General Court largely rejects Qualcomm's challenge to Commission's predatory pricing decision

In its judgment of 18 September 2024, the General Court has largely rejected Qualcomm's application to annul the European Commission's 2019 predatory pricing decision. The Court did however slightly reduce the fine, from € 242 million to € 238.7 million, due to methodology errors. Qualcomm had put forward 15 grounds of appeal, ranging from procedural failures to errors in the price-cost analysis, and we consider the Court's approach to these, and key takeaways, below. 

Background

Qualcomm is a US cellular and wireless technology company, which produces, sells and licenses chipsets and system software for use in mobile phones, tablets, laptops and other consumer electronics.

On 30 June 2009, Icera, one of Qualcomm's competitors, lodged a complaint with the Commission alleging that Qualcomm had engaged in predatory pricing in the baseband chipset market. Baseband chipsets are key components which enable smartphones and tablets to connect to cellular networks and are used for both voice and data transmission.

On 18 July 2019, the Commission fined Qualcomm € 242 million for predatory pricing. The Commission defined the relevant market as 'slim and integrated baseband chipsets compliant with the Universal Mobile Telecommunications System (UMTS) standard' and found that Qualcomm held a dominant position on this market at a worldwide level from at least 1 January 2009 to 31 December 2011. It concluded that Qualcomm had abused its dominant position by supplying certain quantities of some of its UMTS baseband chipsets to two of its key customers, Huawei and ZTE, at below cost prices with the intention of eliminating Icera, its main competitor at the time.

Qualcomm appealed to the General Court, requesting annulment of the Commission's decision or, in the alternative, a substantial reduction in the fine imposed, on the basis of a range of different grounds, including procedural irregularities, manifest errors of assessment of fact and law, failure to apply the correct legal standard and a range of pleas around the price-cost analysis the Commission undertook to find predation.

Judgment

In a lengthy judgment, the General Court rejected all of Qualcomm's pleas except for the one relating to the Commission's calculation of the amount of the fine. The judgment largely applies existing EU case law on abuse of dominance in the predatory pricing context, but it also comes at the same time as the Commission's current consultation on its draft guidelines on exclusionary abuses.

Previous Qualcomm judgment distinguished on the issue of procedural irregularities

In its pleas, Qualcomm alleged various procedural irregularities including in relation to the length of the Commission's investigation and its rights of defence (particularly the Commission's failure to take detailed notes of all meetings, telephone calls and interviews). These arguments were ultimately rejected by the Court, which found that the duration of the investigation (approximately seven years) was not excessive given the circumstances and complexity of the case.

The Court also distinguished the procedural flaws that had led it to annul an earlier Commission Article 102 decision against Qualcomm in 2022, on the basis that in that case, Qualcomm had not been given access to relevant meeting notes during the administrative procedure. By contrast, in the present case, Qualcomm had been given access to disputed call and meeting notes after the Commission sent its Supplementary Statement of Objections. The Court also noted that the relevant meetings took place between the Commission and Qualcomm itself, such that Qualcomm was fully aware of the content. Qualcomm had therefore failed to establish that but for the procedural irregularity, it would have been better able to defend itself.

No Commission manifest errors in market definition or dominance

The Court rejected Qualcomm's allegations of various shortcomings in the Commission's assessment of the relevant market and its dominant position. Qualcomm argued that the Commission had erred in failing to apply the SSNIP (small but significant and non-transitory increase in price) test, but the Court held that although this is a recognised method, it is not the only one at the Commission’s disposal and it has a margin of discretion in this respect.

The Court also rejected Qualcomm's argument that high market shares could not in and of themselves be viewed as evidence of dominance in markets characterised by "short innovation cycles", in particular where the closest competitor's market share was much smaller.

The Commission implicitly undertook an AEC test in its (valid) price-cost analysis

The test for predatory pricing under EU competition law is based on a price-cost analysis. Prices below average variable cost (AVC) by a dominant company will be presumed abusive. Prices below average total cost (ATC) but above AVC will be regarded as abusive if they from part of a wider plan to eliminate competitors.

The Court disagreed with Qualcomm that the Commission had not used an appropriate cost benchmark and concluded that it had, in accordance with previous case law, validly used a methodology based on prices below ATC and above AVC. The Commission had also satisfied the requirement, by relying on a body of sound and consistent evidence, to establish Qualcomm's intention to eliminate a competitor.

Where a dominant company sets its prices below ATC but above AVC, an as efficient competitor will not, in principle, be able, because of its lesser financial resources, to compete with those prices without incurring losses which are unsustainable in the long term. Such prices are therefore capable of excluding an as efficient competitor, which corresponds to what the Commission must demonstrate when applying the AEC test (para 526 of the judgment). The Court therefore concluded that the Commission had implicitly applied the AEC test.

Irrelevant that the complainant's prices had been lower and that the chipset volumes covered by the practice were comparatively small

Qualcomm sought to characterise the Commission's analysis as "contrary to logic and elementary economics". In particular, Qualcomm argued that its prices had been higher than Icera's, and that the chipset volumes it had allegedly offered at predatory prices were negligible as a proportion of overall volumes sold on the relevant market.

In rejecting these arguments, the Court reaffirmed that predatory pricing should be measured against the prices and costs of the dominant company rather than "of the undertaking against which such practices are put in place". The case law does not recognise any absolute right on the part of a dominant undertaking to align its prices with those of its competitors, in particular if this would lead to predatory pricing otherwise prohibited under Article 102 (para 598 of the judgment).

The Commission was also not required to examine whether the share of the market covered by the alleged predation was "of sufficient magnitude for that practice to have anticompetitive effects". Noting statements in the 2009 Guidance on the Commission's enforcement priorities in applying Article 102 TFEU to abusive exclusionary conduct by dominant undertakings (Article 102 Enforcement Priorities Guidance) suggesting that dominant undertakings may be incentivised to engage in selective predatory pricing, the Court noted that if penalties could be imposed only in respect of predation covering a certain % of the market, such selective practices could escape the Article 102 prohibition even though they could lead to the foreclosure of an as efficient competitor.

Commission erred in imposition and calculation of the fine

The Court did conclude that the Commission had made errors of assessment in its fining methodology, in particular with respect to calculating the value of Qualcomm's sales. The Court considered that, contrary to its 2006 Fining Guidelines, in calculating the basic amount, the Commission had aggregated sales made over the entire duration of the infringement, rather than taking the sales made during the last year of the infringement and multiplying this figure by the number of years for which the infringement lasted.

The Court did not consider that the Commission had adequately explained its reasons for departing from the Fining Guidelines and therefore used its jurisdiction to substitute its own fine. Reflecting the somewhat narrow nature of this point, this resulted in a marginal reduction in the fine from €242 million to € 238.7 million.

Comment

The Qualcomm judgment does not fundamentally call into question the approach to predatory pricing set out in the Commission's draft guidelines on exclusionary abuses, which are currently out for consultation. In particular, the draft guidelines explain that to assess whether pricing by a dominant firm is predatory, a price-cost analysis must be carried out based on a comparison of average prices charged and average costs incurred, and that relevant cost benchmarks for this purpose include AVC and ATC. This is consistent with the General Court's interpretation of the case law in Qualcomm.

The Commission will likely also welcome the General Court's findings regarding the ability to carry out an AEC test "implicitly", given concerns that the more economics-focused approach to Article 102 enforcement espoused in the Article 102 Enforcement Priorities Guidance has made it too burdensome and time consuming for the Commission to adopt Article 102 infringement decisions. Indeed, these concerns underpin the approach adopted by the Commission in its current draft guidelines, which provide that exclusionary effects can be presumed in cases of predatory pricing by a dominant firm, reducing the role for the AEC test.

The Qualcomm judgment also reflects – consistent with the updated guidelines – that predatory pricing must at least be capable of producing exclusionary effects. The Court held that whether or not the conduct had actual effects was irrelevant and the Commission had only demonstrated effects for completeness, an affirmation that will also be welcomed by the Commission.