EC Levies $1.45 Billion Fine on Intel

[The Shaman]

Move over, Microsoft, there is a new high-profile company that has gotten a huge bill from the European Commission. Intel, the famous chipmaker, was earlier this week found in violation of the EU anti-trust laws. The fine? 1.06 billion Euro, or some 1.44 billion dollars. That has got to hurt.

Here are some more details from the CNN article:

-- The European Commission found leading computer chipmaker Intel guilty Wednesday of violating European anti-trust rules and ordered that it pay a fine of 1.06 billion euros ($1.45 billion).
Intel


It is the largest fine the commission has ever imposed, said Neelie Kroes, the European commissioner for competition. Intel has said it plans to appeal the decision.

The commission found Intel abused its dominant market position in the market for computer chips known as the x86 computer processing unit (CPU), Kroes said. The abuse lasted more than five years, she said.

"Those x86 chips are the engine of the car, so to say," Kroes said at a news conference in Brussels, Belgium. "Your computer won't work without these chips."

Intel held a 70 percent share of the market during the period of the violations, she said.

"That Intel had such a large market share is not a problem in itself," Kroes said. "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 that reduced consumer choice -- and the whole story is about consumers."

Intel's actions frustrated innovation and reduced consumer welfare, Kroes said.

The commission found that Intel awarded major computer manufacturers rebates on the condition that they purchase all or most of their supplies from Intel.

Intel also paid Europe's biggest computer retailer, Media Markt, to sell Intel-based PCs exclusively, the commission found. Media Markt has some 200 megastores in nine countries.

The commission also found that Intel awarded payments to computer manufacturers so they would postpone or cancel the launch of products containing parts from its leading competitor, AMD.

"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 said in a statement.

"Given that Intel has harmed millions and millions of European consumers by deliberately acting to keep competitors out of the market for more than five years, the size of the fine should come as no surprise," Kroes said.

Intel was allowed to present a defense to the commission's preliminary conclusions. But Kroes said the company "went to great lengths" to cover up its anti-competitive practices, resulting in a long and complex investigation.

In a statement on the company Web site, Paul Otellini, Intel's president and CEO said the company took strong exception to the ruling and planned to appeal.

"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," Otellini said. "There has been absolutely zero harm to consumers.

He added that the compnay did not believe its practices violated European law and accused the Directorate General for Competition of the Commission of ignoring or refusing to "obtain significant evidence that contradicts the assertions in this decision."

Otellini added that the company had never sold products below cost but had invested in innovation, manufacturing and developing leadership technology with the result that it could "discount our products to compete in a highly competitive marketplace."

"Despite our strongly held views," Otellini concluded, "as we go through the appeals process we plan to work with the Commission to ensure we're in compliance with their decision."

P.S: If you want to check the official text from the EU site, it is available here , it has a few interesting details.

[Kitrax]

Meh...$1.44B is chump change for Intel. That might delay some of their side projects, but it's a slap on the wrist they'll barely cringe at.

The commission found Intel abused its dominant market position in the market for computer chips known as the x86 computer processing unit (CPU), Kroes said. The abuse lasted more than five years, she said.

It would be interesting to see what years those were, and see what Intel's chips were during that time. My guess is that it was when AMD was spanking Intel's butt (performance wise), so Intel tried to be sneaky since they couldn't match AMD's speed.


IMO, Intel should be punished more harshly for this...you don't try to undermine consumers if you're producing inferior products, you dump more $$$ into R&D, and try your damndest to make a better product!

That being said, I still love my Core 2 Duo E8400!

[The Shaman]

Originally Posted by Kitrax

It would be interesting to see what years those were, and see what Intel's chips were during that time. My guess is that it was when AMD was spanking Intel's butt (performance wise), so Intel tried to be sneaky since they couldn't match AMD's speed.

I think the europa.eu article has more details, it was post-2000 and programs from 2002 to 2007 were mentioned. Considering that the EC takes a while to decide on such cases, I doubt they reviewed anything from late 2008 on.

Meh, it's not like Intel didn't know what it was getting into. They probably made a conscious choice - who knows, they might have even figured the fines in their calculations. I hope the money - whenever it is paid, I think Intel will try to fight this by tooth and claw - gets used in a good way. 1 billion is a lot of money, there are a lot of projects that can benefit from extra funding

[Aldeth the Foppish Idiot]

Originally Posted by Kitrax

Meh...$1.44B is chump change for Intel. That might delay some of their side projects, but it's a slap on the wrist they'll barely cringe at.

I agree. It's the shareholders who will see their dividend share go down because of this that will be hurt more than the company itself.

[Proteus_za]

The guys who made the decision to try to freeze AMD out of the market should lose their jobs and be barred from corporate work for 5 years, IMO. Intel itself is just a corporation, it doesnt make decisions. As you guys say, the fine is just going to hurt the investors. But then again, if they get angry enough maybe they can vote in a new board, one that believes in fair competition.

They also say that this suit might open the door for civil suits from the likes of AMD.

I wonder how long it will be before the US Federal Trade Commission releases its verdict on Intel.

[Kitrax]

I have an idea!

Since AMD puss'ed out and sold all their fabs, as punishment for Intel, they should have to "loan" out one of their fabs to make AMD chips for the next 5 years...losing a fab for 5 years would cost Intel a lot more than $1.44B, and would significantly reduce their global capacity. They would have to raise prices, which in turn would shift more revenue towards AMD. That would also give the losers at AMD a boost in the nanometer reduction war....

I can just imagine Paul Otellini (Intel's CEO) walking up to the loaned out fab after 5 years with a loaded side-by-side shotgun and yelling, “Alright a**holes! Get the F*** outt’a my fab!”

[Ragusa]

Just a thought - the EU isn't levying fines because they are obnoxious jerks with nothing better to do who really really hate Intel, or Microsoft for that matter. There is a legal basis for that fine, and that is the European principle that in a common market monolpolies and monopolistic behaviour are an obstacle to the working of the common market (very brief summary).

And it isn't as if Intel can't do anything against it - they can appeal the decision at the European Court in Luxemburg.

[Blackthorne TA]

Just a thought - the EU isn't levying fines because they are obnoxious jerks with nothing better to do who really really hate Intel, or Microsoft for that matter.

Of course not; it's a great way to make a fast buck too!

[The Shaman]

Originally Posted by Blackthorne TA

Of course not; it's a great way to make a fast buck too!

Well, yeah, although they weren't exactly fast - they have iirc been looking at this for quite a while. It is oddly ironic - Intel decided to call themselves "Sponsors of Tomorrow" and the EC decided to hold them up to it .

[Ragusa]

BTA,
the EU decision is not arbitrary. Intel isn't being milked here - they brought it on themselves, and they have legal remedies. Intel can and likely will appeal the decision at the Court of First Instance, after which there is the possibility to appeal to the European Court of Justice. When Intel plays on the European Market, it has to play by European rules as EU law applies to all market participants equally. In fining Intel, the EU is enforcing EU law. It is as simple as that.

Let me repeat the key passages from the article:

The commission found Intel abused its dominant market position in the market for computer chips known as the x86 computer processing unit (CPU), Kroes said. The abuse lasted more than five years, she said. (...)

Intel held a 70 percent share of the market during the period of the violations, she said.

"That Intel had such a large market share is not a problem in itself," Kroes said. "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 that reduced consumer choice -- and the whole story is about consumers."

Intel's actions frustrated innovation and reduced consumer welfare, Kroes said.

The commission found that Intel awarded major computer manufacturers rebates on the condition that they purchase all or most of their supplies from Intel.

Intel also paid Europe's biggest computer retailer, Media Markt, to sell Intel-based PCs exclusively, the commission found. Media Markt has some 200 megastores in nine countries.

The commission also found that Intel awarded payments to computer manufacturers so they would postpone or cancel the launch of products containing parts from its leading competitor, AMD.

"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 said in a statement.

Intel had essentially bribed traders not to sell products of the competitor. Imagine yourself having a company with a competitive product being pushed out of the market in such a way. You don't stand a chance. It's unfair.

The iirc relevant passsage from Treay of Nice:

Article 102
(ex Article 82 TEC)

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (...)

It isn't as if Intel and their contract lawyers don't know that. Contracts are deliberate acts. The EU has obviously concluded that in part Intel's conduct is illegal under EU law. Because Intel profited greatly from their illegal conduct they are being fined, in a way that hurts, as the fine is supposed to have punitive as much as deterrent effect. Essentially, because Intel is a big dog, the EU is using a particularly big rolled paper to house train it.

[Proteus_za]

@Ragusa

Completely agreed. Heck, the same things are generally illegal under US law too, hence why the US Federal Trade Commission is investigating them. Of course, people who want to bring the EU down dont tend to mention that!

[Blackthorne TA]

Rags - My statement was mainly a joke; I do not disagree with you on your points. I do think though that a nice hefty fine like that has to be appealing to the EU and was indeed a factor in their decision, as it would be for any government.

Heck, some cities here go out of their way to hand out moving violation fines to everyone they can because it's a nice revenue stream. Does that mean the speeders etc. shouldn't have been fined? Of course not.

[Ragusa]

Point taken BTA As for the size of the fine, I don't like your suggestion of ulterior motives as it is too cynical even for me, seasoned as I am

There is a good and rational reason that justifies high fines. Intel would simply shrug off an in my view already hefty fee of say 100 or 200 million. To lose such a sum is nothing if they made billions in profit through their illegal practices over the mentioned five years. They'd write that off and laugh all the way to the bank. If the EU wants itself and its laws to be taken serious and their measures to be effective they have to make the price hurt. Like this: $1.45 billion? As in, $300 million profit a year over five years? Sounds realistic.

I prefer to leave it at that