Intel hit with record $1.45B EC antitrust fine

Intel took strong exception to the decision and maintained that its business practices are not anticompetitive.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 5/13/2009

Intel Corp is facing a record $1.45 billion (1.06 billion Euro) fine after the EC (European Commission) this morning ruled that the chip maker has been violating antitrust rules and abusing its dominant x86 CPU market position.

According to the Commission, Santa Clara, Calif-based Intel engaged in two specific forms of illegal practice. First, Intel gave wholly or partially hidden rebates to computer manufacturers on the condition that they bought all, or almost all, of their x86 CPUs from Intel, the EC said, adding that Intel also made direct payments to a major retailer on condition it stock only computers with Intel x86 CPUs. Second, Intel made direct payments to computer manufacturers to halt or delay the launch of specific products containing competitors’ x86 CPUs and to limit the sales channels available to these products, according to the EC.

The Commission claimed that these practices constituted abuses of Intel’s dominant position in the x86 CPU market and that by undermining its competitors’ ability to compete on the merits of their products, "Intel’s actions undermined competition and innovation."

The EC said that the PC makers concerned by Intel's conduct in the decision include Acer, Dell, HP, Lenovo, and NEC. The retailer concerned is Media Saturn Holding, owner of the MediaMarkt chain.

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

The fine, the largest the EC has ever imposed on a single company, comes after an eight-year investigation into Intel's business practices. The Commission said it obtained proof of the antitrust activity even though the practices were not stated explicitly in Intel’s contracts. The EC's proof is based on contemporaneous evidence, such as e-mails obtained during unannounced on-site inspections. The EC said that there is also evidence that Intel tried to conceal the conditions associated with its payments.

The EC came to the $1.45 billion fine amount based on the duration of the infringement established in its decision (five years and three months) and based on Intel's total sales in the European Union during the period.

Intel President and CEO Paul Otellini immediately issued objection to the EC decision, stating that Intel never sells products below cost.

"Intel takes strong exception to this decision," he said in an Intel statement. "We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace – characterized by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers. Intel will appeal."

Unsurprisingly, AMD praised the decision. “Today’s ruling is an important step toward establishing a truly competitive market,” said Dirk Meyer, AMD president and CEO, in a company statement. “AMD has consistently been a technology innovation leader and we are looking forward to the move from a world in which Intel ruled, to one which is ruled by customers.” 

The EC is not alone in questioning Intel's business practices. In June 2008, the Korea Fair Trade Commission found that Intel violated the country’s antitrust laws by offering discounts on microprocessors to two PC makers and levied an approximate $25.4 million fine against the chip maker. In 2005, the Japan Fair Trade Commission found that Intel used illegal tactics to deter competitors' growth. And in two separate probes in the United States, the Federal Trade Commission andNew York Attorney General’s office are investigating Intel for possible abuse of monopoly position.

Complaints from AMD spurred all of the actions. Intel has consistently maintained that its business practices are within the law.

Intel also currently faces private litigation AMD filed in the US District Court of Delaware, which is scheduled for trial in spring 2010. The two companies are also facing off after AMD's GlobalFoundries spin out, each claiming breach of a 2001 patent cross-license agreement.