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Digital Downfall

09 December 2019 by Robert Bell

Digital Downfall

Commission imposes its first interim measure decision against Broadcom for 18 years

In a watershed development for EU competition law enforcement, the EU Commission took the unusual decision on 16 October 2019 of imposing interim measures in the TV and modem chipsets markets on Broadcom, a leading US manufacturer of integrated circuits.

This is the first time the Commission has imposed an interim measures decision for 18 years and represents a hardening of the EU regulator’s approach to competition enforcement in digital/technology markets

What are Interim Measures?

When the Commission opens a formal investigation of anti-competitive conduct under Article 101(1) and 102 Treaty for the Functioning of the European Union (TFEU) (through the issue of a Statement of Objections) it has the ability to order interim measures, a form of interlocutory injunction, designed to prevent serious harm being caused during the course of its investigation.

This remedy can only be ordered after high legal thresholds are met. Under Article 8 of Council Regulation 1/2003 the Commission may, in urgent cases impose interim measures due to the risk of serious and irreparable damage to competition on the basis of a prima facie finding of infringement.
The following requirements need to be met for interim measures to be ordered:

  • the practices in question are prima facie likely to constitute an infringement of EU competition rules
  • the case is one of proven urgency where such measures are necessary to prevent serious and irreparable harm to the party seeking the measures
  • the measures are temporary and are conservatory in nature ( i.e. they are designed to maintain the status quo before the behaviour in question was implemented) and do not exceed what is necessary in the relevant situation.

Decisions made on the grant or otherwise of interim measures are susceptible to review by the European Court of Justice.

Controversial Use

Interim measures are often viewed as draconian in that they result in potentially premature changes in business behaviour by the companies concerned and are imposed before the facts of the case are fully known and a detailed competition law analysis has been undertaken.

The last case in which the EU Commission passed interim measures was in the case of IMS Health v NDC Health (2002)ECR I-3402 in 2001. But after a successful challenge by IMS Health before the European Court of Justice the EU Commission was forced to withdraw its interim measures decision. After that the EU Commission’s power to order interim measures fell into disuse.

But that was then and this is now. The EU Commission has been under increasing pressure for some time to be more interventionist at an earlier stage in digital/technology markets to adequately protect consumers. One of the characteristics of these fast moving markets is that without early intervention alleged anti-competitive conduct can result in markets tipping irrevocably in favour of the perpetrator or producing irremediable harm to the structure or competitiveness of those markets.

Broadcom Case

Broadcom is the world's largest designer, developer and provider of integrated circuits for wired communication devices. It is a global leader in several markets including the supply of chipsets for use in TVs and modems.

On 26 June 2019, the European Commission announced that it had issued a Statement of Objections in which it alleged that Broadcom had infringed Article 102 TFEU by implementing a range of exclusionary practices. In summary those allegations related to the following behaviour which had the effect of excluding competitors:

  • Exclusivity: setting exclusive purchasing obligations in contracts with its customers
  • Exclusionary Rebates: granting rebates or other advantages conditional on exclusivity or minimum purchase requirements
  • Bundling: product bundling
  • Abusing IPRs: abusive IP-related strategies
  • Lack of Interoperability: deliberately degrading interoperability between Broadcom products and other manufacturers’ products.

In parallel the Commission also announced that it had issued another Statement of Objections seeking to impose interim measures under Article 8(1) of Regulation 1/2003 on the grounds that there is a risk of serious and irreparable damage to competition in this case.

Interim Measures Decision

On 16 October 2019 the Commission issued its decision to impose interim measures based on their preliminary assessment of the case.

Dominant Position: The Commission took the view that Broadcom seemed to be dominant in three different markets: the markets of systems-on-a-chip for (i) TV set-top boxes, (ii) fibre modems and (iii) xDSL modems.

In its Decision the Commission made the point that although market dominance is in itself not a problem; dominant companies do have a special responsibility not to impair competition in the internal market. The Commission based its decision on the following reasoning.

Exclusivity and Foreclosure: There was strong prima facie evidence that Broadcom had infringed the competition rules. The Commission had concluded that Broadcom had entered into certain agreements with six of its main customers manufacturing TV set-top boxes and modems to ensure that they purchased chipsets exclusively or a substantial amount of their requirements from Broadcom.

Stifling Innovation: These provisions contained in these agreements substantially affected competition and stifled innovation in these markets, to the detriment of consumers by preventing competitors from challenging Broadcom's position in these markets by supplying these customers.

Indispensability: The Decision concludes that the imposition of interim measures was indispensable to ensure the effectiveness of any final decision taken by the Commission at a later date.

Urgency & Serious and Irreparable Harm: The Commission furthermore concluded that the alleged competition concerns were of a serious nature and that Broadcom's conduct could result in the elimination or marginalisation of competitors before the end of proceedings. In particular the Commission fears that if they do not take action now competitors will lose out as there are a large number of tenders due to be published in the coming years before the Commission would be in a position to issue any permanent remedies in this case.

The Commission ordered Broadcom to cease to apply the exclusivity and leveraging provisions contained in its six agreements with manufacturers of TV set-top boxes and modems. Broadcom must also refrain from including the same provisions in any future agreements with these manufacturers as well as refraining from implementing other practices that would have an equivalent effect. Broadcom must comply with these measures within 30 days and will remain in place for up to three years. Broadcom has stated that it will appeal the decision to the European Court of Justice.
So why break a habit of a lifetime and start imposing interim measures after so many years? The Commission has signalled that it intends to make the “best possible use of this tool” in the future especially when dealing with fast-moving markets.

There have been many calls from competition regulators and competition law commentators for the EU Commission and other national competition regulators to make greater use of interim measures particularly in fast moving digital markets. Some member state competition authorities such as France and Belgium regularly resort to using such powers. Meanwhile in the UK calls for reform of UK competition law and practice advanced by Lord Tyrie, Chairman of the Competition and Market Authority (CMA) have also focused on the greater use of interim measures. He stated in his letter to the UK Government that he believed that the use of interim measures was “essential” if the CMA was going to respond adequately to the challenges posed by the digital sector.

So alive to calls to make their enforcement activities more effective and timely in digital/technology markets the Broadcom case clearly signals a change in policy in the EU Commission’s enforcement activities and its willingness to use all the tools at its disposal.

The Broadcom interim measures is now likely to go to appeal and the future of the Commission’s plans to use this remedy more widely in the future is likely to be determined by the European Court’s willingness to uphold the Commission’s decision in this case. In particular the broader view of “urgency” adopted by the Commission is likely to be subject to detailed scrutiny. 

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