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US chipmaker ordered by EU to stop 'anticompetitive practices'

US chipmaker ordered by EU to stop 'anticompetitive practices'

Margrethe Vestager - Photo © European Union 2019

(BRUSSELS) - Broadcom, the world's leading supplier of chipsets used for TV set-top boxes and modems, must stop applying exclusivity provisions in agreements with its top customers, the Commission ordered Wednesday.

This is needed, says the EU executive, to prevent "serious and irreparable harm to competition likely to be caused by Broadcom's conduct, which prima facie (at first sight) infringes EU competition rules".

There were "strong indications" that the US manufacturer is engaging in anticompetitive practices," said the Competition Commissiomer Margrethe Vestager: "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," she said.

Broadcom is the world leader in the supply of chipsets for TV set-top boxes and modems, including so-called systems-on-a-chip. Systems-on-a-chip combine electronic circuits of various components in a single unit, which constitute the "brain" of a set-top box or modem. They are essential to bring the television signals and connectivity to consumers' premises.

The Commission opened an antitrust investigation in June to assess whether Broadcom restricted competition in various markets for these chipsets and components for so-called central office/head end equipment by means of certain practices, including exclusivity, tying, bundling, interoperability degradation and abusive use of intellectual property rights.

At the same time, the Commission issued a Statement of Objections where it preliminarily concluded that interim measures with respect to certain aspects of Broadcom's conduct may be required to ensure the effectiveness of any final decision taken by the Commission in the future.

The Commission says its decision is based on the following elements:

Broadcom is, at first sight, dominant in three different markets, namely the markets for systems-on-a-chip for (i) TV set-top boxes, (ii) fibre modems and (iii) xDSL modems.

Broadcom is, at first sight, infringing competition rules by abusing its prima facie dominant position. In particular, Broadcom entered into agreements with six manufacturers of TV set-top boxes and modems, which include the following anticompetitive provisions:

(i) To strengthen Broadcom's prima facie dominance in systems-on-a-chip for TV set-top boxes, fibre modems and xDSL modems, clauses containing 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; and

(ii) To leverage Broadcom's prima facie dominance from systems-on-a-chip for TV set-top boxes, fibre modems and xDSL modems into the separate market forsystems-on-a-chip for cable modems, 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 analysed a range of evidentiary elements, including the size and importance of the relevant customers, the conditions and duration of the agreements and contemporaneous evidence found in internal documents submitted by Broadcom's customers and competitors.

The Commission concluded that, if Broadcom's ongoing conduct were allowed to continue, it would likely affect a number of tenders that would be launched in the future, also in relation to the upcoming introduction of the WiFi 6 standard for modems and TV set-top boxes. This would likely lead to other chipset suppliers being unable to compete on the merits with Broadcom and could ultimately result in serious and irreparable harm to competition in the form of exit or marginalisation of Broadcom's competitors.

In order to ensure the effectiveness of the Commission's competition law enforcement powers and of any final decision on the legality of Broadcom's conduct it may take in the future, today's decision orders Broadcom to:

(i) unilaterally cease to apply the anticompetitive provisions identified by the Commission and to inform its customers that it will no longer apply such provisions; and

(ii) 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.

Broadcom must comply with these measures within 30 days. The interim measures apply for the earlier of three years or the date of adoption of a final decision on the substance of Broadcom's conduct or the closure of the Commission's investigation concerning that conduct.

The substantive investigation on the merits of all parts of the case is still ongoing.

More information is available on the Commission's competition website, in the public case register under the case number AT.40608.


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