European Commission Slaps Interim Measures Against Broadcom: The Perfect Test-Case?
by Giulio Preti
Introduction
On 16 October 2019, the European Commission decided to impose interim measures on Broadcom Inc, ordering the undertaking to stop applying part of its distribution agreements. The decision stemmed from a finding that the American software company was exploiting its dominant position in three distinct markets in violation of Article 102 of the Treaty on the Functioning of the European Union (TFEU). [1]
Interim measures had not been taken by the European Commission (the Commission) for over 20 years,[2] making this decision the leading authority within the field of competition law. This contribution analyses the legal basis for interim measures, their significance, and whether the decision is likely to be upheld on the appeal launched by Broadcom before the General Court of the European Union.[3]
- Interim Measures in Competition Law: The Legal Context
Interim measures in the realm of competition law were established by Article 66(5) of the Treaty establishing the European Coal and Steel Community (the ECSC Treaty) 1951.[4] Article 66(5) of ECSC Treaty authorised the High Authority[5] to ‘take or cause to be taken such interim measures of protection as it may consider necessary to safeguard the interests of competing undertakings and of third parties’. Regulation 17/62,[6] the first Regulation introduced to implement the antitrust provisions, however, did not have any provisions concerning interim measures. Nevertheless, the European Court of Justice (the Court) upheld the decision of the Commission to impose such measures in Camera Care,[7] a case which ‘warrants close study as an important evolution in the enforcement of EEC (European Economic Community) competition rules’.[8] Following Camera Care,[9] the Commission dealt effectively with another complex case by imposing interim measures.[10] The number of cases brought before the Court, however, was limited as the Commission ‘preferred third parties to seek interim relief in their domestic courts or from National Competition Authorities (NCAs)’.[11] Furthermore, the lack of a clear legislative foundation for the measures caused the Commission to use them carefully. In order to deal with this issue, Article 8 of Regulation 1/2003 reinstated into law the power of the Commission to impose temporary interim orders in the presence of: ‘(i) risk of serious and irreparable damage to competition and, (ii) on the basis of a prima facie finding of infringement’.[12] It is important to note at this point, that other legal enactments had already granted such power to the Commission in specific sectors, such as state aid,[13] and air transport control.[14] Ever since Regulation 1/2003 entered into force, however, no interim measure had ever been imposed.
- The Importance of Interim Measures
Interim measures are seen in the field of competition law as cease-and-desist orders ‘empowering the Commission to adopt [the measures] if these could be considered as indispensable for the effective exercise of its functions’.[15] Their importance can be summarised in the legal maxim: ‘justice delayed is justice denied’. The effectiveness of remedies, in fact, tends to be zero if they are imposed years or decades after the abuse has been carried out. For example, what benefit could the victim of the abuse receive if the finding was made after the competitor had already gone into bankruptcy due to the abuse itself? The significance of interim measures has been explained by Michael Grenfell, Director of the Competition & Markets Authority (CMA), who pointed out how ‘an anti-competitive practice can so weaken a competitor which is harmed by it that the damage to competition (and, therefore, to consumers) has been done before one gets to the infringement decision designed to address it’.[16] Accordingly, the CMA sees these measures as key to an effective enforcement strategy.[17] Similarly, the European legislator recognised the importance of giving the power to impose interim measures to NCAs, specifying in Directive 1/2019 that the European standard represents the minimum power that NCAs must have, allowing, however, Member States to extend such powers if they deem it appropriate.[18]
- Will the Decision Stand?
The Broadcom decision satisfies the criterion of prima facie abuse set forth by law in order to impose interim measures and with the requirement of irreparable harm to competition and it is does not infringe on the principle of proportionality.
With respect to the prima facie finding of infringement, the Court has previously held that exclusivity and loyalty rebates are prima facie prohibited, without need to establish their anticompetitive effects.[19] Furthermore, the European Commission does not need to prove a ‘clear and flagrant’ infringement, but rather a mere probability that the behaviour will be qualified as an infringement at the end of the procedure.[20] It may be argued that the Court has shifted to a more ‘economic approach’ in assessing similar abuses of dominant position in Intel.[21] The case, in fact, marked the first time the Court acknowledged the obligation of the European Commission to address all the economic evidence brought forward by the undertakings. The details of the present case have not yet been made public. However, even if the Commission did not carry out a full economic analysis at this stage, this should not prejudice the outcome of the case. Following Intel,[22] an exclusivity rebate enacted by a dominant firm can still be considered presumptively capable of harming competition, thus fulfilling the criterion of prima facie infringement. In fact, the Court itself clarified in Intel that the presumption of illegality of these schemes was still applicable.[23] As held in Hoffman[24], exclusivity rebates can be treated almost as a ‘by object’ violation under Article 102 TFEU insofar as they are capable of restricting competition.[25]The ‘by object’ standard leaves ample leeway to the Commission, as such agreements ‘can be regarded, by their very nature, as being injurious to the proper functioning of normal competition’[26] thus not requiring an economic analysis of the effects of the agreement. For this reason, the decision of the European Commission appears to comply with the standard set forth by the Court and will unlikely be quashed on appeal on those grounds.
With respect to the criterion of irreparable damage to competition, the Commission linked the damage to the possible effect on ‘a number of tenders that would be launched in the future, also in relation to the upcoming introduction of the Wi-Fi 6 standard for modems and TV set-top boxes’.[27] The ECSC Treaty and Camera Care[28] provided that interim measures may be taken ‘only in cases proved to be urgent in order to avoid a situation likely to cause serious and irreparable damage to the party seeking their adoption, or which is intolerable for the public interest’.[29] However, the focus of Regulation 1/2003 is not on the effects on competitors, but on the effect on competition as such. This change in approach, furthermore, respects the standard required by the Court in abuse of dominance cases where the attention is always on the structure of the market, rather than on the effects on competitors.[30] The European Commission has shown a clear effect on the structure of the markets where Broadcom has allegedly abused its dominant position. The exclusion of competitors from the auction for the new Wi-Fi standard would indeed damage the structure of the market. It may be argued that the Commission did not meet the standard imposed by Camera Care[31] as it considered possible effects, instead of likely effects. It is unlikely that the Court will take issue with this semantic difference, which, as advised by AG Kokott, should not be considered as long as they do not affect the ‘actual yardstick’ imposed by the Court.[32]
Finally, the jurisprudence of the Court on interim measures requires the Commission to take into account the effects on the business which will be affected by the measures.[33] This can be seen as a declination of the general principle of proportionality which requires that measures adopted by EU institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question. Where there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued’.[34] In the case at hand the European Commission has imposed an obligation on Broadcom to stop enforcing exclusivity clauses from its contracts with the purchasers of the chipsets, and therefore, to terminate the infringement. As it is not possible to envisage a possibly less restrictive remedy, it must be considered that the proportionality criterion has been satisfied.
Conclusion
The decision of the Commission is revolutionary and may represent a significant step in the application of interim measures in future cases. Broadcom’s infringement is clear, it risks having a significant effect on competition and the measure is proportionate. Therefore, the decision is likely to stand the judgement of the Court. Furthermore, it will allow the Court to provide further guidance on the presumption of illegality of exclusivity rebates within the context of interim measure. Finally, this is the first case on interim measures where the Court will have to face the standard of ‘damage to competition’ rather than ‘damaged to competitors’ as provided for in Article 8 of Regulation 1/2003.
The interpretation of the Court will be fundamental for future cases to set the burden of proof the European Commission must fulfil. For example, will it be enough to prove that the rebate scheme risk eliminating a competitor? Or will the Commission be required to provide, already at this stage, a full economic analysis on the effects of the allegedly anti-competitive behaviour? Whatever route taken will surely set the tone for future decisions of the Commission and have an effect on the enforcement of Article 102 TFEU.
[1] European Commission Press Release, ‘Antitrust: Commission imposes interim measures on Broadcom in TV and modem chipset markets’ (16 October 2019) <https://ec.europa.eu/commission/presscorner/detail/en/IP_19_6109> accessed 30 November 2019; The full decision has not been published yet.
[2] Case T-184/01 IMS Health v Commission ECLI:EU:T:2005:95 (interim measures) <http://curia.europa.eu/juris/showPdf.jsf;jsessionid=8C22479B581E6565D02B451BE7E155D7?text=&docid=86394&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=5777058> accessed 13 March 2020.
[3] Case T-876/19 Broadcom v Commission ECLI:EU:C:2020:118 <http://curia.europa.eu/juris/document/document.jsf?text=&docid=223802&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=907105> accessed 26 March 2020.
[4] Treaty Establishing the European Coal and Steel Community 1951 (The ECSC Treaty). Available at <https://eur-lex.europa.eu/eli/treaty/ceca/sign>.
[5] The High Authority was tasked with reaching the objectives set forth in the Treaty according to Article 8 of the ECSC Treaty.
[6] Regulation No 17: First Regulation implementing Articles 85 and 86 of the Treaty, in Official Journal of the European Communities, 204/62, of 21 February 1962, p 87 (no longer in force).
[7] Case 792/79, Camera Care Limited v Commission EU:C:1980:18. <http://curia.europa.eu/juris/showPdf.jsf;jsessionid=9ea7d2dc30d6ea81985f5f1542dd8206e07c24b9e331.e34KaxiLc3qMb40Rch0SaxyLbN50?text=&docid=90631&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=122075> accessed 30 November 2019.
[8] V Morris, ‘Interim Measures in ECC Competition Cases’, (1985) 3 International Tax and Business Lawyer, 102.
[9] Camera Care (n 7).
[10] Commission Decision 85/609/EEC, ECS/AKZO CS/AKZO, <https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:31985D0609&from=EN> accessed 30 November 2019.
[11] R Wish and D Bailey, Competition Law (9th edn, Oxford University Press 2018), 263.
[12] Council Regulation (EC) No 1/2003 [2003] on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty OJ L1/1.
[13] Regulation (EC), No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty [1999] OJ L 83, 27 March 1999, <https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:31999R0659&from=EN>.
[14] Council Regulation (EEC), No 3975/87 laying down the procedure for the application of the rules on competition to undertakings in the air transport sector [1987] OJ L 374, 31 December 1987 <https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:31987R3975&from=EN>.
[15] L. O. Blanco, EU Competition Procedure (3rd edn Oxford University Press 2013) 613-614.
[16] M Greenfell, ‘UK Competition Enforcement – where next?’ <https://gov.uk/government/speeches/uk-competition-enforcement-where-next> accessed 30 November 2019.
[17] Letter of Rt Hon Lord Tyrie to the Secretary of State for Business, Energy and Industrial Strategy of 21 February 2019. <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/781151/Letter_from_Andrew_Tyrie_to_the_Secretary_of_State_BEIS.pdf> accessed 13 March 2020.
[18] Directive (EU) 2019/1 of the European Parliament and of the Council [2018] to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market OJ L11 (ECN Plus Directive), Recital 23.
[19] Case 85/76, Hoffman La Roche, ECLI:EU:C:1979:36, [89]-[90] <https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:61976CJ0085&from=EN>. accessed 30 November 2019.
[20] Case T-44/90, La Cinq SA v Commission, ECLI:EU:T:1992:5, [32] <https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:61990TJ0044&from=EN> accessed 30 November 2019.
[21] Case C-413/14 P Intel v Commission <http://curia.europa.eu/juris/liste.jsf?num=T-286/09#> accessed 30 November 2019.
[22] ibid.
[23] ibid.
[24] Case C 85/76 Hoffman – La Roche v Commission ECLI:EU:C:1979:36, [89] <http://curia.europa.eu/juris/liste.jsf?language=en,T,F&num=85/76> accessed 13 March 2020.
[25] Ibáñez Colomo, Pablo, ‘The Future of Article 102 TFEU after Intel’ (2018), page 10 Available at SSRN: <https://ssrn.com/abstract=3125468>.
[26] Case C-209/07, Competition Authority v Beef Industry Development Society and Barry Brothers, [2008] ECR I-8637, [17].
[27] European Commission Press Release, ‘Antitrust: Commission imposes interim measures on Broadcom in TV and modem chipset markets’, 16 October 2019.
[28] Camera Care (n 7).
[29] ibid [19].
[30] Case 6/72 Continental Can v Commission [1973] ECR 215, [26]; Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461,[91], [123] and [125]; Case 322/81 Michelin I v Commission [1983] ECR 3461,[70]; Case 31/80 L’Oréal v De Nieuwe AMCK [1980] 3775,[ 27].
[31] Camera Care (n 7).
[32] C-95/04 P British Airways v Commission ECLI:EU:C:2006:133, Opinion of AG Kokott, [76]. <http://curia.europa.eu/juris/showPdf.jsf;jsessionid=C71B0E441A58B8FCAAE4A6A9DBDC1C69?text=&docid=56205&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=7246190> accessed 23 February 2020.
[33] IMS Health (n 2).
[34] Case T-704/14 Marine Harvest v Commission EU:T:2017:753,[580]; <http://curia.europa.eu/juris/document/document.jsf;jsessionid=EDA3A4FF5AB538C371484183C0D8E11B?text=&docid=196102&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=7458840> accessed 13 March 2020.