Summary of Commission Decision

of 16 October 2019

relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union, Article 54 of the EEA Agreement and Article 8 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty

(Case AT.40608 – Broadcom)

(notified under document C(2019) 7406)

(Only the English text is authentic)

(Text with EEA relevance)

(2021/C 81/12)

On 16 October 2019 , the Commission adopted a decision relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA agreement. In accordance with the provisions of Article 30 of Council Regulation (EC) No 1/2003 (1), the Commission herewith publishes the names of the parties and the main content of the decision, including any penalties imposed, having regard to the legitimate interest of undertakings in the protection of their business secrets.

1. INTRODUCTION

(1) This Decision sets out the European Commission’s (the ‘Commission’) findings that the conduct of Broadcom Inc. is prima facie breaching Article 102 of the Treaty on the Functioning of the European Union (‘TFEU’) and Article 54 of the Agreement on the European Economic Area (‘EEA Agreement’) and that the likely damage resulting from such infringement is such as to give rise to a situation of urgency justifying the adoption of interim measures pursuant to Article 8 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (‘Regulation (EC) No 1/2003’).

2. MARKET DEFINITION

(2) The Decision concerns certain types of integrated circuits (‘ICs’) incorporated into network access equipment that is installed at customer premises (so-called customer premises equipment, ‘CPE’), namely set-top boxes (‘STBs’) and residential gateways. The factual and legal analysis set out in the Decision indicates that, prima facie, there are separate markets for: (a) STB SoCs (2); (b) SoCs for fibre residential gateways; (c) SoCs for xDSL residential gateways; and (d) SoCs for cable residential gateways.

(3) The Decision concludes that the geographic market for all markets is, prima facie, worldwide.

3. DOMINANCE

(4) The Decision concludes that Broadcom is prima facie dominant in the following worldwide markets: (a) STB SoCs; (b) SoCs for xDSL residential gateways; and (c) SoCs for fibre residential gateways.

(5) The finding of dominance in the Decision is supported by the following elements, which are based on a prima facie assessment: (i) large market shares held by Broadcom in all the relevant markets (above 50 % in all of them); (ii) lack of countervailing buyer power by Broadcom’s customers; and (iii) the existence of barriers to entry in the relevant markets.

4. ABUSE OF A DOMINANT POSITION

(6) The Decision establishes that, prima facie, Broadcom’s conduct infringes Article 102 TFEU and Article 54 EEA Agreement, thus giving rise ‘at first sight’ to serious doubts as to its compatibility with those provisions.

(7) The Decision finds that Broadcom entered into six agreements (the ‘Agreements’) with six original equipment manufacturers (‘OEMs’). The Agreements govern Broadcom’s supply of SoCs, for later integration into STBs and residential gateways by the OEMs.

(8) The Decision concludes that, prima facie, the Agreements contain exclusivity-inducing provisions which can be grouped into two different types of restrictions of competition.

(9) First, the Decision examines exclusivity and quasi-exclusivity arrangements in the form of obligations or promises to obtain products in which Broadcom is dominant exclusively or almost exclusively from Broadcom or provisions that make the granting of certain advantages conditional on the customer obtaining products in which Broadcom is dominant exclusively or almost exclusively from Broadcom. The Commission prima facie concluded that all the Agreements amount to a system of exclusivity and quasi-exclusivity arrangements, capable of restricting competition.

(10) Second, the Decision examines leveraging practices based on provisions contained in five of the six Agreements which allow Broadcom to leverage market power from one or more product markets to one or more adjacent but separate product markets. With regard to these provisions, the Decision prima facie finds that in certain instances, such leveraging is achieved by means of advantages granted in markets in which Broadcom is prima facie dominant, which are conditional on customers buying exclusively or almost exclusively products from Broadcom in markets in which Broadcom is not prima facie dominant. The Decision finds this conduct to have the likely effect of extending Broadcom’s dominance from one or more markets (markets for STB SoCs, fibre residential gateway SoCs and xDSL residential gateway SoCs) to one other market (the market for cable residential gateway SoCs). In other instances, Broadcom engages in cross-leveraging by granting advantages in markets in which Broadcom is prima facie dominant, which are conditional on customers buying exclusively or almost exclusively products from Broadcom in markets in which Broadcom is also prima facie dominant. The Decision finds this conduct to have the likely effect of strengthening Broadcom’s dominance in the markets in which Broadcom is prima facie dominant (the market for STB SoCs, fibre residential gateway SoCs and xDSL residential gateway SoCs).

(11) The Decision concludes that Broadcom’s exclusivity-inducing provisions are prima facie capable of affecting competition and that Broadcom’s conduct is not prima facie objectively justified.

5. JURISDICTION

(12) The Commission concludes that it has jurisdiction to apply Article 102 TFEU and Article 54 of the EEA Agreement to Broadcom’s conduct described in this Decision.

6. EFFECT ON TRADE

(13) The Commission concludes that Broadcom’s conduct is, prima facie, capable of affecting the pattern of trade in goods between Member States.

7. Urgency due to the risk of serious and irreparable damage to competition

(14) The Decision concludes that if Broadcom’s prima facie abusive conduct would continue, it would likely lead to serious and irreparable damage to competition in each of the relevant markets before the Commission could reasonably take a final decision on the substance.

(15) In particular, it is likely that Broadcom’s competitors would become increasingly marginalised or exit the market if they were not urgently put into a position to be able to effectively compete with Broadcom for downstream demand. In the absence of the Commission’s urgent intervention by means of interim measures, the application of Broadcom’s exclusivity-inducing conditions would ultimately span a time period longer than the typical interval between two tenders launched by service providers.

(16) In light of the adverse knock-on consequences of a chip supplier’s failure to win a particular tender on its ability to win tenders in subsequent generations of a particular product, the ability of Broadcom’s competitors to compete with Broadcom would be severely affected.

(17) The Commission considers that the likely damage to competition in this case must be considered as serious, as it would be capable of having long-lasting effects on the structure of the markets at stake, innovation and consumer welfare.

(18) Moreover, such damage could no longer be remedied by means of a final decision concluding the Commission’s administrative procedure, as it is highly unlikely that once a company has exited a given market that company would decide to re-enter the market at a later point in time, or be able to do so.

8. INTERIM MEASURES IMPOSED

(19) In light of the finding that Broadcom has, prima facie, engaged in an infringement of Article 102 TFEU and Article 54 of the EEA Agreement and the urgent need to prevent serious and irreparable damage to competition, the Commission considers that interim measures are required to ensure the effective exercise of its competition law enforcement powers and, in particular, the effectiveness of any final decision it may take on the compatibility of Broadcom’s conduct with the rules on competition laid down in Article 102 TFEU and Article 54 of the EEA Agreement.

(20) The Decision orders Broadcom to unilaterally cease to apply with immediate effect the exclusivity-inducing provisions contained in the Agreements with six OEMs concerning purchases of SoCs for STBs and SoCs for cable, fibre or xDSL residential gateways from Broadcom.

(21) Furthermore, Broadcom is required to refrain from agreeing the same exclusivity-inducing provisions or provisions having an equivalent object or effect in any future contracts or agreements with the OEMs and from implementing practices having an equivalent object or effect.

(22) The Decision concludes that the interim measures imposed are proportionate, as they are necessary to preserve the effective exercise of the Commission’s enforcement powers. The measures do also not impose an undue burden on Broadcom, as they are strictly limited to what is necessary to avoid serious and irreparable damage to competition, do not require Broadcom to engage in any active conduct that it is not ongoing at present and allow Broadcom to continue supplying the relevant products to its customers at the same conditions as before, absent the exclusivity-inducing provisions.

(23) The interim measures will apply for (i) a time period of three years as from the date on which Broadcom informs the Commission of the measures that it has adopted or (ii) until the date of adoption of a final decision on the substance of Broadcom’s conduct covered by this Decision or the closure of the Commission’s investigation concerning that conduct, should either of these events occur prior to the end of the aforementioned three-year period.

(24) The Decision sets out that Broadcom shall incur a daily penalty of up to 2 % of Broadcom’s average daily turnover if it fails to comply with the interim measures.

(1) Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L 1, 4.1.2003, p. 1).

(2) ‘SoC’ stands for System-on-a-Chip.