EU Slaps Intel With $1.45 Billion Fine

"The commission's decision finds that Intel abused its dominant position in the market for computer chips known as 'x86 central processing units' in violation of Article 82 of the EC Treaty. This violation lasted for more than five years—from late 2002 to the end of 2007," said Neelie Kroes, the European Commissioner for Competition Policy, in a statement. The European Commission is the executive branch of the European Union.

According to Kroes, Intel held at least 70 percent of the worldwide market in x86 chips.

"The fact that Intel had such a large market share is not a problem in itself," said Kroes. "What is a problem is that Intel abused its dominant position. Specifically, Intel used illegal anti-competitive practices to exclude essentially its only competitor, and thus reduce consumer choice in the worldwide market for x86 chips."

Not surprisingly, Intel is vehemently protesting the EU decision.

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"Intel takes strong exception to this decision," said Paul Otellini, Intel president and CEO, in a statement on the company's Web site. "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."

The commission determined that lntel excluded competitors by using illegal loyalty rebates, and by paying manufacturers and retailers to restrict the commercialization of competitors' products.

According to the commission, Intel went beyond normal price competition by giving rebates to computer manufacturers on the condition that they bought all, or almost all, of their CPUs from the company.

The computer manufacturers involved are Acer, Dell, Hewlett-Packard, Lenovo and NEC. The retailer involved is Media Saturn Holdings, the parent company of German consumer retailer Media Markt.

In addition, the EU said that Intel made direct payments to Media Markt on the condition that it stocked only computers with Intel CPUs. The rebates were a problem in this case because of the conditions Intel attached to them, said Kroes.

The EU looked into whether competitors could have matched the rebates. But by pressuring retailers to buy less of AMD's products, AMD was effectively barred from competing with Intel on the merits of its products, said the commission.

To illustrate the practice, the EU said that in one case, a computer manufacturer took up only a small part of an offer by AMD of free CPUs because acceptance of all the free CPUs offered would have led it to breach the conditions of its agreement with Intel and to lose rebates on all of its much more numerous Intel purchases.

"These illegal actions were designed to preserve Intel's market share at a time when their only significant rival—AMD—was a growing threat to Intel's position," said Kroes. "This threat was widely recognized by both computer manufacturers and in Intel's own internal documents seen by the commission."

Another black mark against Intel was a practice that the EU called "pay-for-delay." The commission said that Intel made direct payments to computer manufacturers to halt or delay the launch of products using their rival's chips, and to limit their distribution when they became available. The determination was made after the commission found specific, documented examples of Intel paying other manufacturers to, for example, delay the launch of an AMD-based PC by six months, and to restrict the sales of AMD-based products to certain customers.

Although it was able to get its hands on these documents, the EU found that Intel "went to great lengths to cover up many of its anti-competitive actions," Kroes said. "Many of the conditions mentioned above were not to be found in Intel's official contracts."

However, the commission was still able to gather evidence demonstrating Intel's illegal conduct through statements from companies, on-site inspections and formal requests for information.

AMD applauded the EU decision and in a statement, Tom McCoy, AMD executive vice president for legal affairs, said, "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."

John Spooner, senior analyst at Technology Business Research, said, "We don't think that limiting Intel's practices and even reducing its influence on the market will necessarily lead to an explosion of AMD-based systems overnight. We believe that AMD must do the work to deliver competitive processors at competitive pricing. TBR believes that, for AMD, breaking into the business market continues to be a major challenge. We believe that consumers, on the other hand, are quite open to using AMD processors."