EU court dismisses Commission’s €1 billion antitrust fine against Qualcomm

EU Commissioner for Competition Margrethe Vestager, at a press conference on an antitrust decision on Qualcomm, 18 July 2019. [STEPHANIE LECOCQ/EPA]

The European General Court has ruled to dismiss a €1 billion antitrust fine filed by the Commission against American chipmaker Qualcomm, marking another major defeat for the EU antitrust regulator.

The European Commission initiated a formal investigation on Qualcomm in 2015 for offering financial incentives to customers on the condition that they would exclusively rely on the company for the supply of Long-Term Evolution (LTE) baseband chipsets used to connect smartphones and tablets to 3G and 4G networks.

In 2018, the EU executive concluded that Qualcomm had breached European competition law based on an agreement the chip manufacturer signed with Apple whereby it committed to significant payments for exclusively providing chipsets for iPhones and iPads.

During the investigation period, Qualcomm was by far the world’s largest supplier of LTE chipsets, dominating the global market with a market share above 90%. The chip market is characterised by high barriers to entry, as it requires massive investments in research and development.

Antitrust decision

In its decision, the Commission stated that it had Apple’s internal documents, which showed that while the agreement was in place, the iPhone-maker seriously considered changing supplier to Qualcomm’s rival Intel, but exclusivity conditions de facto blocked it.

As the deal ended in 2016, Apple started sourcing parts of its chip demand to Intel. Therefore, the Commission deemed that deal successfully shut down competitors, as Apple would have to return a large part of the payments if it switched to another supplier.

The consequent fine for abuse of dominant market position was a whopping €997 million. However, on Wednesday (15 June), the EU General Court annulled the Commission’s decisions based on several procedural irregularities and analyses related to the anticompetitive effects of the incentive payments.

Reasons for the ruling

The judges found that the EU antitrust regulator made some procedural mistakes that negatively affected Qualcomm’s right of defence, particularly by failing to record the precise content of interviews conducted with third parties during the investigation.

Moreover, the General Court stressed in its verdict that the Commission’s finding only relates to LTE chipsets, whereas when it launched the official investigation, the scope also included potential abuses in the market of Universal Mobile Telecommunications System (UMTS) chipsets.

Qualcomm’s initial response to the inquiry related to both markets. As the scope of the investigation changed, the company was not given the possibility to review the analysis accordingly.

Finally, the EU court found that the Commission failed to consider all relevant circumstances when assessing the anticompetitive effects of the payments Qualcomm made to Apple. In particular, the ruling notes that Apple had no technical alternative to the company’s LTE chipsets during the period in question.

For the judges, the Commission’s analysis failed to demonstrate that the incentive payments had anticompetitive effects. The proof that the deal reduced Apple’s incentive to switch to another provider only related to iPads in 2014 and 2015 and cannot be generalised to all devices for the entire period.

One more defeat

A Qualcomm spokesperson told EURACTIV the company was “pleased with the General Court’s decision.”

While the ruling marks a significant victory for the American company, it conversely means a considerable blow to the European Commission’s competition services, led by competition chief Margrethe Vestager.

“The judgment is devastating for the Commission on the procedure but also on substance,” noted Nicolas Petit, professor of competition law at the European University Institute. “The Court says that the Commission’s logic is simply wrong because it accused the company of killing competitors that did not exist.”

To make things worse, the ruling is just the last of a series of judgments that have overthrown high-profile antitrust decisions of the European Commission under Vestager’s leadership.

The most resounding case was in 2020 when the General Court annulled the Commission’s claim that Apple had to give back to Ireland €13 billion of unlawful tax advantages.

For professor Petit, the amount of mistakes in fact-finding and decision-making that the EU court underlined points to a structural problem in how the EU regulator operates as it at once defines and prosecutes cases.

“The European Commission takes note of today’s judgement by the General Court that annulled the Commission’s 2018 Decision which found that Qualcomm had abused its dominant position,” a European Commission spokesperson told EURACTIV.

“The Commission will carefully study the judgement and its implications and will reflect on possible next steps.”

Commission loses out in Apple-Ireland tax battle, announces tax abuse clampdown

US technology giant Apple did not unlawfully benefit from state aid as part of corporate tax rulings in Ireland, the general court of the EU said on Wednesday (15 July). The decision annuls the European Commission’s bid to claim €13 billion back in unlawful tax advantages.

[Edited by Alice Taylor]

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