Intel Disagrees with Japan Monopoly Recommendation, AMD Praises Decision

Online staff -- Electronic News, 3/8/2005

Early today, Intel Corp.’s Japanese subsidiary, Intel K.K., received a recommendation from the Japan Fair Trade Commission (JFTC) that it is in violation of Section 3 of Japan’s Antimonopoly Act concerning PC manufacturers in the region.

Intel has approximately 10 days to respond to the recommendation but said in a statement that it “continues to believe its business practices are both fair and lawful.”

Before deciding the next steps to take, the company said it is evaluating the assertions and the recommendation.

Intel also expressed concern that the JFTC’s recommendation does not appear to take into account antitrust principles commonly accepted worldwide.

“One of the core principles of competition policy is the notion that such policies should be based on sound economics,” said Bruce Sewell, VP and general counsel for Intel, in a statement.

“There is a broad consensus that competition regulators should only intervene where there is evidence of harm to consumers,” he continued. “It is apparent the JFTC’s recommendation did not sufficiently weigh these important principles."

Not surprisingly, Intel rival AMD praised the JFTC’s recommendation.

Thomas McCoy, AMD executive VP of legal affairs and chief administrative officer said in a statement, “The JFTC found that Intel illegally manipulated the market to exclude competition, hurting PC users around the world.

“Using market power illegally to limit innovation and, more importantly, consumers’ freedom to choose, cannot be tolerated. We encourage governments around the globe to ensure that their markets are not being harmed as well, McCoy urged.

“The evidence of harm to consumers is obvious. By preventing PC manufacturers from using CPUs of their choice, Intel’s misconduct deprived consumers worldwide of the freedom to purchase computers that best fit their needs,” he said further.

“Efforts by an avowed monopolist to artificially set market shares to exclude competition clearly violates antitrust standards globally,” McCoy concluded.

According to the AMD statement, the JFTC found that Intel abused its monopoly power to exclude fair and open competition in violating Section 3 of Japan’s Antimonopoly Act.

Findings showed that Intel allegedly used illegal tactics to stop AMD’s growing success and increasing market share, which reached 22 percent in 2002, by imposing limitations on Japanese PC manufacturers, which sell notebook and desktop computers to customers around the world.

The JFTC recommendation is the culmination of an 11-month investigation that has established patterns of anti-consumer and anti-competitive behavior. The Commission found that because of AMD’s inroads into Intel’s market share, Intel deliberately set out to artificially limit AMD by imposing conditions on five Japanese manufacturers that together represented 77 percent of all CPUs sold in Japan, AMD’s statement also said.

Specifically, the JFTC found that one manufacturer was forced to agree to buy 100 percent of its CPUs from Intel; another manufacturer was forced to curtail its non-Intel purchases to 10 percent or less; Intel separately conditioned rebates on the exclusive use of Intel CPUs throughout an entire series of computers sold under a single brand name in order to exclude AMD CPUs from distribution; and the mechanisms used to achieve these ends included rebates and marketing practices that includes the “Intel Inside” program and market development funds provided through Intel’s corporate parent in the United States.

The recommendation also notes that Intel imposed these restrictions in direct response to AMD’s growing market share from 2000 to 2002 and that as a result of this misconduct, the combined market share of AMD and a second, much smaller CPU company fell from 24 percent in 2002 to 11 percent in 2003.

The JFTC imposed a number of restrictions on Intel, including requiring notification to its customers and education of its employees that it may no longer provide rebates and other funds to Japanese computer manufacturers on conditions that exclude competitors’ CPUs.

Another investigation of Intel for anti-competitive business practices in the European market remains ongoing by the European Commission.