The Intel judgment and the extraterritorial application of EU competition

The Intel judgment and the extraterritorial application of EU competition

Much has been already written about the CJEU’s rulings in its recent Intel judgment (Case C-413/14 P Intel v Commission II) regarding the legal test for vetting whether exclusivity and loyalty rebate schemes breach competition. This post looks at Intel from a different viewpoint focusing, instead, on the extraterritorial application of EU competition law. More specifically, it considers the rulings made by the CJEU on the question whether the Commission has asserted, in accordance with public international law, its prescriptive jurisdiction on the agreement concluded by Intel with a non-EU computer manufacturer, the Chinese firm Lenovo.

The legal background

Over the years, the EU courts and the European Commission have developed and applied a number of legal tests to determine whether EU competition rules could apply to non-EU firms, whose conducts may harm competition in the internal market, without infringing public international law. These tests are: i) the doctrine of implementation, ii) the single economic doctrine and iii) the qualified effects doctrine.

i) The doctrine of implementation (Wood Pulp I, Cases 114/85 et al). The Commission has jurisdiction on a firm that has implemented a given restrictive business practice in the EU. As clarified by the General Court (GC) in Gencor, the criterion of implementation is satisfied when a firm has made mere sales in the internal market in whatsoever form.

ii) The single economic doctrine (Dyestuffs, Case 48/69). A non-EU parent company that exercises decisive influence over its EU subsidiary is liable for the competition breaches committed by the latter because the parent company and its subsidiaries form a single economic entity.

iii) The qualified effects doctrine (Gencor, Case T-102/96). A conduct carried by non-EU firms falls within the Commission regulatory when it has economic effects within the internal market and such effects are immediate, substantial and foreseeable.

The EU courts has since long accepted the doctrine of implementation and the single economic doctrine as valid basis for the extraterritorial application of EU competition law made by the Commission. On the contrary, EU courts have been more cautious with regard to the doctrine of qualified effects, though many times the Commission relied on it to review restrictive business practices put in place by non-EU firms. Only recently, in the previous episode of the Intel saga (Case T-286/09, Intel v Commission I), the GC expressly considered the qualified effects doctrine as a lawful basis for the extraterritorial application of EU competition law. Adjudicating on the appeal filed against the infringement decision made by the Commission against Intel, the GC ruled that the conduct of Intel was capable of having immediate, substantial and foreseeable effects within the EEA. Eventually, the GC took the view that the jurisdiction of the Commission on Intel’s restrictive business practices was based not only on the qualified effects doctrine but also on the implementation doctrine. Before Intel v Commission II the CJEU declined to recognize the doctrine of qualified effects as a ground for the extraterritorial application of EU competition law in accordance with public international law.

The judgment of the CJEU

The issue of the extraterritorial application of EU competition law was raised by Intel before the CJEU on appeal before the GC’s judgment in Intel v Commission I. One of the grounds of appeal submitted by Intel was that the GC wrongly accepted the qualified effects doctrine as a ground for the Commission’ s jurisdiction.

In that regard, the CJEU pointed out that the fact a firm that is party to an anticompetitive agreement is based in a non-EU country does not prevent Article 101 TFEU from being applied to that firm. Then, and more importantly, the CJEU observed that the doctrine of qualified effects purses the same objective as the doctrine of implementation. Both of them intend to prevent firms, which adopted outside the EU conducts that have anticompetitive effects liable to have an impact on the EU market, from easily evading the EU competition rules. Accordingly, the CJEU dismissed the Intel’s argument that the qualified effects doctrine cannot serve as basis for the Commission to exert its regulatory jurisdiction on non-EU firms.

Intel also argued that the GC wrongly established that the agreements concluded by Intel and Lenovo would have foreseeable, immediate and substantial effects in the EEA. To reply to this argument, the CJEU considered whether the doctrine of qualified effects was correctly applied to the above anticompetitive agreements. The CJEU began its analysis by reminding that, under the qualified effects doctrine, the application of EU competition law is allowed by public international law when it is foreseeable that the conducts under scrutiny will have an immediate and substantial effect in the EU. It is then necessary to consider the conduct of the firms in question as a whole to determine whether the Commission has the power to apply to them EU competition law. In essence, for there be the Commission’s jurisdiction on a conduct, it is necessary that the effects produced by such conduct within the EU meet the criteria of foreseeability, immediateness and substantiality. Agreeing with the GC, the CJEU took the view that the agreements concluded by Intel with Lenovo satisfied all these criteria.

As for the foreseeability of effects, the CJEU clarified that it is sufficient to consider the probable effects of the conduct on competition for this criterion to be satisfied.  question. Then, the CJEU pointed to the foreclosing strategy pursued by Intel against its rival AMD. The Intel intent when entering into the agreements with Lenovo was to impede any Lenovo notebook fitted with an AMD CPU from being marketed in the internal market and the EEA. Therefore, the GC was wright in finding that the conduct of Intel was capable of producing an immediate effect in the EEA. Lastly, the CJEU stressed that it was appropriate to look at the conduct of Lenovo as a whole to assess the substantial nature of its effects on the EU and EEA markets. The CJEU reminded that the Intel conduct was part of an overall exclusionary strategy aimed at foreclosing AMD’s access to the most important sales channels. Not viewing this comprehensive conduct as a whole would artificially fragment it into a raft of separate forms of conduct. The risk in this case is that the conduct of Intel, which is capable of affecting the competition structure of EEA markets, might escape the Commission’s jurisdiction. Thus, the CJEU rejected the Intel’s argument that the conduct in question would not have substantial effects in the EEA contrary to what was held by the GC.

Conclusion

For the very first time in Intel v Commission II the CJEU expressly embraced the doctrine of qualified effects as a lawful base, under public international law, for the extraterritorial application of EU competition law. Incidentally, the CJEU found that the doctrine of qualified effects was correctly applied to the conduct of Intel that met all the criteria for the application of the doctrine. In sum, in Intel v Commission II gave a judiciary sanction to a methodology employed since long by the Commission to exert its jurisdiction on cross-border restrictive business practices, especially in the context of merger control.

Bearing in mind that the reach of the doctrine of implementation is similar to that of the doctrine of qualified effects, it can be argued that Intel v Commission II, however, may not have far-reaching practical implications. Indeed, most of the practices that are caught by the doctrine of implementation are also caught by the doctrine of qualified effects, the only exception being negative conducts. These conducts, such as agreements concluded outside the EU by which the parties agree to not sell to EU consumers or not to purchase from EU suppliers, are covered only by the doctrine of qualified effects. Accordingly, if the Commission intends to investigate into whether such business practices breach EU competition, it has to rely on the doctrine of qualified effects. In other words, this appear to be the more likely scenario where the doctrine of qualified effects should come into relevance.