EU ban imposed on some Broadcom contract clauses

Out-Law News | 23 Oct 2019 | 8:53 am | 3 min. read

The EU's competition regulator has temporarily barred a major US technology company from implementing contract clauses that offer "advantages" to manufacturers of TV set-top boxes and modems if they buy their "systems-on-a-chip" products.

The ban imposed on Broadcom by the European Commission could last for up to three years.

The Commission's decision to impose interim measures comes months after it opened an in-depth competition investigation to "assess whether Broadcom may be restricting competition through exclusivity practices" in the TV and modem chipsets markets.

In its latest statement in the case, the Commission said the interim measures are designed to "prevent serious and irreparable harm to competition". It said it was concerned that Broadcom's rivals may be unable to compete with the company in a number of upcoming tenders and "in relation to the upcoming introduction of the WiFi 6 standard for modems and TV set-top boxes" and that, ultimately, it could lead to the marginalisation of its rivals or their exit from the market.

Broadcom has said it will appeal against the imposition of the interim measures before the EU courts, according to the Financial Times.

"The maximum three-year duration of the interim measures suggests a potentially lengthy, substantive antitrust investigation by the Commission," said competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law. "Broadcom’s appeal to EU courts will hopefully clarify the circumstances where the use of interim measures is appropriate. This could have particular implications for fast-moving technology markets where the Commission might seek to argue such urgent intervention is more justified given the potential scope for ‘irreparable harm’ to competition occurring."

According to the Commission, Broadcom is, "at first sight", dominant in the markets for systems-on-a-chip for TV set-top boxes, fibre modems and xDSL modems and, that it is "at first sight" abusing its position of dominance in those markets.

The Commission said Broadcom has used "anticompetitive provisions" in its contracts with six manufacturers of TV set-top boxes and modems to strengthen and leverage its dominance in the three markets.

Broadcom's contracts contain "exclusive or quasi-exclusive purchasing obligations and commercial advantages, such as rebates and other non-price related advantages (for example, early access to its technology and premium technical support) that are conditional on the customer buying these products exclusively or quasi-exclusively from Broadcom" as well as "clauses granting customers in these markets commercial advantages, such as price and non-price advantages, which are conditional on the customer buying systems-on-a-chip for cable modems exclusively or quasi-exclusively from Broadcom", the Commission said.

The Commission has given Broadcom 30 days to stop applying those contract provisions and further ordered Broadcom to "refrain from agreeing the same provisions or provisions having an equivalent object or effect in other agreements with these customers, and refrain from implementing punishing or retaliatory practices having an equivalent object or effect".

The interim measures will apply for up to three years. They will cease to apply at an earlier date where the Commission completes its ongoing competition investigation into Broadcom's conduct sooner.

EU competition commissioner Margrethe Vestager said: "Market dominance is in itself not a problem. We value companies for becoming successful due to their skill and innovation. But dominant companies they do have a special responsibility not to impair competition in the internal market. As an example, they cannot require or induce customers to purchase exclusively or almost exclusively from them. This is not competition on the merits. And it ultimately leads to a reduction of choice and innovation to the detriment of consumers."

When the Commission opened its formal antitrust investigation in June it said then that it had preliminarily concluded at that stage 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".

Vestager said the 'urgency' test that needs to be met to justify the imposition of interim measures in ongoing competition cases was met in this case.

Vestager said: "The evidence we have gathered shows that Broadcom's behaviour is likely to have severe negative effects on its competitors before we could reach a final decision."

"We know that telecom and cable providers will launch a large number of tenders in the coming years. We believe that if Broadcom's contractual arrangements stay in place, Broadcom's competitors would not be able to compete on equal terms in these tenders. This could fatally affect their viability. Their revenues will fall, and so will their ability and incentive to invest in innovation. Their products will therefore gradually lose attractiveness in the eyes of customers. They will progressively be marginalised and may ultimately be forced to leave the market. If that happens, European consumers would face the consequences of higher prices, reduced choice and less innovation," she said.