EU fines Intel record €1.06 billion

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The European Commission yesterday (13 May) imposed its highest ever fine on Intel, the world’s leading chipmaker, which stands accused of abusing its dominant position to cripple its only serious rival AMD, ultimately pushing up personal computer prices.

Intel has been charged with a stunning €1.06 billion fine – 4.15% of its 2008 turnover – to be paid within three months, closing a ten-year investigation.

The cornerstone of the Commission’s accusation is the alleged use by Intel of illegal rebates and payments in favour of computer manufacturers and one retail store chain, aimed at preventing competition from AMD.

Illegal rebates

Intel’s incestuous partners were manufacturers Acer, Dell, HP, Lenovo and NEC. The retailer is Media Markt, a giant in the distribution of electronics. All are considered “victims” of Intel’s unfair practices and will not be subjected to any sanctions, said EU Competition Commissioner Neelie Kroes, who announced the record fine in Brussels on Wednesday.

According to the Commission, Intel forced computer makers to accept discounts tied to exclusivity clauses, which made it impossible for them to accept offers from competitor AMD.

In one case, the EU executive found that a manufacturer had refused an offer by AMD to use for free one million of its central processing units (CPUs), the “brain” present in each computer, on the grounds that this would have broken the exclusivity deal signed with Intel. Consumer groups stood behind the Commission’s stance, saying that CPUs represented up to 30% of a computer’s final price.

In another case, retail chain Media Markt was allegedly paid to sell only Intel-equipped products. Intel made similar illegal payments to computer manufacturers to deliberately delay the launch of AMD-based products or to restrict their sale.

“The Commission finds that Intel did not compete fairly, frustrating innovation and reducing consumer welfare in the process,” said Kroes, announcing the fine yesterday.

Intel promises to appeal

Intel denied all the accusations and promised to appeal the Commission decision. It denied that its contracts with manufacturers and retailers had contained illegal elements. But the Commission based part of its evidence on what it calls “contemporaneous evidence”, such as emails obtained during unannounced inspections.

Intel Vice-President Bruce Sewell described the size of the fine as “arbitrary”. “It bears no relationship to any actual or proven harm or injury,” he said at a press conference in Brussels following the Commission’s announcement.

But Kroes underlined that the Commission could have gone much further, as the maximum fine it can impose for antitrust cases is 10% of a company’s global turnover. Instead of €1 billion, the Commission said it could have slapped a fine of over €3 billion on Intel, as the company’s global turnover stood well above €30 billion in 2008.

EU Competition Commissioner Neelie Kroes made clear that "given that Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for over five years, the size of the fine should come as no surprise".

Intel President and CEO Paul Otellini replied: "Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace, characterised by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers. Intel will appeal."

BEUC, the European consumers' organisation, welcomed the Commission's decision. "Consumer choice is the heartbeat of a competitive economy. Intel have been shown to have denied effective consumer choice and as a result kept prices artificially high and slowed the pace of innovation. Such a large fine should deter companies that might think they will get away with such anti-competitive and anti-consumer practices," said Monique Goyens, BEUC's director-general.

Dr. Andreas Geiger, a lobbyist and antitrust lawyer at Brussels government relations law firm Alber & Geiger, told EURACTIV: "We see Intel follow in Microsoft's footsteps here - and Google might be the next. Like in the Microsoft case, it is not understandable why the company has not solved this issue politically with the European Commission before. Instead, Intel escalated things."

"Any corporation will, in the end, only lose that way in Europe, no matter what the legal outcome at the European Court of Justice is. Sometimes, as an EU regulator, you might get the feeling that US companies just don't believe in any EU consequences for them," he added.

"They seem to move forward, trusting they will get away with whatever they do, while they would hardly dare to do the same in the US. No EU authority likes such behaviour. Most US corporations solve such problems in Washington far more cleverly, accompanying their business interests not just legally but politically. Usually, this helps to settle things a lot earlier and much more easily. I am waiting to see that happen in Brussels, too," he concluded. 

Chip-driven processors are at the heart of every computer, and their increase in processing power has been a precondition for the rise in productivity in the ICT sector in recent decades. The market is characterised by fierce competition between two major players: Intel and its sole remaining competitor of note AMD, which holds a much smaller market share. 

Following complaints by AMD about its rival's alleged anticompetitive behaviour, the European Commission raided Intel offices across Europe, invading the premises of a number of computer manufacturers at the same time.

In July 2007, the Commission sent a statement of objections to the US company confirming that it was investigating suspected incestuous practices between Intel and computer manufacturers. The move was followed by a second statement of objections in July 2008 (EURACTIV 18/07/08).

  • July 2009: Deadline for Intel to file appeal with EU Court of First Instance.
  • August 2009: Deadline for transferring the amount of the fine to a guaranteed bank account where it will be kept until the final decision following any appeal.

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