Intel fined €1.06 billion over illegal practices

THE EUROPEAN Commission has fined Intel a record €1.06 billion for harming millions of European consumers by acting illegally to keep rivals out of the computer chip market.

It has also ordered the US firm, which employs 5,000 people in Ireland, to immediately stop illegal activities such as paying retailers not to stock computers with rival chips.

“Such a serious and sustained violation of EU’s antitrust rules cannot be tolerated,” said EU competition commissioner Neelie Kroes, who added that Intel knew exactly what it was doing and made deliberate attempts to cover up its anti-competitive behaviour.

The penalty is the biggest ever anti-trust fine handed down by the EU executive. It is almost double the €497 million fine levied against Microsoft in 2004 and is almost certain to lead to a similarly lengthy and expensive legal battle between Intel and the commission.

Intel immediately said it would appeal the decision to the European Court of First Instance. “The basic allegation against Intel is that it used lower prices, in the form of rebates, to prevent customers from buying or supporting AMD, or to punish customers that did. Such claims are false,” said Intel’s general counsel Bruce Sewell in Brussels.

He moved to reassure European consumers and staff at Intel in Europe. “We are committed to maintaining a very strong presence in Europe. We have made significant investment in Ireland and outside Ireland,” said Mr Sewell. “We will stay.”

The commission’s eight-year investigation into Intel’s sales practices was sparked by a complaint from its main competitor, the rival chipmaker AMD. The commission said it had uncovered evidence that Intel engaged in two specific types of illegal activity. Between 2002 and 2007 Intel, which had 70 per cent market share at the time, gave hidden rebates to computer manufacturers on condition that they bought all, or almost all, their x86 computer chips. Intel also made direct payments to major retailer, Germany’s Media Saturn Holding, on condition it only stocked products using x86 chips. These rebates and payments prevented customers – and consumers – from choosing rival products, the commission said.

Secondly, the commission alleges that Intel made direct payments to computer manufacturers to halt or delay the launch of specific products containing rival chips. On one occasion a payment resulted in a six-month delay to a rival’s product, said Ms Kroes, adding that the illegal activities went beyond the scope of normal price competition. She said the computer manufacturers and the retailer that accepted the rebates with conditions attached were victims in the case and were not involved in the illegal activity.

The commission had already sent relevant information to other anti-trust authorities in Japan, South Korea and the US. The commission would monitor closely Intel’s compliance with the decision, which Ms Kroes insisted did not limit firms’ ability to provide customers with discounts, but rather targeted the conditions attached to rebates. She said the commission decision was legally water-tight and was based on existing case law, including one case in 1997 involving Irish Sugar, and rigorous analysis of the facts.

Mr Sewell said he was “mystified” by some of Ms Kroes’s comments, and questioned the “weak evidence” the commission had gathered. Intel would attempt to comply, but was not sure exactly what was required.

AMD chief executive Dirk Meyer said the ruling was an important step towards establishing a truly competitive market. “We are looking forward to the move, from a world in which Intel ruled to one which is ruled by customers.”