Legal Briefing

Ombudsman’s decision: Intel

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Corporate and commercial | 01 February 2010

The European Ombudsman, Nikiforos Diamandouros, has published a decision upholding a complaint against the European Commission by Intel Corporation (Intel). The complaint relates to the Commission’s handling of its investigation into Intel’s business activities and, in particular, its record of a meeting with a senior executive from Dell Inc (Dell), one of Intel’s biggest customers. The Ombudsman has found that the Commission was guilty of maladministration in its handling of the investigation.

BACKGROUND

As previously reported in IHL172 (pp16-17), on 13 May 2009 the Commission fined Intel €1.06bn for abusing its dominant position in the computer chip market under article 102 of the Treaty on the Functioning of the European Union (TFEU) (previously article 82 EC Treaty), and imposed a cease and desist order to prevent any further infringement.

The decision came after a lengthy investigation into Intel’s behaviour in the sale of computer chips called x86 central processing units (CPUs) in an investment-heavy market where there were only two players: Intel (80% market share) and Advanced Micro Devices (AMD) (20% market share).

The Commission found that in 2001/02 AMD began to grow and improve its products. Intel apparently felt threatened by this and responded by using conditional rebates and direct payments to control four key original equipment manufacturers (OEMs). Intel made direct payments to Europe’s biggest computer retailer (Media-Saturn Holding) on the condition it would only stock Intel-based computers. Intel also targeted three OEMs and made specific payments to prevent, delay or restrict the distribution of AMD-based products.

The Commission concluded that there had been a total of eight abuses as part of one single strategy over the course of five years. The legal and economic analysis of Intel’s behaviour included the application of the ‘as efficient competitor test’, which assessed whether Intel’s behaviour was capable of foreclosing the market to a competitor who was equally efficient as itself. The Commission found that Intel’s behaviour was capable of such foreclosure and that it had foreclosed the market for x86 CPUs. At the time of writing, there is an appeal lodged by Intel pending before the General Court (formerly known as the Court of First Instance) (Intel Corporation v Commission T-286/09, complaint lodged on 22 July 2009).

INTEL’S COMPLAINT TO THE OMBUDSMAN

On 10 July 2008, Intel submitted a complaint to the Ombudsman alleging that the Commission had failed to take an adequate minute of its meeting on 23 August 2006 with a senior executive from Dell. Intel argued that this amounted to maladministration because the meeting in question directly concerned the investigation’s subject matter. The Commission counter-argued that the purpose of the meeting was not to gather statements pursuant to article 19 of Council Regulation (EC) No 1/2003 of 16 December 2002 (which relates to the Commission’s power to take statements) and therefore a minute was not required. However, the Commission stated it had made an internal note of the meeting, which had been sent to Intel even though it was under no obligation to do so. A second allegation was made that the Commission had encouraged Dell to enter into an information exchange agreement with AMD, which in turn, Intel complained, gave AMD access to information contained in the Commission’s investigation file. The Commission, however, stated that Dell had of its own volition decided to make the agreement with AMD and to exchange its own proprietary information.

OMBUDSMAN’S DECISION

On 18 November 2009, the Ombudsman, published his decision. Diamandouros found that the Commission had erred in failing to take a proper note of its meeting with computer-maker Dell on 23 August 2006 as it was an ‘article 19 interview’. He also found that the Commission’s investigation file did not include the agenda of that meeting and concluded overall, in relation to the first complaint, that there had been maladministration. The Ombudsman also found that the Commission had failed to make a proper note of the telephone call in which the information exchange agreement was discussed with Dell but that this did not constitute maladministration by the Commission. Diamandouros stated that the exact meaning given to article 19 has yet to be determined by the courts. The Ombudsman did not make any finding as to whether Intel’s rights of defence were infringed by the Commission’s conduct and this is the issue that is pending in the General Court action.

NEXT STEPS

In his press release, Diamandouros stated that he hoped his decision would help the Commission improve its administrative procedures by ensuring that its future antitrust investigations are fully documented. At the time of writing, the Commission has not yet formally responded to the Ombudsman’s decision. In the meantime, on 12 November 2009, it was announced that a settlement had been reached between Intel and AMD, with Intel paying $1.25bn in damages to AMD in respect of all remaining legal disputes relating to patent and antitrust litigation. However, this of course does not affect Intel’s obligation to comply with EU law as it awaits the outcome of its appeal in the General Court, which may not be heard until 2011.