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Originally published May 13, 2009 at 7:25 AM | Page modified May 13, 2009 at 1:28 PM

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EU fines Intel $1.45 billion for sales tactics

The European Union fined Intel Corp. a record euro1.06 billion ($1.44 billion) on Wednesday, ordering the world's biggest computer chip maker to stop illegal sales tactics that shut out its Silicon Valley rival AMD.

AP Business Writer



The European Union fined Intel Corp. a record euro1.06 billion ($1.44 billion) on Wednesday, ordering the world's biggest computer chip maker to stop illegal sales tactics that shut out its Silicon Valley rival AMD.

The fine exceeded a euro899 million monopoly abuse penalty for Microsoft Corp. last year. Intel called the decision "wrong" and said it would appeal to an EU court within 60 days.

Intel, based in Santa Clara, California, has about 80 percent of the world's personal computer microprocessor market - and faces just one real rival, Advanced Micro Devices Inc., located a few miles away in Sunnyvale.

Wrapping up an eight-year probe, the EU says Intel gave rebates to manufacturers Acer, Dell, HP, Lenovo and NEC for buying all or almost all their x86 computer processing units, or CPUs, from Intel and paid them to stop or delay the launch of personal computers based on AMD chips.

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

"Intel did not compete fairly, frustrating innovation and reducing consumer welfare in the process," she said.

Kroes said she hoped the administration of President Barack Obama would join Europe in subjecting corporations to closer anti-trust scrutiny.

This week, one of America's top antitrust officials, Christine Varney, signaled a return to tougher enforcement as the Obama administration dropped a strict interpretation of antitrust rules that saw regulators shun major action against monopolies over the last eight years.

Kroes said Varney's words gave her hope that current "close cooperation" and information exchanges with the Federal Trade Commission "could go in a very positive way" in the future.

"The more competition authorities are joining us in our philosophy, the better it is for it is a global world," she said. "The more who are doing the job ... and with the same approach then the better it is."

The decision does not affect Intel's pricing strategy outside Europe. But it could have an important knock-on effect on Intel's sales practices in the United States and in Asia if regulators there follow the EU lead.

The European Commission says the discounts weren't in Intel's official contracts because the company "went to great lengths to cover up many of its anticompetitive actions."

Officials said their case is largely based on e-mails and statements from businesses, some seized during surprise raids.

Intel general counsel Bruce Sewell says this is "weak evidence" and regulators were drawing unfair inferences from a small number of documents.

Intel's Sewell said the concept that rebates could damage competition was an area "where the law is now in flux" and regulators were testing the boundaries.

"There is a line of thought developing primarily out of the European antitrust authorities but also perhaps being picked up by the Japanese and the Koreans that suggest that rebates can be anticompetitive," he said.

Sewell also refused to follow claims that Microsoft and others have made about European antitrust action picking on U.S. companies or damaging the business environment.

"I don't have any reason to believe that there is an inherent anti-U.S. bias in the EU's enforcement preferences," he said.

"I think that in the computer sector most of the large companies are American companies and therefore it is not unreasonable that if there are investigations in that sector that those investigations would involve American companies."

The European Commission also told Intel to immediately cease some sales practices in Europe - but refused to say what those were. Intel said it was "mystified" about what it was supposed to change but would comply with the "extremely ambiguous" EU order.

EU regulators said they calculated Intel's fine - 4 percent of last year's $37.58 billion sales worldwide - on the value of its European chip sales over the five years and three months that it broke the law. Europeans buy some 30 percent of all computer chips sold every year.

They could have gone even higher as EU antitrust rules allow them to levy a fine of up to 10 percent of global revenue for each year of bad behavior.

AMD's European president Giuliano Meroni said the EU decision would shift power "from an abusive monopolist to computer makers, retailers and above all PC consumers."

European consumers group BEUC welcomed the fine and urged customers to seek damages in civil courts.

The manufacturer rebates started in 2002, the EU said, with most ending in 2005 - apart from a 2007 deal for one unidentified company to only source notebook computer chips from Intel.

Regulators said rebates that give discounts for large orders are illegal when a monopoly company makes them conditional on buying less of a rival's products or not buying them at all.

Manufacturers depend on Intel to supply most of the chips they need and faced higher costs if they lost most or all of a rebate by choosing AMD chips for even a small order. HP buys a fifth of Intel chips with Dell taking 18 percent, according to market research from Hoovers.

The discounts were so steep that only a rival that sold chips for less than they cost to make would have any chance of grabbing customers, the EU executive said.

It said AMD offered 1 million free chips to one manufacturer - which could not accept because that would lose it a rebate on many millions of other chips. It only took 160,000 free chips in the end, regulators said.

Regulators said the company also paid Germany's biggest electronics retailer, Media Saturn Holding - which owns the MediaMarkt superstores - from 2002 to 2007 to only stock Intel-based computers, even in the German city Dresden where the AMD chips are made.

Intel's payments to manufacturers ordered the company to delay the European launch of AMD's first business desktop by six months. They were also paid to only sell the AMD line to small and medium companies and to only offer them directly to customers instead of to retailers.

Copyright © 2009 The Seattle Times Company

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