EU regulators issues Intel with record-breaking fine

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IN DEPTH : European regulators have found Intel guilty and has placed a €1.06 billion fine for engaging in illegal anticompetitive practises that excluded its rival, AMD, from entering the computer chips market – the largest fine ever made since Microsoft’s anticompetitive fine in 2004.

The European Commission found Intel to gave rebates to Acer, Dell, HP, Lenovo and NEC, and also retail store Media Saturn Holdings, to make sure that they have a significant share in the market, which is currently at least 70 percent of the entire market.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years. Such a serious and sustained violation of the EU’s antitrust rules cannot be tolerated,” Competition Commissioner Neelie Kroes said in a statement.

The Commission findings

The Commission has found that Intel gave rebates to “manufacturer A” between December 2002 and December of 2005 on the condition that they used Intel’s chips exclusively; “manufacturer B” between November 2002 and May 2005 on the condition that they used Intel’s chips for 95% of its business computers, while the 5 percent can use AMD; “manufacturer C” from October 2002 to November 2005 on the condition that 80% of its computers have to use Intel chips; and “manufacturer D” on the condition that its notebooks only use Intel chips.

From a previous report, we can speculate that “manufacturer A” would be Dell, “manufacturer B” would be HP, “manufacturer C” be NEC and “manufacturer D” be Lenovo. We are uncertain where Acer played a role in the Commission’s investigation, other than giving a statement.

Also in the 546-page summary, it found that it paid Germany-based retailer Media Saturn Holdings from October 2002 to December 2007 on the condition that Intel-based PCs would be sold in the countries where Media Saturn has a presence in.

Media Saturn Holdings, a merged company between Media Markt and Saturn, has a presence in Spain, Portugal, Italy, France, Austria, Germany, Belgium, Austria, Greece, Hungary, Luxembourg, Poland, the Netherlands, Russia, Sweden, Switzerland and Turkey. Out of all the countries, Russia, Switzerland and Turkey remain outside of the European Commission’s jurisdiction.

Also, the commission’s statement includes this:

For example, rival chip manufacturer AMD offered one million free CPUs to one particular computer manufacturer. If the computer manufacturer had accepted all of these, it would have lost Intel’s rebate on its many millions of remaining CPU purchases, and would have been worse off overall simply for having accepted this highly competitive offer. In the end, the computer manufacturer took only 160,000 CPUs for free.

The fine is said to be calculated on the infringement’s duration of five years and three months, and is said to be under the 10 percent threshold. The fine is reported to be somewhere in the 4 and 5 percent.

AMD and Intel comments

AMD, the company that brought this to the attention to the European Commission, has said that they are happy with the investigation, saying that Intel’s monopoly has come to the end.

“After an exhaustive investigation, the EU came to one conclusion – Intel broke the law and consumers were hurt,” executive vice president for legal affairs Tom McCoy said in a statement. “With this ruling, the industry will benefit from an end to Intel’s monopoly-inflated pricing and European consumers will enjoy greater choice, value and innovation.”

Intel, however, are obviously not happy with the decision, and has said that they will appeal the decision, but will also work with the Commission to ensure that they are complying with the decision – looking not to have a repeat of Microsoft getting another huge fine for not complying.

“Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace,” Intel’s CEO and president Paul Otellini said in a statement.

“We do not believe our practices violated European law. The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not. The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision. We believe this evidence shows that when companies perform well the market rewards them, when they don’t perform the market acts accordingly.”

It also argues that Intel never sold any product below cost, nor will it ever, and that they “can discount our products to compete in a highly competitive marketplace”.

Intel’s appeal is most likely to take years to ever reach a final decision, as it is being challenged at the Court of First Instance.

Intel and Antitrust suits

Intel has been in antitrust lawsuits in other countries. In 2005, the Japan Fair Trade Commission found that Intel violated its anti-monopoly laws by forcing full or partial exclusivity with five Japanese PC makers; while in 2008, Korea Fair Trade Commission also found Intel guilty and ordered that Intel to stop offering payments to PC makers. The Korea Fair Trade Commission also issued Intel with a US$25.4 million fine.

Intel is appealing the Korean ruling, but has not appealed the Japanese ruling.

Intel could also finding a prospect of an antitrust ruling in the United States, where the US Federal Trade Commission is investigating claims, along with the New York Attorney General’s office, for abusing its monopoly position.

AMD has also a lawsuit against Intel, filed in 2005 in the US District Court of Delaware, and is scheduled to start in spring 2010.

Image from: Josh Bancroft/Flickr (CC)