US Semiconductor Companies Up 2-0 Against the European Commission
In two decisions this year — the second of which the European Commission recently decided not to appeal — the European General Court pushed back against the expansive overreach that competition enforcers have been peddling for the better part of two decades. Just as in the United States, European courts provide significant guardrails against administrative agency overreach. Today, this is particularly notable in matters concerning tech companies.
While U.S. competition policies are beginning to move toward a European approach, Europe’s courts are now holding steadfast in subjecting enforcement decisions to strict procedural and substantive scrutiny. Critically, this includes an emphasis on economic evidence to prove harm — a standard we must continue to protect at home.
In the first decision, the European General Court found that a European Commission antitrust case against Intel was seriously deficient because it lacked robust economic evidence. U.S. courts have required a high standard of economic evidence for decades, but the Intel decision represented a relatively novel standard on the continent, outlining what the competition enforcers should do in similar cases where the commission seeks to crack down on allegedly anticompetitive conduct.
A second recent decision in favor of Qualcomm changes this standard from a “should” to a “must.” This is especially important because until now, the commission has not been required to consider economic evidence when imposing fines.
In June — and in the most unambiguous and complete repudiations of the approach to competition enforcement pursued by EU Commissioner for Competition Margrethe Vestager — the General Court annulled the commission’s decision to charge Qualcomm with “abuse of dominance” based on an exclusive payment arrangement with Apple and voided its €997 million fine. More recently, the commission declined to appeal the decision, all but admitting that the case against Qualcomm was fatally flawed.
This latest case fundamentally revolves around payments that Qualcomm made to Apple between 2011 and 2015. The payments were made to secure an exclusive dealing contract between the two, leading Qualcomm to be the sole supplier of LTE semiconductors during that period. The commission alleged that Qualcomm used its position as a dominant semiconductor supplier to secure the lucrative contracts and charged Qualcomm with violating European competition law.
The problems with the commission’s case center around procedural errors, but the significant economic errors are almost more important.
Procedurally, the commission failed to inform Qualcomm of seven meetings it held with third parties and failed to keep accurate and compete records of these interactions. By neglecting to maintain a record of the “content and nature of the information discussed,” the commission prevented Qualcomm from mounting a complete defense. The court decided that the commission does not have unilateral authority to determine what evidence could be relevant to the defense’s case, requiring detailed accounts for all meetings.
Where economic errors are concerned, the commission ignored the fact that Qualcomm was the only supplier capable of supplying the semiconductors to Apple at the scale necessary. Even absent the exclusivity payments, Apple would have likely still used Qualcomm as its sole supplier during the period in question.
The court said that the commission cannot rely on hypothetical models and theories but must incorporate actual evidence when alleging abuse of dominance. Exclusive dealing payments have the potential to cause an anticompetitive effect in the market, but in the case against Qualcomm, the anticompetitive effect was nonexistent.
Additionally, the commission failed to inform Qualcomm that the scope of its case had changed, leading to a significantly different economic analysis. In its preliminary form, the commission’s case involved exclusivity payments in two separate markets and Qualcomm produced evidence that its conduct could not have restricted competition in those markets. By the time Qualcomm submitted its evidence, however, the commission changed the scope of its investigation, leading it to reject Qualcomm’s evidence as irrelevant. Only after the fine was announced was Qualcomm informed that the scope of the case had narrowed.
These errors constitute serious due process violations and are fundamentally contrary to the rule of law. By suppressing evidence, ignoring key market factors, and creating a moving target for the defense, the commission violated a number of Qualcomm’s fundamental rights. Coupled with the violations the court found in the Intel case, it’s at risk of a credibility crisis.
Along with their European counterparts who are flying too close to the sun, U.S. competition authorities should take time to reflect on their standard of conduct. The EU’s model is not one to follow. Whether or not the current pendulum shift toward more aggressive competition enforcement will last is an open question, but early indications show that agencies on both sides of the Atlantic will have an uphill battle convincing the courts.
Alden Abbott is a senior research fellow with the Mercatus Center at George Mason University and a former general counsel with the Federal Trade Commission. Andrew Mercado is an adjunct professor with the Antonin Scalia Law School.
