Story from the NY Times
BRUSSELS — The European Commission fined Intel a record 1.06 billion euros Wednesday for abusing its dominance in the computer chip market, the strongest sign yet that regulators worldwide are serious about opening the technology sector to competition.The European Union’s competition commissioner, Neelie Kroes, said the penalty against Intel, the equivalent of $1.45 billion, was justified because the company had skewed competition and denied consumers a choice for chips.
Intel “went to great lengths to cover up its anti-competitive actions” and “harmed millions of European consumers” to maintain its dominance of the global market for the chips, which is worth about 22 billion euros a year, Ms. Kroes said. Sales in Europe represent about a third of that amount.
D. Bruce Sewell, Intel’s chief lawyer, took “great exception” with the decision and pledged to file an appeal at the Court of First Instance, the second-highest tribunal in Europe.
The fine was the largest ever for any breach of competition law in the European Union, previous records were levied mostly on companies involved in cartels.
The ruling was also a reminder of the emergence of European regulators as some of the most activist enforcers of antitrust law, and an additional sign that the authorities worldwide are challenging the business and growth strategies of technology titans like Microsoft, I.B.M. and Google.
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Michael Reynolds, an antitrust partner with the law firm Allen & Overy in Brussels, said Europe was continuing to burnish its reputation for activism.
The Intel decision showed the commission “wanted to send a clear signal that it is taking a leadership role in enforcing competition rules against dominant companies in the technology markets,” Mr. Reynolds said.
Ms. Kroes ordered Intel to stop offering rebates that were conditioned on buying less of a rival’s product, or not buying them at all, which she said had helped Intel maintain a share of at least 70 percent of chip sales market from October 2002 to December 2007.
She said Intel had granted rebates to major computer, including Acer, Dell, Hewlett-Packard, Lenovo and NEC, on the condition that they purchased all or almost all of their supplies from Intel.
She also said Intel made payments to some manufacturers in exchange of postponing, canceling or putting restrictions on the introduction or distribution of AMD-based products.
She said Intel also had made payments to Media Saturn Holding, the owner of the MediaMarkt chain of superstores for only selling Intel-based computers in Germany, Belgium and other countries.
Ms. Kroes said her officials had proof of Intel’s activities in the form of e-mail messages collected during surprise raids and formal responses to its inquiry from companies concerned.
Under the order, Intel must change its practices immediately pending its appeal, although it can ask for an injunction.
The company must write a bank guarantee for the fine right away, though that guarantee is held in a bank account until appeals are exhausted, a process that could take years.
The commission can levy fines of up to 10 percent of a company’s annual global sales. Intel’s sales were $37.6 billion in 2008; thus, the company could have faced a penalty of close to $4 billion. Money collected in antitrust cases is added to the trade bloc’s annual budget of around 130 billion euros.
The previous record fine for similar abuses in the European Union was 497 million euros imposed on Microsoft in March 2004 for blocking competition in markets for server computers and media software. The previous record for a fine by the commission was 896 million euros on a French company, Saint-Gobain, imposed last year for fixing prices in the auto-glass market.
The European Union began stepping up its pursuit of possible violations, and particularly cases in the technology sector, early this decade, when the Bush administration backed away from pursuing tough penalties against Microsoft, deciding to settle a case focused on the company’s browser software instead.
Last year, the Federal Trade Commission in Washington stepped up its inquiries into Intel, opening a formal investigation.
This week, the head of the antitrust division of the Justice Department, Christine A. Varney, made clear that regulators would return to an aggressive enforcement policy against companies that abused their market dominance.
Lawyers in Brussels say that Ms. Kroes, before her term ends this year, is eager to reach conclusions in inquiries into other companies, including Rambus, which holds patents on memory chips, and Qualcomm, which develops wireless technology for phones.
Regulators are also questioning Cisco Systems, the world’s largest maker of networking equipment, about the market for network maintenance services.
I.B.M., which settled a long-running antitrust case with the commission in the 1980s, faces a new complaint. And Google, the industry’s newest giant, is also coming under closer scrutiny, in particular for its domination of advertising over the Internet.
Nokia, the Finnish mobile phone giant, has filed a complaint with the commission against a German company, IPCom, over its patenting policy, according to news reports. That would make Nokia one of the few major European technology companies to bring a case in Brussels.
Mr. Sewell, Intel’s lawyer, did not see “an inherent anti-U.S. bias in the commission’s enforcement practices” in its decision to impose its highest ever fine on Intel.
He said the commission had been willing to investigate and levy fines against European companies in other sectors and said American companies appeared to dominate the commission’s caseload in Europe because of their strength in the important computer sector.
But he insisted that antitrust agencies in Europe, Japan and South Korea had not yet established a consensus about what forms of rebates were permissible.
“The law is in now flux,” Mr. Sewell said. Referring to the flurry of investigations into Intel’s business practices in recent years, he added “I think what you see here are agencies beginning to test the boundaries of the law.”
Mr. Sewell’s strongest objection to the decision Wednesday was to the finding that Intel had effectively coerced computer makers and retailers with inducements, and he insisted had Intel had never paid to prevent AMD products from reaching the market in Europe.
“At no point has there ever been any kind of naked payment by Intel,” said Mr. Sewell. “The issue is whether the rebates we offered were conditional, and our position very definitely is that they were not.”
The Intel decision is likely to be closely scrutinized for its effectiveness, in particular for signs that orders to cease rebate practices will make the microchip market more competitive. Those orders could have a far greater effect on Intel than the fine, which analysts said the company could easily afford.
Martin Reynolds, an analyst in San Jose, Calif., at the research firm Gartner, said most of the rebate offers found illegal in Europe were made verbally by Intel sales representatives rather than put into writing in sales agreements.
Even so, the decision to sanction such agreements could be an impediment to its dealings with big computer makers in China and Taiwan that ship to the European Union.
“Intel is going to have to be very careful now about how it controls its sales force,” Mr. Reynolds said.
He said he expected the global market shares between Intel and AMD to remain unchanged unless AMD developed a new chip feature which gave the company’s microprocessors a technological advantage over Intel.
But Nick Hyslop, a technology analyst in London at RBC Capital Markets, said the commission’s ruling would force Intel to change its way of doing business in Europe and that it could embolden AMD and others to take a greater share of the chip market, especially in markets for chips where Intel’s dominance has not yet been established.
“I think it’s an open question whether Intel will be able to transfer its dominance from desktops and laptops to netbooks,” Mr. Hyslop said.
