Friday, May 15, 2009

European Commission Fines Intel for Abuse of Dominant Position

This posting was written by John W. Arden.

Computer chip giant Intel was fined €1.06 billion ($1.45 billion) on May 13 for violating European Commission Treaty antitrust rules on the abuse of a dominant position (Article 82) by engaging in illegal anticompetitive practices to exclude competitors from the market of computer chips called x86 central processing units (CPUs).
In addition to imposing the fine, the European Commission ordered Intel to cease the illegal practices that were still ongoing.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,” said Competition Commissioner Neelie Kroes. “Such serious and sustained violation of the EU’s antitrust rules cannot be tolerated.”

The Commission found that Intel—while maintaining a dominant position in the x86 CPU market—engaged in two forms of illegal practices.

Exclusionary Rebates, Payments

First, Intel gave wholly or partially hidden rebates to computer manufacturers on the condition that they bought all, or nearly all, of their x86 CPUs from Intel. The chip manufacturer also made direct payments to major retailer Media Saturn Holding on the condition that it stock only computers with Intel x86 CPUs.

“Such rebates and payments effectively prevented customers—and ultimately consumers—from choosing alternative products,” the Commission stated.

Halt or Delay Products with Other Chips

Second, Intel made direct payments to computer manufacturers to halt or delay the launch of products containing competitors’ x86 CPUs and to limit the sales channels for these products, according to the Commission.

“By undermining its competitors’ ability to compete on the merits of its products, Intel’s actions undermined competition and innovation,” the Commission said.

“Abusive” Rebates

While some rebates can lead to lower prices for consumers, those offered by a company in a dominant position that are conditioned on a manufacturer buying less of a rival’s products or none at all are abusive according to settled case law of European Community courts, unless they are justified by some specific reasons.

In this case, the Commission did not object to rebates, but to the conditions Intel attached to the rebates, it was explained.

Promotion of Innovation

In a question and answer document released on Wednesday, the Commission said that this decision will promote innovation in the market because Intel’s practices stifled innovative products from reaching customers.

“Such practices deter innovative companies which might otherwise wish to enter and compete in the market. By ordering Intel to end its abusive practices, competition on the x86 CPU market will play out on the merits with the effect that innovation to the benefit of the consumer can flourish.”

The document refers to the “legal underpinning” of the Commission’s case, based on a consistent pattern of jurisprudence, including Case 85/87 Hoffmann-La Roche v. Commission; Case T-203/01 Michelin v. Commission; Case C-95/04 British Airways v. Commission; Joined Cases T-24/93 and others, Compagnie Maritime Belge v. Commission; and Case T-228/7 Irish Sugar.

The European Commission and the Federal Trade Commission kept each other regularly informed on their respective investigation of Intel.

Text of the press release and the questions and answers appear on the European Union website.

Intel’s Reaction

In a May 13 statement, Intel President and CEO Paul Otellini took “strong exception” to the Commission decision.

“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. Intel will appeal.”

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