, (v) reliance on ‘reinforcing factors’ of unclear relevance to support a finding of potential foreclosure, and (vi) use of an AEC analysis based on one buyer to infer results for other buyers.

After briefly recapping how an AEC test operates, we assess these points in more detail below. We also discuss issues in relation to: (i) the Commission’s use of an aggregate AEC test across the OEM and retail levels, and (ii) the Commission’s assessment of costs. These raise interesting questions which were not explicitly addressed by the General Court.

In summary, our assessment of the errors identified by the General Court shows that these were all basic, yet fundamental. Whereas the General Court’s judgment raises the bar for regulators’ assessments of AEC tests, it does so from a starting point in which the Commission did not believe that engagement with AEC test evidence was required at all in these contexts. Perhaps consequently, the Commission appears to simply have used selected evidence and inferences to dismiss the potential implications of an AEC test rather than assess the range of AEC test outcomes supported by the evidence.

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This paper was originally published for the Competition Law & Policy Debate Journal here. The views expressed are those of the authors only and do not necessarily represent the views of Compass Lexecon, its management, its subsidiaries, its affiliates, its employees, or clients.

Lau Nilausen, Rameet Sangha, Intel round 2: starting from square one, Competition Law & Policy Debate Journal (2023), https://www.elgaronline.com/view/journals/clpd/7/4/article-p147.xml