Europe Finds Intel Business Practices Anticompetitive

European Union Fines Intel on $1.44 Billion

by Anton Shilov
05/13/2009 | 11:25 AM

The European Commission has imposed a fine of €1.06 billion ($1.44 billion) on Intel Corp. for violating EC Treaty antitrust rules on the abuse of a dominant market position by engaging in illegal anticompetitive practices to exclude competitors from the market for x86 central processing units (CPUs). Intel’s main rival Advanced Micro Devices applauded the decision on Wednesday.

 

“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,” said Competition Commissioner Neelie Kroes.

“After an exhaustive investigation, the EU came to one conclusion – Intel broke the law and consumers were hurt. 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,” said Tom McCoy, AMD executive vice president for legal affairs.

The Commission ordered Intel to cease the illegal practices immediately to the extent that they are still ongoing. The EC found that throughout the period October 2002 - December 2007, Intel had a dominant position in the worldwide x86 CPU market (at least 70% market share). The Commission has found that Intel engaged in two specific forms of illegal practice.

The EC found that these practices constituted abuses of Intel’s dominant position on the x86 CPU market that harmed consumers throughout the EEA. By undermining its competitors’ ability to compete on the merits of their products, Intel’s actions undermined competition and innovation.

The Commission will actively monitor Intel’s compliance with this decision. The world market for x86 CPUs is currently worth approximately €22 billion ($30 billion) per year, with Europe accounting for approximately 30% of that.

The computer manufacturers concerned by Intel's conduct in the Commission’s decision are: Acer, Dell, HP, Lenovo and NEC. The retailer concerned is Media Saturn Holding, owner of the MediaMarkt chain.

Certain rebates can lead to lower prices for consumers. However, where a company is in a dominant position on a market, rebates that are conditional on buying less of a rival's products, or not buying them at all, are abusive according to settled case-law of the Community Courts unless the dominant company can put forward specific reasons to justify their application in the individual case.

In its decision, the Commission does not object to rebates in themselves but to the conditions Intel attached to those rebates. Because computer manufacturers are dependent on Intel for a majority of their x86 CPU supplies, only a limited part of a computer manufacturer's x86 CPU requirements is open to competition at any given time.

The EC claims that Intel structured its pricing policy to ensure that a computer manufacturer which opted to buy AMD CPUs for that part of its needs that was open to competition would consequently lose the rebate (or a large part of it) that Intel provided for the much greater part of its needs for which the computer manufacturer had no choice but to buy from Intel. The computer manufacturer would therefore have to pay Intel a higher price for each of the units supplied for which the computer manufacturer had no alternative but to buy from Intel. In other words, should a computer manufacturer fail to purchase virtually all its x86 CPU requirements from Intel, it would forego the possibility of obtaining a significant rebate on any of its very high volumes of Intel purchases.

Intel also, according to the findings of EC, interfered directly in the relations between computer manufacturers and AMD. Intel awarded computer manufacturers payments - unrelated to any particular purchases from Intel - on condition that these computer manufacturers postponed or cancelled the launch of specific AMD-based products and/or put restrictions on the distribution of specific AMD-based products. The Commission found that these payments had the potential effect of preventing products for which there was a consumer demand from coming to the market. The Commission found the following specific cases:

The EC has found that in order to be able to compete with the Intel rebates, for the part of the computer manufacturers' supplies that was up for grabs, a competitor that was just as efficient as Intel would have had to offer a price for its CPUs lower than its costs of producing those CPUs, even if the average price of its CPUs was lower than that of Intel.

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 thousand microprocessors for free, according to the Comission.

Rebates such as those applied by Intel are recognized in many jurisdictions around the world as anti-competitive and unlawful because the effect in practice is to deny consumers a choice of products.

The Commission obtained proof of the existence of many of the conditions found to be illegal in the antitrust decision even though they were not made explicit in Intel’s contracts. Such proof is based on a broad range of contemporaneous evidence such as e-mails obtained inter alia from unannounced on-site inspections, in responses to formal requests for information and in a number of formal statements made to the Commission by the other companies concerned. In addition, there is evidence that Intel had sought to conceal the conditions associated with its payments.

The decision contains a broad range of contemporaneous evidence that shows that AMD, essentially Intel's only competitor in the market, was generally perceived, by computer manufacturers and by Intel itself, to have improved its product range, to be a viable competitor, and to be a growing competitive threat. The decision finds that Intel's practices did not constitute competition on the merits of the respective Intel and AMD products, but rather were part of a strategy designed to exploit Intel's existing entrenched position in the market.