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EC Fines Intel $1.45 Billion; Otellini - "Decision is Wrong"

“Intel takes strong exception ... We believe the decision is wrong." - Intel CEO Paul Otellini

The European Commission today fined Intel $1.45 billion because of its “illegal” rebates, which the company was told to abandon immediately. The fine is the largest single penalty the EC regulators have ever exacted, more than the combined fines Microsoft had to pay.

Intel immediately said it would appeal the decision and its general counsel Bruce Sewell said he didn’t know how to comply with the cease and desist order.

“I don’t know what would change,” he said “Intel only has a simple volume discount. The more you buy the lower the price.”

When he said that Sewell and his legal team had yet to thumb through the lengthy EC decision, believed to have been edited to survive appeal, and said he was only working off the EC press release.

Intel CEO Paul Otellini issued a statement saying, “Intel takes strong exception to this decision. We believe the decision is wrong.”

The company claimed in court last year that the EC wouldn’t accept evidence that would have vindicated it.

Otellini’s statement pressed that point. “We do not believe our practices violated European law,” he said “The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not. The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision.

We believe this evidence shows that when companies perform well the market rewards them, when they don’t perform the market acts accordingly.”

>It is unclear how exactly the EC came up with the seemingly arbitrary >1.06 billion euro fine. It is supposed to reflect the value of Intel x86

>sales in the European Economic Area over a period of five years and >three months between October 2002 and December 2007.

>Intel’s worldwide revenue in 2007 was $38.8 billion. The EU is said >to account for 30% of its sales.

>Europe’s antitrust chief Neelie Kroes joked during her press >conference in Brussels that Intel would have to change the tag line in >its new ad campaign from “sponsors of tomorrow” to “sponsor of the >European taxpayer.”

>Intel is accused of giving “wholly or partially hidden rebates” to Acer,

>Dell, HP, Lenovo and NEC on condition that they bought all, or >almost all, their x86 CPUs from Intel.

>It is also accused of paying OEMs to halt or delay the launch of AMD >boxes and to limit their distribution when they did come out.

>It is supposed to have made direct payments to Media Saturn >Holding, owner of the MediaMarkt chain, the only European entity >named in the indictment, to stock only computers with Intel x86 >CPUs.

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

>She promised to actively monitor Intel’s compliance with the >decision.

The Commission said that it “does not object to rebates in themselves but to the conditions Intel attached to those rebates.”

It says the illegal condition aren’t explicit in Intel’s contracts but claims it found proof they exist when it raided Intel, OEM and retailer offices and pulled e-mail. It also has formal statements from the other companies concerned along with “evidence that Intel had sought to conceal the conditions associated with its payments.”

The EC claims Intel structured its prices to ensure that an OEM who bought AMD parts would lose a “significant rebate” on its Intel purchases. It claims the situation would have forced AMD, which it described as “just as efficient as Intel,” selling chips under cost to compete for the business.

It said AMD offered an OEM a million free CPUs but the offer was refused because the OEM would have lost Intel’s rebate on the rest of its million of chip purchasse. In the end, the OEM only took 160,000 CPUs for free.

It claims Intel-style rebates are illegal elsewhere in the world too.

At a press conference later today Intel is reportedly going to bring witnesses to refute these charges.

AMD, where today will be like Marti Gras, expects to leverage the EC’s findings in its own antitrust case against Intel in the US. It goes to trial next year and there’s a pretty penny at stake.

AMD may also finally be able to entice the Justice Department into investigating Intel, a feat that has so far eluded it though it did get Intel in Dutch with regulators in Korea and Japan as well as Brussels.

The new head of the DOJ’s Antitrust Division Christine Varney, the ex-Netscape lawyer appointed by the Obama White House, expects to “restore an aggressive enforcement policy against corporations that use their market dominance to elbow out competitors or keep them from gaining market share,” according to a speech she gave Monday morning that was first reported by the New York Times.

The policies of the Bush administration, which interpreted antitrust law differently, are supposed to have pushed the little guy to complain to the EC and regulators in the Far East.

Varney has officially rescinded the Bush guidelines for courts and private litigants memorialized in a 215-page report written by the DOJ last year that supposedly made cases involving monopoly and predatory practices hard to bring.

The move, coupled with the EC’s decision, could encourage the Federal Trade Commission, which has been investigating Intel and where Verney was once a commissioner, to turn its probe into a suit.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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