Brussels Brief - May 15, 2009
May 15, 2009
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Key Developments
Commission Fines Intel EUR 1.06 Billion For Abusive Practices
Contact Philip Bentley
The European Commission has imposed a fine of EUR 1.06 billion (approx. USD 1,450 million) on Intel Corporation for violating European competition rules. Intel was found to have abused its dominant position in the market for computer chips (x86 central processing units) by engaging in a series of illegal anti-competitive practices.
The Commission found that Intel had implemented a rebate scheme which, in essence, ensured that the manufacturers purchased all or most of their requirements from Intel. In one case, the rebate only applied if the manufacturer purchased 95 per cent of its requirements from Intel and in another case that it was conditional on the purchase of 80 per cent of all requirements. While rebates can be pro-competitive, the application by a dominant company of rebates which are conditional on buying less of a rival’s products, or not buying them at all, are often considered to be abusive. For this reason, Intel’s rebate scheme was condemned by the Commission as an abuse of its dominant position.
In addition, the Commission found that on a number of occasions Intel paid manufacturers to halt or delay the production of computers incorporating the chips manufactured by its rival, AMD. Intel also made payments to a large retailer on condition that it stock only computers with Intel’s computer chips.
The EU Commissioner for Competition, Neelie Kroes, denounced Intel’s activities saying “Intel has harmed millions of consumers by deliberately acting to keep competitors out of the market”. The fine of EUR 1.06 billion is the largest ever imposed by the European Commission and amounts to approximately 4 per cent of Intel’s turnover in 2007 (EUR 27,972m). Intel has issued a statement saying that it will appeal against the decision.
State Aid: Commission Approves Additional Aid Measures From Belgium and Luxemburg For Fortis
Jacques Pieters
To facilitate the acquisition of the Fortis group by BNP Paribas, both Belgium and Luxembourg have provided a number of aid measures. Most notably these include a State guarantee for Royal Park Investments (RPI) which currently holds most of the bad debt owned by the Fortis group and a State guarantee for the (future) obligations of Fortis holding to its subsidiary, Fortis bank.
The European Commission has announced it does not consider these measures to be illicit State aid since they constitute one of the conditions of BNP acquiring Fortis, which, according to the Commission, is the best scenario to guarantee the long term survival of the bank. The Commission declared that it had taken into account Fortis’ unusual and specific circumstances and that it had obtained clear undertakings from all parties involved that should prevent unnecessary competition distortion.
The Commission has, however, rejected the concerns over the Fortis-BNP deal raised by a group of minority shareholders.
Competition: The CFI Maintains Fines Imposed on Members of Copper Industrial Tubes Cartel
Matthew Kopetski
On 16 December 2003, the European Commission fined Outokumpu, the KME Group and Wieland-Werke (Wieland) a total of EUR 78.73 million for participating in a cartel on the copper industrial tubes market. Each business brought an action before the Court of First Instance (CFI) to have their fine annulled or reduced. The CFI rejected each application in three separate judgments issued on 6 May 2009.
Wieland argued that the Commission should have excluded the cost of raw materials when calculating the size of the market for copper industrial tubes since Wieland has no control over this cost. Because it was included, Wieland argued that the Commission exaggerated the size of this market, which led it to set a higher starting amount for calculating the fine. The CFI rejected Wieland’s argument stating that all manufacturers face certain costs that they have no control over but which constitute an essential element of their business and therefore must be included in the calculation of turnover.
Outokumpu appealed the Commission’s decision to increase its fine for recidivism. It argued that the Commission was not entitled to base its finding on a previous decision in which it was found that Outokumpu had violated Article 65 of the European Coal and Steel Community Treaty (ECSC). The CFI rejected this argument, stating that Article 65 ECSC and Article 81 of the Treaty are inspired by identical legal concepts. Once the Commission has adopted a decision finding that an undertaking has participated in a cartel, that decision may serve as the basis for assessing the propensity of that undertaking to infringe Community rules on cartels.
KME argued that the Commission failed to give proper consideration to the poor financial health of the copper industrial tubes sector as a mitigating circumstance and should have reduced KME’s fine by a greater amount. The CFI rejected this argument stating that although the Commission may take into account the economic situation of a given sector as a mitigating circumstance, it is not required to do so.
State Aid: Commission Approves State Aid to London & Continental Railways and Eurostar
Mary Dineen
The European Commission has approved GBP 5.169 billion of State aid for the high speed rail link service between London and the Channel (HS1) and the restructuring of Eurostar (UK) Limited (EUKL). The operation notified by the United Kingdom involves public support mainly in the form of debt cancellation and puts in place a sustainable financial structure for the high speed rail link.
The operation entails reorganising the financing of the HS1 infrastructure by assuming all of London & Continental Railways’ debts. The operation will involve the consolidation of all infrastructure activities into a single entity. This will then be sold, resulting in the unbundling of infrastructure and transport activities and a significant reduction of access charges.
It also involves the restructuring of EUKL by recapitalising the company, in particular allowing for fleet replacement. All guarantees benefiting to EUKL will be removed and relations with the infrastructure activities will be established on a commercial basis at market rate. The Commission made sure that the restructuring involves sufficient compensatory measures in favour of possible competitors. Proper independent monitoring of the whole process will be guaranteed and the United Kingdom commits itself to the “one time last time” principle.
Competition: Commission to Intervene in French Online Selective Distribution Dispute
Mélanie Bruneau
The European Commission is preparing to submit comments before the Paris Court of Appeal in a case brought by cosmetic manufacturer Pierre Fabre Dermo-cosmétique (Pierre Fabre) against a French Competition Authority decision.
In October 2008, the French Competition Authority ordered Pierre Fabre to amend its contracts with approved distributors prohibiting them to sell certain cosmetic brands (e.g., Klorane, Avene, Ducray) online. Pierre Fabre claimed that online sales do not meet customers’ and health professionals’ expectations regarding its products and that the presence of a pharmacist is paramount to ensure that the consumer purchases the adequate product for their particular pathology. The French Competition Authority found, however, that the restriction of online sales placed excessive restrictions on the commercial freedom of Pierre Fabre’s distributors to the detriment of consumers' interests. It therefore concluded that this practice, which violates national and EU competition rules, cannot be exempted.
The Commission, known for considering that the prohibition of online sales within a selective distribution network is illegal unless there is an overriding reason to prohibit it, will likely support the French Competition Authority’s ruling. Submissions in proceedings before national courts are possible under Regulation 1/2003 when pursued in the interest of a coherent application of Articles 81 and 82 of the Treaty.
NEXT WEEK’S EVENTS
Monday 18 May – Friday 22 May 2009
COUNCIL MEETINGS
General Affairs and External Relations Council (GAERC) (18 – 19 May 2009)
COURT OF JUSTICE
Judgments
Company law
C-538/07 Assitur
Freedom of establishment
C-531/06 Commission v Italy
Joined Cases C-171/07, C-172/07 Apothekerkammer des Saarlandes and Others
Opinions
Area of Freedom, Security and Justice
Joined Cases C-261/08, C-348/08 Zurita García
COURT OF FIRST INSTANCE
Judgments
No judgments scheduled for next week
