Background
On 16 October 2019, the European Commission (the Commission) imposed interim measures on Broadcom, a world-leading supplier of TV and modem chipsets. The Commission concluded that Broadcom is, prima facie, abusing its dominant position in the TV and modem markets and that interim measures are warranted to prevent serious irreparable damage to competition from occurring in these markets.
Prior to this decision, the Commission had not used its power to impose interim measures in antitrust proceedings for over a decade. Therefore, this decision seems to mark an important milestone in the Commission’s enforcement practice, particularly in technology and fast-moving markets.
What are interim measures?
Interim measures are a tool afforded to the Commission’s arsenal by virtue of Article 8 of Regulation 1/2003. This power allows the Commission to intervene and impose interim measures on an undertaking during an investigation in cases of urgency due to the risk of serious and irreparable damage to competition caused by that undertaking. The Commission can impose such measures when it has established a ‘basis of a prima facie finding of infringement’ of competition law. The interim measures typically order the undertaking to stop certain behaviour.
The Investigation
On 26 June 2019, the Commission opened an investigation into Broadcom as to whether it has breached Article 102 of the Treaty on the Functioning of the European Union (Article 102). Article 102 essentially prohibits dominant undertakings from abusing their dominant position on the relevant market. The Commission considered that Broadcom may have abused its dominant position in the markets for systems-on-a-chip chipsets for:
- TV set-top boxes
- fibre modems, and
- xDSL modems.
The Commission explained that a systems-on-a-chip chipset is the “brain” of a set-top box or modem, which is essential to bring the television signals and connectivity to consumers’ premises. The Commission’s statement of objections considered that Broadcom may have abused its dominant position in these markets by implementing certain practices, including exclusivity, tying, bundling, interoperability degradation and the abusive use of intellectual property rights. The Commission also stated that an interim measures decision may be indispensable in this case to ensure the effectiveness of any final decision taken by the Commission at a later date.
The Interim Measures Decision
On 16 October 2019, the Commission concluded that Broadcom is prima facie abusing its dominant position in the three markets by entering into agreements with 6 TV set-top boxes and modem manufacturers, which imposed exclusive or quasi-exclusive purchasing obligations and commercial advantages such as rebates, and non-price related benefits, such as premium technical support. The European Commission’s view is that these agreements effectively ensured that the manufacturers concerned would purchase their chipsets almost exclusively from Broadcom.
Interestingly, the interim measures also cover Broadcom’s conduct with respect to a market where Broadcom is not dominant, namely the market for systems-on-a-chip chipsets for cable modems. By leveraging on its dominant position in the three markets above, Broadcom ensured that the manufacturers in question purchased all, or almost all, of their systems-on-a-chip components for cable modems from Broadcom.
The Commission concluded that, if Broadcom’s conduct were allowed to continue, it would likely affect a number of future tenders (including in relation to the introduction of WiFi 6 standard) and would likely lead to other chipset suppliers being unable to compete on the merits with Broadcom. It concluded that this could ultimately result in serious and irreparable harm to competition in the form of exit or marginalisation of Broadcom’s competitors. As such, the Commission ordered Broadcom to unilaterally cease applying the anti-competitive provisions and to refrain from agreeing such provisions in other agreements with its customers. Broadcom is required to inform its customers that the provisions no longer apply and refrain from implementing punishing or retaliatory practices.
Broadcom has been ordered to comply with the interim measures within 30 days of the Commission’s decision and the measures apply for the earlier of three years or the date of the Commission’s final decision on Broadcom’s conduct or the closure of the investigation.
It is unclear whether Broadcom will seek to apply for this decision’s annulment but in any event would have to do so within the prescribed limitation period of two months (usually extended by 10 days). As such, it remains to be seen whether these measures will be challenged in court. Given the low number of interim measure decisions to begin with this is an area that remains relatively untested by the CJEU.
Comment
Although the substantive investigation is ongoing, the Commission’s decision to issue interim measures marks a significant shift in its enforcement practice over recent years. Prior to this decision, the Commission last issued interim measures in the IMS case in 2001. Interim measures have been used in very few cases, although the threat of them has sometimes seen companies alter their behaviour. However, Commissioner Vestager has hinted at an intention to make more frequent use of the interim measure tool given its importance, particularly in fast-moving markets.
Similarly, the UK Competition and Markets Authority (CMA) is also currently looking at modernising its enforcement toolbox. Lord Tyrie, the chairman of the CMA, has commented on the importance of interim measures in fast-moving markets, noting that in such markets there is “a risk that, by the time appeal routes are exhausted, the harm will have become entrenched or the market will have ‘tipped’, rendering the competition authority’s decision, even if upheld, ineffective”.
Following this decision, it is yet to be seen whether the Commission or other authorities will use interim measures during investigations more frequently; however, one would expect to see closer scrutiny of digital sector, which is high on the agenda for many authorities including the CMA and Commission.
We have considerable experience advising clients in digital and other fast moving markets, and in advising clients in relation to abuse of dominance investigations by competition authorities. Such investigations can frequently raise substantial economic issues as well as legal ones. We are therefore able to offer clear and practical commercial advice in such matters.
Written by Sandra Mapara and Paschalis Lois.