The European Commission has ordered semiconductor manufacturer Broadcom to cut out harsh contract terms with six TV and modem manufacturers because they may infringe antitrust rules.
It is the first time since 2001 the EU’s executive body has imposed “interim measures,” a legal mechanism that stops companies from engaging in suspected anticompetitive behavior before the outcome of an investigation.
“Interim measures are one way to tackle the challenge of enforcing our competition rules in a fast and effective manner. Whenever necessary, I am therefore committed to making the best possible use of this important tool.”
Margrethe Vestager, Commissioner, European Commission
The Commission said it had to intervene “to prevent serious and irreparable harm” caused by the company’s conduct.
Broadcom, the world leader in the supply of chipsets for TV set-top boxes and modems, is “at first sight” dominant in three different markets—namely TV set-top boxes, fiber modems, and xDSL modems.
While being dominant is not an infringement of competition law, abusing that position is.
The Commission—which began its investigation in October 2018—believes Broadcom’s use of exclusive and quasi-exclusive clauses to lock customers into contracts by offering them rebates, early access to its technology, and premium technical support are anti-competitive.
In a statement, Margrethe Vestager, the EU’s Commissioner in charge of competition policy, said: “Broadcom’s behaviour is likely, in the absence of intervention, to create serious and irreversible harm to competition. We cannot let this happen, or else European customers and consumers would face higher prices and less choice and innovation. We therefore ordered Broadcom to immediately stop its conduct.”
The Commission has told Broadcom to cease applying these contract terms for the next three years, or until Brussels finishes its probe—a process that can also take years—as well as “refrain from implementing punishing or retaliatory practices” that effectively force customers to stay locked into the same or similar arrangements.
The company has 30 days in which to comply.
Article 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits the abuse of a dominant position that may affect trade within the EU and prevent or restrict competition. The implementation of this provision is defined in the Antitrust Regulation (Council Regulation No 1/2003), which can also be applied by the national competition authorities.
Pursuant to Article 8(1) of the Antitrust Regulation, interim measures may be imposed if at first sight (“prima facie”) there is an infringement of competition law rules, as well as an urgent need for protective measures due to the risk of serious and irreparable harm to competition.
There is no legal deadline for finishing an antitrust investigation. The duration of an antitrust investigation depends on a number of factors, including the complexity of the case, the extent to which the companies concerned cooperate with the Commission, and the exercise of the rights of defense.
While Broadcom has rejected the Commission’s claims and said it will appeal the decision, the company also said it will comply with the Commission’s order.
The use of interim measures represents a potentially powerful—but hitherto underused –weapon in the EU’s arsenal to curb anticompetitive behavior and may resurface in the Commission’s ongoing probes into the possible abusive practices carried out by Big Tech companies.
Vestager has acknowledged her previous approach of fining Big Tech companies billions of dollars has often done little to restore fair competition because the remedies arrived long after companies had already driven rivals out of the market and built formidable, dominant positions.
“Interim measures are one way to tackle the challenge of enforcing our competition rules in a fast and effective manner,” said Vestager. “Whenever necessary, I am therefore committed to making the best possible use of this important tool.”
While the Commission does have the power to break up companies if they act as monopolies, it does not appear to be a route Vestager wants to embark on—at least not yet.
Instead, she has signaled she may be in favor of the Commission having similar powers to national competition authorities in the United Kingdom and The Netherlands, which have the authority to reorganize a marketplace before consumers or competitors suffer.