CN01 - General Court quashes 1bn fine imposed on Qualcomm for exclusivity payments

On 15 June 2022, the General Court quashed the European Commission's 2018 decision which found that Qualcomm had abused its dominant position by making exclusivity payments to Apple in relation to the supply of LTE chipsets.  The General Court annulled the decision in its entirety, on the basis of a number of procedural errors, as well as errors in the European Commission's substantive analysis of the anticompetitive effects of the payments.

Key takeaways

• The European Commission is required to properly record with sufficient detail, and disclose on the case file, details of all relevant meetings it holds with third parties regarding the investigation. The practice of using information provided orally cannot be permitted to infringe the defendant's rights of defence.
• While the European Commission is entitled to drop certain allegations between the Statement of Objections and the final decision, where this affects the factual basis for the economic analysis submitted by the defendant it must notify the defendant of the changes and give the defendant an opportunity to comment and revise its economic analysis.
• If customers have no technical alternatives to a product supplied then exclusivity payments cannot be found to have anticompetitive effects by reducing customers' incentives to switch suppliers.

Background

In 2018, the European Commission imposed a fine on Qualcomm of €997 million, finding that it had abused its dominant position on the worldwide market for chipsets compatible with the Long Term Evolution standard ("LTE chipsets") (see our February 2018 newsletter).  In 2011, Qualcomm entered into an agreement under which it committed to make "significant payments" to Apple on condition that Apple would exclusively use Qualcomm chipsets in its iPhones and iPads.  The agreement was entered into until 2016.  The European Commission found that these payments were capable of having anticompetitive effects, by reducing Apple's incentives to switch to competitor LTE chipset providers. 

Qualcomm appealed the European Commission's decision, alleging manifest procedural errors, and manifest errors of law and assessment as regards anticompetitive effects.  

General Court judgment 

In its judgment, the General Court annulled the entirety of the European Commission's decision, finding a number of procedural errors.  The General Court also disagreed with the European Commission's analysis of the anticompetitive effects of the incentive payments.   

Failure to disclose third party notes

During the European Commission's investigation, it did not inform Qualcomm of the existence (or content) of meetings which it had held with third parties, and did not disclose its notes of these meetings on the case file.   

After the European Commission issued its decision, and only following requests by Qualcomm, the European Commission provided Qualcomm with information relating to seven meetings that occurred with third parties during the investigative process, and provided notes of those meetings (where available).  These third parties included competitors who were allegedly foreclosed by Qualcomm's conduct and customers of Qualcomm.  

The notes disclosed only set out very limited information regarding the subjects addressed and the notes were also supplemented or finalised after the date of the decision.  In some cases, no notes were taken at all.

The General Court found that the purpose of the meetings was clearly to collect information relating to the investigation meaning the meetings fell within the scope of Article 19 of Regulation No 1/2003.  The European Commission was therefore required to record the meetings in a way that provided an indication of the nature of the information provided on the subjects addressed and to disclose these notes to Qualcomm on the case file.  The General Court held that, given the lack of proper records, it had to be concluded that the information obtained during the third party interviews might have been relevant for Qualcomm's defence.  By failing to properly record and disclose these notes, the European Commission infringed Qualcomm's rights of defence. 

Differences between the Statement of Objections and Decision 

The General Court also found that the European Commission infringed Qualcomm's rights of defence by not giving Qualcomm the opportunity to amend its economic evidence in light of changes to the scope of the alleged abuse between the Statement of Objections versus the final decision.

In the Statement of Objections, the European Commission alleged an abuse in the markets for UMTS and LTE chipsets. However, the final decision found an abuse in the market for LTE chipsets alone.  In its reply to the Statement of Objections, Qualcomm had submitted a critical margin analysis which sought to show that the conduct was not capable of having foreclosure effects in the markets for UMTS and LTE chipsets.  

Although the European Commission was entitled to narrow the scope of the abuse in the final decision, this narrowing fundamentally changed the contestable share of Apple’s demand assumed in the Statement of Objections, meaning that Qualcomm's critical margin analysis was no longer relevant. Despite this, the European Commission did not inform Qualcomm of this narrowing prior to the decision or invite Qualcomm to amend its analysis. 

In its final decision, the European Commission presented, examined and revised Qualcomm's critical margin analysis (concerning both the market for UMTS and LTE chipsets) even though the decision related to abuse in the LTE chipset market only.  The General Court found that this infringed Qualcomm's rights of defence: the European Commission should have informed Qualcomm of the change in the allegations and allowed it to submit its comments in that regard, including adapting the economic analysis previously submitted. 

Substantive analysis 

In its decision, the European Commission found that the exclusivity payments were capable of restricting competition for all of Apple's LTE chipset demand for both iPhones and iPads.  However, the General Court found that no competitor was capable of supplying LTE chipsets for use in iPhones throughout the period concerned, which represented appropriately 90% of Apple's sales of LTE devices.  The lack of technical alternatives was a relevant fact which the European Commission should have taken into account when analysing the capability of the payments to have foreclosure effects on competing suppliers.  As the European Commission failed to take this into account, the its analysis was therefore unlawful. 

The General Court also found that the European Commission had not provided an analysis which made it possible to support the finding that the payments had actually reduced Apple's incentives to switch supplier for iPads.  Moreover, even if it had been proven that the exclusivity payments had reduced Apple's incentives to switch suppliers for certain iPad models, this was not sufficient to determine that the payments were anticompetitive for all of Apple's requirements.  

Comment

The full annulment of the decision and reversal of the EUR 997 million fine is another blow for the European Commission.  This follows the General Court's earlier annulment of the EUR 1.06 billion fine imposed on Intel, which also related to rebates/exclusivity payments (see our March 2022 newsletter).

The General Court's judgment is a reminder to competition authorities of the importance of ensuring that the rights of defence are adhered to and the impact this can have on a case if the appropriate steps are not taken.  It also emphasises the need for regulators to engage properly with economic analysis submitted by the defendant.