EU Antitrust Update - Spring 2009

EC SLAMS INTEL WITH €1 BILLION

FINE

The European Commission ("EC") imposed a

€1.06 billion fine on US-based chipmaker Intel for abuses

of dominant position. This is the highest individual fine ever

imposed by the EC. Intel said it would appeal the

decision.

Intel Fined For Abuses Of Dominance

Intel is the world's largest producer of x86 central

processing units ("CPUs"), the main hardware component of

a computer. From 2000 onwards, Intel's main rival Advanced

Micro Devices ("AMD") has submitted several complaints to

the EC regarding Intel's business strategies. AMD argued that

Intel engaged in illegal practices aimed at excluding AMD from the

market for x86 CPUs.

Following a nine-year long investigation, the EC concluded that

Intel has abused its dominant position in the market for x86 CPUs.

The EC found that Intel had offered loyalty rebates to computer

manufacturers, i.e. rebates that were conditional on the

manufacturers purchasing all, or almost all, of their CPU

requirements from Intel. Intel had also made payments to retailer

MediaMarkt on condition that MediaMarkt stores stocked only

computers containing Intel x86 CPUs. Finally, Intel had made

payments to computer manufacturers to delay the launch of certain

products that incorporated AMD's CPUs ("pay for

delay").

The EC emphasised that it did not object to the rebates per se,

but to the conditions Intel attached to its rebates. According to

the EC , rebates are abusive if offered by a dominant firm and made

conditional on buying less (or none) of a rival's products,

unless specific reasons justify such rebates.

The Highest Fine Ever Imposed By The EC

The EC fined Intel €1.06 billion (approx. $1.45

billion). This record-breaking fine exceeds each of the three fines

imposed by the EC on Microsoft from 2004 to 2008 for abuses of

dominance and for failure to comply with the EC 's orders

(although the total of the fines imposed on Microsoft amounts to

€1.68 billion). It also exceeds the record cartel fine of

€896 million imposed by the EC in 2008 on the French group

Saint-Gobain.

The fine represents 4.15% of Intel's 2008 worldwide

revenues. The EC can impose fines of up to 10% of the company's

worldwide annual revenues. The EC has also ordered Intel to cease

all ongoing illegal practices immediately.

Intel had previously been ordered by the Japanese regulator to

discontinue its loyalty rebates and was fined $25 million by the

Korean regulator for similar practices. Both the U.S. Federal Trade

Commission and the New York Attorney General's Office have

recently opened investigations into Intel's pricing strategies.

Moreover, AMD is suing Intel before U.S. federal courts.

The Crackdown On Abuses Of Dominance Will Continue

The Intel investigation and the resulting record fine is the

latest example of the EC 's focus on the enforcement of Article

82 of the EC Treaty, which prohibits abuses of dominance. The EC

has been emboldened by several recent cases in which EU courts have

confirmed its interpretation of Article 82 (cf. France

Telecom ruling summarised in See You in Court). It

has issued detailed guidelines on the application of Article 82 and

is currently conducting other high-profile investigations into

alleged abuses of dominance (including new inquiries into

Microsoft's practices, described in EU

Developments).

Rebate practices, such as the ones involved in the

Intel case, are but one of many types of commercial

behaviour that could potentially raise concerns. Given this

environment, it is essential for leading market players to

carefully consider the manner in which they deal with their

suppliers, distributors, customers, and competitors.

EU DEVELOPMENTS

Regulators To Review Pharmaceutical Mergers

U.S. pharmaceutical group Pfizer has recently agreed to buy its

rival Wyeth for $68 billion, while drug manufacturer Merck has

announced a $41 billion merger with Schering-Plough. The U.S.

Federal Trade Commission ("FTC ") is reviewing both

transactions and has issued a second request to Pfizer. Both

transactions are also subject to approval by the EC and by several

other antitrust authorities. The EC has extensive experience in

reviewing pharmaceutical mergers and is expected to work in close

cooperation with the FTC . The deals are scheduled to close by the

end of the year.

* Fried Frank provides on-going advice to Merck in relation to

its merger with Schering-Plough.

EC Challenges Microsoft's Tying Practices

The EC sent a statement of objections to Microsoft relating to

the tying of Microsoft's web browser Internet Explorer to the

Windows PC operating system. Microsoft is dominant in the supply of

PC operating systems, with a global market share of over 90%. The

EC argues that by tying Internet Explorer to Windows, Microsoft

provides its web browser with an unfair advantage over competitors.

If these preliminary findings are confirmed, the EC may order

Microsoft to offer customers a choice of browsers (Microsoft

already allows Windows 7 users to remove Internet Explorer and to

use other browsers). It may also impose a significant fine on

Microsoft. The EC is also currently investigating Microsoft's

alleged failure to disclose interoperability information across a

broad range of software products, including its Office suite and

the .NET Network. Several competitors, including Google and

Mozilla, have reportedly joined the investigations and testified

against Microsoft.

The EC has previously fined Microsoft a total of €1.68

billion for the tying of Windows Media Player to Windows,

restricting interoperability between Windows PCs and non-Microsoft

work group servers, and failing to comply with the EC 's

injunctions. In 2007, the EU Court of First Instance rejected

Microsoft's appeal against the EC 's decision.

Mastercard Reduces Its Multilateral Interchange Fees

The interchange fee is charged by the consumer's bank to the

retailer's bank whenever a consumer pays a retailer using a

credit or debit card. The interchange fee is usually passed on by

the retailer's bank to the retailer. In December 2007, the EC

found that MasterCard's cross-border multilateral interchange

fees were anti-competitive because they inflated the cost of card

acceptance by retailers without leading to proven efficiencies. The

EC ordered MasterCard to phase out these fees. In April 2009,

following intense negotiations, MasterCard accepted to reduce its

interchange fees and to enhance the transparency of its payment

card schemes. According to the EC , MasterCard's new fees will

be the lowest in the world for credit and debit card transactions.

These undertakings will apply while MasterCard's appeal against

the EC 's 2007 decision is pending before the Court of First

Instance. The EC is currently investigating Visa's multilateral

interchange fees and recently issued a statement of objections in

which it argues that Visa's fees are also anti-competitive.

EC Investigates Airline Alliances

The EC is investigating two airline alliances: Star Alliance

(Lufthansa, United, Continental, Air Canada) and Oneworld (British

Airways, American Airlines, Iberia). The investigations focus on

the cooperation between airlines on transatlantic routes. The EC is

concerned by the parties' plans to jointly manage sales,

schedules, capacity and pricing, and to share revenues on these

routes. British Airways and American Airlines had previously

abandoned alliance plans in 1997 and 2001 after regulators required

them to divest a large number of take-off and landing slots at

Heathrow, in order to limit the parties' combined market power.

The parties argue that this time divestments should not be

required, given, in particular, the "open skies"

agreement that has liberalised transatlantic flights.

RWE To Divest Gas Transmission Network

The EC has accepted...