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European Union fines Intel a record $1.45 billion

Antitrust officials accuse the Santa Clara company of offering improper rebates and other discounts to discourage companies from buying microprocessors from its smaller rival, Advanced Micro Devices Inc.

May 14, 2009|Jim Puzzanghera

WASHINGTON — European regulators demonstrated what the Obama administration's tough new antitrust stance might look like, levying a record $1.45-billion fine Wednesday against Intel Corp. for abusing its dominance in the computer chip market.

The European Commission found that Intel had engaged in illegal sales tactics that frustrated competition and innovation and harmed consumers for more than five years.

The U.S. Federal Trade Commission launched its own investigation of the Santa Clara, Calif., company in June, about a year after European regulators did. With the administration's top antitrust official vowing this week to be more aggressive about protecting competition and open markets, Intel and other large companies could be facing increased scrutiny -- and possibly huge fines -- on this side of the Atlantic as well, analysts said.

"The U.S. and the European Union now seem to be in some kind of competition with regard to who can be the most aggressive, and this would be the wrong time to appear to be an easy target," said technology analyst Rob Enderle of the Enderle Group. "It's much like watching a tennis match where you don't want to be the ball. In this instance, Intel is the ball."

The fine resulted from the commission's findings that Intel offered improper rebates and other discounts to discourage companies from buying microprocessors from its smaller rival, Advanced Micro Devices Inc. Complaints from AMD triggered the investigation.

AMD Chief Executive Dirk Meyer called the ruling, released early in the day, "an important step toward establishing a truly competitive market."

But Intel's chief executive, Paul Otellini, denied any wrongdoing and said the company would appeal the fine.

"Our contracts are straightforward, consistent worldwide and volume-based. The more you buy, the less you pay," Otellini said. "There has been absolutely zero harm to consumers."

European regulators disagreed. They handed down a fine that topped their $1.3-billion levy against Microsoft Corp. last year for failing to comply with an earlier order to stop abusing its dominant position in computer software.

"The commission finds that Intel did not compete fairly, did frustrate innovation and did reduce consumer welfare in the process," Neelie Kroes, the European commissioner for competition policy, said at a news conference in Brussels.

Wall Street appeared ambivalent. AMD's stock gained 3 cents to $4.38 Wednesday; Intel's shares slipped 8 cents to $15.13.

The violations took place between 2002 and 2007, when Intel controlled at least 70% of the world market for microprocessors, Kroes said.

The commission said Intel "gave wholly or partially hidden rebates to computer manufacturers" on the condition that they would buy all, or nearly all, of their processors from the company. Intel also "made direct payments to computer manufacturers to halt or delay" the launch of products containing competitors' chips or to limit the sale of those products, the commission concluded.

Among the computer makers offered rebates were Dell Inc., Hewlett-Packard Co. and Lenovo. Intel was ordered to stop the practices immediately.

Tom McCoy, AMD's executive vice president for legal affairs, alleged that Intel's goal was to keep AMD small enough to not be a major threat, without running its only significant competitor out of business.

"The commission is saying it's simple math: Consumers are being harmed," McCoy said. AMD has been complaining of antitrust abuses by Intel for several years and has filed suit against the company in federal court.

The European investigation began in July 2007, and its findings should spur U.S. regulators, said David Balto, a senior fellow at the Center for American Progress and a former antitrust official at the FTC and the Department of Justice. He noted that Intel also has been found in violation of antitrust laws by Japan and South Korea.

"The relief that the Europeans imposed, I think, will provide an excellent guide to U.S. enforcers as they try to determine what to do about Intel's exclusionary conduct," Balto said Wednesday.

On Monday, the new head of the Justice Department's antitrust division, Christine Varney, said the Obama administration would be more aggressive than the Bush administration in cracking down on companies that abuse their market power.

The FTC is handling this case, but it has a new, Obama-appointed Democratic chairman.

FTC officials did not respond to requests for comment.

Balto expected the commission to take action against Intel, particularly given the deep recession.

"We don't have the luxury of lax antitrust enforcement now," he said.

But Ken Ferree, president of the Progress & Freedom Foundation, said European regulators were on a dangerous path.

"It seems like the European competition policy is 'bigness is badness.' If you're big, there's something suspicious about you and you must be doing something evil to either get big or stay big," he said. "Sometimes it's true. But in and of itself, bigness is not badness. Many of the drivers of our economy are big companies."

Ferree echoed Intel's comments that prices for computer chips have gone down as their processing speeds have increased, indicating that the market was working. But Enderle said prices might have dropped more if there had been true competition.

Kroes scoffed at Intel's latest advertising campaign, which dubs the company the "sponsors of tomorrow."

"Their website invites visitors to add their 'vision of tomorrow.' Well, I can give my vision of tomorrow for Intel here and now: 'Obey the law,' " she said.


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