On 24 January 2018, the European Commission (the "Commission") announced that it had imposed fines totalling € 997.439 million on chipset producer Qualcomm for abusing a dominant position contrary to Article 102 TFEU. While the public version of the decision has not yet been published, the Commission's press release provides several insights into the case.
The Commission found Qualcomm to be dominant in the market for long-term evolution ("LTE") baseband chipsets, which enable smartphones and tablets to connect to cellular networks and are used both for voice and data transmission. This was based on the company having very high market shares, reportedly amounting to more than 90% for the majority of the period investigated (i.e., between 2011 and 2016). In addition, the Commission noted that the market was characterised by high barriers to entry, including the extent of the R&D expenditure to launch an LTE chipset as well as various barriers related to Qualcomm's IPRs.
The Commission found that Qualcomm abused this dominant position by allegedly making significant payments to a key customer on condition of exclusivity. In addition, the Commission claims to have found that consumers and competition suffered harm on the basis of an assessment that took into account, inter alia, the "significant amounts" paid in exchange for exclusivity, the "significant share" of the market covered by the practices (with Apple accounting for on average one-third of demand, and also being able to influence other customer's procurement choices), and a price-cost test submitted by Qualcomm.
This is the first Commission decision on loyalty rebates since the recent judgment of the Court of Justice of the European Union (the "ECJ") in Intel (see VBB on Competition Law, Volume 2017, No. 9, available at www.vbb.com). Reportedly, M. Vestager, Commissioner for Competition, stated at a recent conference that the Intel judgment would not fundamentally change how its services analyse such rebates. However, the Commission's press release in Qualcomm suggests that the Commission did in fact make fundamental changes as compared to the Intel case.
More specifically, in the Intel case, the Commission claimed that loyalty rebates (i.e., rebates conditional on a customer obtaining all or most of its requirements from the dominant undertaking) constituted an infringement of Article 102 TFEU under what was in essence a per se test of illegality. Although the Commission also examined various factors to test whether Intel's rebates actually had the capability of foreclosing competitors, even attempting to apply an as-efficient competitor test, the Commission nonetheless made it clear that its findings in this respect were not part of its formal legal assessment of an infringement (see paragraph 71 of the judgment of the General Court in Case T-286/09).
However, the Commission's interpretation of the case-law was rejected by the ECJ. Instead, the ECJ ruled that when a dominant undertaking accused of implementing loyalty rebates argues that its conduct was not capable of restricting competition and producing the foreclosure effects alleged by the Commission, and submits supporting evidence, the Commission is required to carry out a more detailed assessment of a number of factors, including the share of the market covered by the rebates, the conditions for granting the rebates, the duration of the rebates, and the amount of their rebates (see paragraphs 138-139 of the judgment of the ECJ in Case C-413/14).
It appears from the Commission's press release in Qualcomm that its legal assessment reflected the judgment of the ECJ, and thereby amounted to a fundamental change in approach. Thus, contrary to the per se test applied to Intel, the Commission now appears to acknowledge that its legal assessment of Qualcomm's rebates reflected a more thorough assessment of various market factors, including the "significant amounts paid" by Qualcomm, the "significant share" of the market covered, as well as the price-cost test submitted by Qualcomm.
Whether the Commission properly took such factors into account remains to be seen, given that the decision is not published. Notably, however, Qualcomm immediately announced its intention to appeal the Commission's decision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.