Intel's €1bn EU antitrust appeal: What the heck is the AEC test?

Analysis The European Court of Justice's ping-ponging of Intel's billion-euro EU antitrust suit appeal might mark an evolution of rebate-based competition case law, legal eagles have said.

The chipmaker's long-running battle to overturn the $1.06bn fine it received from the ECJ in 2009 - following allegations from rival AMD that it used funds to coerce PC builders into favouring Intel inside - took a new twist yesterday as the case was batted down to a lower court for additional scrutiny.

The Register notes that the fine itself was not kicked out, but a decision made by the lower court is being called into question.

John Schmidt, a competition lawyer at Shepherd & Wedderburn, says all that was typically needed to prove anti-competitive behaviour was to link discounts to exclusivity, but this approach brushed aside some of the tricky details of economic markets.

When it made a competition case against Intel, the European Commission also offered what it calls an "as-efficient-competitor" (AEC) test: an analysis that determines if a dominant company (Intel) forced out competitors (AMD) that were as "efficient" as it was, which would be more rigorous evidence of anti-competitive behaviour.

That's because in a normal market, there are always winners and losers, Schmidt says. So if a dominant company knocks out a competitor that is less efficient, that's not really anti-competitive behaviour. But if it pushes out one that is as efficient or more efficient, that's a problem.

By applying its test, whatever its merits, the Commission found that Intel had forced out what it deemed to be an equally efficient competitor after offered rebates and payments in exchange for exclusivity.

In its appeal, Intel had disputed the application and findings of the AEC test. But when the General Court denied Intel's appeal of the EU fine in 2014, it (as was the de facto standard at the time) chose to ignore the application of the AEC test – and by extension Intel's complaints – altogether in its decision-making process.

So Intel took the case to the top court, the European Court of Justice. In its ruling, the court decided this case was such that the AEC test should in fact be properly evaluated by the General Court, and deferred the case back.

In a mild smackdown of the lower court, the Luxembourg court stated in the judgment, the "General Court erred in law [as regards the relevance of the AEC test] by failing to regard the analysis carried out by the Commission in the decision at issue as relevant and as forming part of the review that the General Court must perform in order to comply with the European Convention for the Protection of Human Rights and Fundamental Freedoms..."

It's not really a winning or losing decision, it just indicates that there's more analysis to do, Schmidt says. He points out that the Commission often wins its cases and it's possible the AEC test it did was fine.

Intel's was a very specific situation, and so it is not clear how this latest decision could be transferred to other domination cases - perhaps only those involving rebates, the competition lawyer tells us.

However, it does seem to suggest that the burden of proof in these kinds of litigations is widening, he adds.

That could make it more difficult for small dominant businesses to engage in competition suits, since they couldn't rely on presumptions and would need more proof.

Ioannis Lianos, a competition law professor at University College London, tells us the reality of the Intel case's effects on future proceedings is not clear since the wording in the ECJ ruling is "ambiguous".

An equally plausible interpretation of the decision is that rebuttals can exist if, and only if, the Commission relies on the AEC test when determining anti-competitive behaviour, Lianos adds.

He says we'll need to wait until the General Court makes it decision or there are future cases to learn more.

A spokeswoman for the Commission on competition did not respond to a request for comment about Intel's criticisms of the AEC test, but wrote in a statement that the Commission "will study the judgment carefully". ®