US companies should bring their boxing gloves to Europe’s courts

Overshadowed by other world events is the possibility that European courts help resolve differences between U.S. interests and the European Union on tech and antitrust policy. The dust is settling after the most recent round in the fight between Intel, the American semiconductor giant, and the EU’s European Commission. Rounds one and two went to the commission and three and four went to Intel. The final victor remains uncertain, but courts appear increasingly willing to make it a fairer fight.

The result of round four alone may have broad implications for other companies entering the ring with the European Commission in the future. Innovation, growth, and economic stability are all on the line, with the commission pushing for a tech market that can best be described as “permission-based.” Reducing the incentives to innovate and invest freely in the EU could have ripple effects across the global economy.

European and American antitrust enforcers have already been on the same page in the sense that they favor an ever more prescriptive regulatory environment, presuming that conduct by large businesses is anticompetitive unless proven otherwise — an almost impossible task. In Europe, the Digital Markets Act (which becomes effective in 2023) seeks to rebalance the digital economy and is clearly targeted at some of the most successful U.S.-based technology companies.

In a speech last October, European Commission antitrust chief Margrethe Vestager stressed that over the past few years, antitrust ideas “have increasingly been converging, in Europe and America,” and that “the growing sense of a common approach to the new challenges for competition law … tells me that now is the time to cooperate even more closely than we’ve done before.” 

Indeed, the United States is following in the EU’s footsteps. Some U.S. bills target only seven technology companies and would make corporate acquisitions or self-preferencing – a company’s use of its platform to boost its own products or services – presumptively illegal, regardless of the effects on the economy. These proposals put aside economic analysis in favor of hard-and-fast rules about what a “dominant” company can and cannot do and imposes hefty fines for offenders. 

The concept of rigid legal presumptions, devised by the European Commission and directed against certain large firms’ practices, is far from new. It’s been used against Intel as far back as 2009. Intel, the dominant semiconductor manufacturer then and now, gave price rebates (“loyalty discounts”) to manufacturers (think Dell or HP) in exchange for those companies buying nearly all their computer chips from Intel alone. The European Commission claimed that Intel abused its market power and fined the company over 1 billion euros. 

The commission did not come to this conclusion by conducting a careful and robust economic analysis. It asserted that since discounts can be anticompetitive, under the right conditions, they must be anticompetitive, despite a lack of evidence. The commission alleged harm between 2002 and 2005 using only evidence from the final quarter of 2002.

But the European General Court pushed back against the commission’s overreach. In a recent decision, the need for better evidence was put front and center, and the court struck down the fine. In so doing, the court adopted an approach that has long been accepted by the U.S. Supreme Court.

Economic evidence has now become a powerful right hook for companies operating in the European Union. This should always be the case, but the new development nonetheless represents a victory for objective, innovation-friendly policy. No longer is the European Commission able to ignore similar evidence in cases where discount schemes were presumed illegal. No longer is the commission’s judgement infallible, and this could mean a new wave of fights in court.

American companies are among the most ridiculed within the European Union, having faced numerous fines over the last decade. Until now, European courts have generally sided with the commission, leaving little recourse for companies fighting these fines. Google, Microsoft and Qualcomm have received some of the harshest fines ever imposed by the commission. 

Other punches have begun to land. Both Apple and Amazon have won rounds against the commission on tax cases. But the European Commission has signaled that it is still ready to enter the ring with the whole gamut of industry-leading American technology companies, alleging wide-ranging anticompetitive harm across the European Union.

Likely gone are the days when companies tap out after the first round. Is the commission beginning to lose steam, and is it at risk of a knockout in a future case? It’s too early to call, but some of the commission’s punches seem to be weaker thanks to the European courts. 

Alden Abbott is a senior research fellow with the Mercatus Center at George Mason University and a former general counsel with the Federal Trade Commission. Andrew Mercado is an adjunct professor with the Antonin Scalia Law School.