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Complaint alleges Intel participated in cartel-like business pratices

Intel may end up in legal trouble with Germany's Federal Cartel Office (FCO) over anti-trust activities. Although no probe has been setup, reports say that Germany's FCO has received a formal complaint regarding Intel's business practices.

Just recently, DailyTech reported that the Financial Times Deutschland claimed that a well known reseller in Germany accepted monetary incentives from Intel to discontinue selling AMD-based products. Media-Saturn-Holdings, the parent company of several retail chains was alleged to have leaked a letter showing communications between it and Intel over exclusivity.

According to reports, the FCO did not say who actually filed the complaint. Some analysts say that the complaint relates to the Media-Saturn-Holdings situation. AMD did not say that it was the one that filed the complaint although the company admitted that it did speak with the FCO about Intel's business practices. AMD recently filed a complaint (PDF) and did mention about Media-Saturn-Holdings as well as US electronics retail chain Fry's Electronics participating with Intel in anti-competitive actions.


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hmm...
By Quiksel on 7/12/2006 12:20:12 PM , Rating: 3
perhaps it was the Intel-branded cigars that gave it away?




RE: hmm...
By masher2 (blog) on 7/12/2006 12:32:38 PM , Rating: 2
For an encore, Germany can sue all the Mercedes dealers that refuse to carry Ford and GM products.

Anyone think they will?


RE: hmm...
By AxemanFU on 7/12/2006 12:41:24 PM , Rating: 2
You have to admit it does start to look pretty much like abuse of a monopolistic market position when you try to strongarm distributors and you already have 90%+ of the market. It's just sort of a foolish thing to do, PR wise.


RE: hmm...
By masher2 (blog) on 7/12/2006 12:50:22 PM , Rating: 5
> "when you try to strongarm distributors ...."

Firstly, Media Saturn is a reseller, not a distributor. And no one, not even them or the paper who reported this, is alleging strongarm tactics were used, simply that Media Saturn signed some form of exclusivity agreement with Intel.


RE: hmm...
By bldckstark on 7/12/2006 12:53:31 PM , Rating: 2
No, they are saying they took payment in return for exclusivity. There is quite a difference there.


RE: hmm...
By masher2 (blog) on 7/12/2006 12:55:53 PM , Rating: 2
> "No, they are saying they took payment in return for exclusivity."

Err, why would anyone sign an exclusivity contract without compensation? In fact, even if they tried, it wouldn't be a valid contract...you have to accept something in return or its not legally binding.

You think those Mercedes dealerships in downtown Berlin didn't accept something in exchange for their exclusivity arrangement?


RE: hmm...
By Connoisseur on 7/12/2006 1:16:20 PM , Rating: 2
Correct me if I'm wrong but isn't the legality of exclusivity agreements based on market share?


RE: hmm...
By Targon on 7/12/2006 2:14:35 PM , Rating: 2
If Intel offered better prices due to being exlusive, then it might be considered legal. If Intel offers an up-front pile of cash, then it may not be. I know it may not seem like a big difference, but it's enough. An up-front offer of money tends not to be dependant on how many Intel based products are sold, and only on not selling a competitor's products.

This is why the rebates that have been questioned are not considered fair business tactics. Benefits for selling a certain volume of Intel processors is acceptable, but benefits for not selling a competitor's product is not.


RE: hmm...
By TomZ on 7/12/2006 2:15:56 PM , Rating: 2
It depends on the laws of the individual country. In the US, I think such an agreement would be legal unless the vendor has a monopoly on the market (i.e., ability to determine prices), the agreement causes a decrease in competition, and more harm is done to consumers than good. In this particular case, I would think it could go either way.


RE: hmm...
By Crassus on 7/12/2006 6:03:21 PM , Rating: 2
Sorry, but German law does not know such a rule. If you sign a contract and have it notarized, it's binding, even if you give your house away for nothing in return.


RE: hmm...
By masher2 (blog) on 7/12/2006 6:19:28 PM , Rating: 2
> "Sorry, but German law does not know such a rule. If you sign a contract and have it notarized, it's binding, even if you give your house away for nothing in return"

I'm sorry, but this is incorrect. European contract law is uniform on the subject; a contract requires both parties to be contractually bound. An offer for an offer, an offer for a promise, or a promise for a promise..as the saying goes.

If you write a contract saying "I give you my home", its not legally valid. If you write a contract saying, "I give you my home in exchange for a dollar in hand", its a contract.


RE: hmm...
By ElFenix on 7/12/2006 6:31:16 PM , Rating: 2
in the US that would be nominal consideration, and thus, no contract is rendered.


RE: hmm...
By masher2 (blog) on 7/12/2006 6:56:10 PM , Rating: 2
> "in the US that would be nominal consideration, and thus, no contract is rendered. "

Not quite. I don't want to get into a detailed analysis of benefit-detriment or bargain theory in modern legal thinking, but nominal consideration is more driven by whether or not the consideration was bargained for, rather than a judgement as to its adequacy.

In any case, my primary point is that, without any compensation whatsoever, the contract is unmistakably invalid. In the US and in Europe.


RE: hmm...
By Xavian on 7/12/2006 10:20:45 PM , Rating: 2
i believe they were providing monetary incetives to stop AMD processors from being sold, i don't know where you are from masher2, but where im from thats clear anti-competitive behaviour especially for a company that controls a considerable amount of marketshare in the processor business.


RE: hmm...
By masher2 (blog) on 7/12/2006 10:34:44 PM , Rating: 2
> "I believe they were ..."

And quite willing and eager to believe, are you not? Let's see the evidence. We have a newspaper(Financial Times Deutschland) citing an unnamed source detailing a letter from a third party (Media Saturn) which claims to have an "appropriate agreement" with Intel.

This isn't first or even second-hand information. It's a fourth-hand unsubstantiated claim which, even if true, may not be illegal at all, depending on what the specific terms of that agreement are (which the article doesn't cite).

But don't let us stop you from believing. After all, guilty until proven innocent is a principle worth fighting for, isn't it?


RE: hmm...
By slunkius on 7/13/2006 4:21:46 AM , Rating: 2
omg, not another round of "masher knows it all"
if the source is unnamed, that does not mean it is unknown. You question illegality of agreement, though you did not even see it.

Please let the authorities decide what is legal and what is not, cause you are getting ridiculous with some of your statements.


RE: hmm...
By masher2 (blog) on 7/13/2006 9:45:07 AM , Rating: 2
> "Please let the authorities decide what is legal and what is not"

Let's get something straight here. I'm not the one engaging in a kneejerk rush to judgement. It's the posters in this thread who believe -- on the basis of very sketchy, fourth-hand information -- that Intel is "obviously" guilty of a crime. There isn't even an INVESTIGATION active yet, and you nimwits are already clamoring for heads on a platter.

Intel may or may not be guilty. They may or may not be engaging in the same practice many German firms do daily. But before you begin tossing around wild-eyed claims about snap judgements, look to your own kitchen.


RE: hmm...
By Griswold on 7/13/2006 6:36:14 AM , Rating: 2
masher - prosecutor, advocate and judge - to the rescue!

Reminds me of that "EU vs. MS" campaign you've launched.



RE: hmm...
By Keeir on 7/12/2006 3:09:02 PM , Rating: 2
Not your best analogy masher

Processors are a market with few players
Market Im-balance
And relatively low costs associated with multiple product offerings

New cars are a market with many players (at least in constrast)
Market balance
And relatively high costs associated with multiple product offerings

A better example might be softdrink/beverage market.


RE: hmm...
By TomZ on 7/12/2006 3:19:25 PM , Rating: 2
You missed the point entirely.

The point is, that a Mercedes dealership decides to only sell Mercedes, and not Ford and GM. In doing so, there is probably an exclusive arrangement with Mercedes to carry their vehicles. This is similar to the current case in which this reseller decided to only carry Intel and in doing so, decided to enter into an exclusive arrangment with Intel.

So AMD's complaint (I assume it was AMD - who else could it be?) would be the same as Ford complaining that a Mercedes dealership refused to sell its cars.

I think it's a valid analogy.


RE: hmm...
By Keeir on 7/12/2006 3:47:35 PM , Rating: 2
Actually, You missed my point.

Cars are not a "commodity" type of product. There is actually several market forces that demand less choice. A significant example is the "prestige" of the dealership. I know if I was buying a Mercedes automobile, I would not want to go to a Mercedes/Scoin dealership. I would not want to have my Mercedes services at a Mercedes/Scoin dealership either. That's pretty significant Market Force.

Processor reselling does not have that market force. I would think the market force actually goes the other direction. I would not shop for computer -componets- at a place that only stocked one option for processors/memory/hard drive or really any componet.

Thats why this is a bad analogy. A car dealership can and does decide to sell only 1 car type at a particular site for business reasons. In constrast, a Processor reseller needs to have some incentive to do the same thing.

Its a bad analogy. Potentially "valid", but at the same time the differences between the two industries does not allow for effective comparison of business stradegy



RE: hmm...
By TomZ on 7/12/2006 4:09:31 PM , Rating: 3
Processors are not a commodity either - just look at the wide price range of available models, as well as the differences in their capabilities. Also, think about the price premium AMD and Intel charge for their "premium offerings."

I also disagree with some of your conclusions about car dealerships. For example, there are many dealerships that carry Lexus, Toyota, and Scion together under the same roof. I don't think that the average consumer has any problem with this; the presence of Scion doesn't detract from the value of the Lexus brand.

Finally, I would argue that to many people, cars are commodity. For example, to my grandma, a car is a car, and if you put her in a Toyota or a Cadillac or a Ford, she wouldn't know or care about any differences, as long as the car could reliably take her from point A to point B. I'm not saying that everyone is like this, but it is not uncommon, and the reality is that cars are a semi-commodity.


RE: hmm...
By masher2 (blog) on 7/12/2006 5:34:43 PM , Rating: 3
> "A significant example is the "prestige" of the dealership. I know if I was buying a Mercedes automobile, "

The prestige of the Intel name is the reason they have such high market share. Intel spent billions promoting "Intel Inside" and other name-recognition factors.

Furthermore, the "prestige" of a Mercedes is, in Germany, much lower than you think.

> "I would not shop for computer -componets- at a place that only stocked one option for processors/memory/hard drive "

However, most corporate buyers-- the people who really drive the market-- feel otherwise. Until recently, your average Fortune-100 company didn't even allow AMD products to be purchased, regardless of whether or not their vendor stocked them.

> " car dealership can and does decide to sell only 1 car type at a particular site for business reasons. In constrast, a Processor reseller needs to have some incentive to do the same thing."

Quite incorrect. Dealerships *are* offered incentives to sell only one brand, and those which are able to sell multiple ones, gladly do so. No one chooses to be bound to an exclusivity deal without adequate compensation.

The analogy is sound. The only legal flaw is Intel's possible monopoly status. If they are adjudged as such, then such arrangements *may* (only may) be illegal.


RE: hmm...
By OrSin on 7/12/2006 2:29:51 PM , Rating: 2
First since this compnay buys now intel products directly, it would be hard for intel to offer any type of volume discount. What intel does do a company like this is say 80% of yur computer have intel CPU then we give you this much for advertising you systems and include our name in your ads. This is legal almost every where. Intels mistake is that they would go back and say if you do 95% then we double the money and if you do 100% for triple the money. They offer money to elimate someone or to lower the share of this other company is what is not legal. It not only ad money but you get the picture.


EU leads the way
By headbox on 7/12/2006 3:38:10 PM , Rating: 2
Intel and Microsoft can't bribe Europe the same way they can in the USA. Hopefully the EU will shut them down and help build more competition in the industry which will benefit us consumers.


RE: EU leads the way
By TomZ on 7/12/2006 3:55:31 PM , Rating: 2
quote:
Intel and Microsoft can't bribe Europe the same way they can in the USA.

A really stupid comment - there has never been any accusation or evidence of bribery in the US cases against Microsoft or Intel.


RE: EU leads the way
By defter on 7/12/2006 4:21:33 PM , Rating: 2
quote:
there has never been any accusation or evidence of bribery in the US cases against Microsoft or Intel.


Sure, when Intel or Microsoft give brib... sorry I mean "donations" to US politicans, they do it because of pure goodwill without wanting anything in return...


RE: EU leads the way
By TomZ on 7/12/2006 4:59:58 PM , Rating: 2
quote:
Sure, when Intel or Microsoft give brib... sorry I mean "donations" to US politicans, they do it because of pure goodwill without wanting anything in return...

If that is/was effective in the US (a conclusion that you have not proved), why wouldn't it also work in the EU?


RE: EU leads the way
By Xavian on 7/12/2006 10:25:53 PM , Rating: 2
because the EU's politicians dont actually vote based on how much money they are given by certain large companies, unlike congress in the US.


RE: EU leads the way
By masher2 (blog) on 7/12/2006 10:51:32 PM , Rating: 2
I pulled a few headlines for you on European politics...you might find them interesting reading:

quote:
The police were looking for evidence that Tillack had bribed an E.U. official to obtain a confidential memo from the union's anti-fraud unit, known by its French acronym OLAF. But what they were really doing...was retaliating against a reporter whose stories had embarrassed the E.U. by focusing public attention on corruption and secrecy.

quote:
Tessa Jowell the Culture Secretary is implicated in her husbands bribery scandal involving the Italian Prime Minister...

quote:
Labour MP Mohammed Sawar ( Britain 's first Asian MP - Glasgow) was the subject of a major News of the World investigation a few years ago into bribery and corruption....

quote:
DAME SHIRLEY PORTER, the former Westminster council leader, has reached a £12.3million settlement on the “homes for votes” scandal....

quote:
GLENYS Kinnock was last night embroiled in an EU expenses “scam” that is costing taxpayers millions of pounds...Austrian Hans-Peter Martin claims he filmed 195 MEPs from 15 countries nipping in to claim the dosh...

This was about three minutes work. I'm sure someone with a bit more time can find far more interesting and varied evidence of the superiority of European politics. :-|





RE: EU leads the way
By ghost101 on 7/13/2006 9:56:26 AM , Rating: 2
For the car analogy, setting up a car "franchise" is completely different to making an exclusivity deal. Instead, if Intel were to provide cheaper products and then the firm decides to sell more Intel products than AMD because of greater profit margins then they can do so. Howver, AMD are likely to retaliate creating competition. This "exclusivity" is eliminating competition.

In europe, anything that has a detrimental effect on the interests of consumers will always be investigated.


RE: EU leads the way
By ghost101 on 7/13/2006 9:58:41 AM , Rating: 2
I dont see why people dont understand, this is very basic business-economics.


RE: EU leads the way
By TomZ on 7/12/2006 4:00:52 PM , Rating: 2
quote:
Hopefully the EU will shut them down and help build more competition in the industry which will benefit us consumers.

Another stupid comment - I guess I should have addressed it also in my other post. First, Intel does not currently have a monopoly in microprocessors - this is a common misconception. Do your research and look at current market conditions - Intel has no ability to control pricing, and it has lost a lot of market share to AMD. There is no real reason that AMD cannot in the future increase their market share, and there are no per se barriers to other companies getting into the market.

Germany should sit this one out and let the market sort itself out. So far it is taking care of itself pretty well.


RE: EU leads the way
By CalT on 7/12/2006 5:25:53 PM , Rating: 2
Tomz,

Now imagine this. We both operate in Germany, selling the approximately the same type of product. However, I am 10 times richer than you so I can just pay the buyer some extra money so that they stop selling your product (please see maket value and cash flow of each firm and compare - www.nasdaq.com).

Now, because our common buyer has a large market share in the country, you'll end up with losses in Germany after a year because I had so-called "exclusive rights".

Would that be fair for you? Would you want Germany's Federal Cartel Office to step in, in order to stop my so called "exclusive right"? Of course you would...


RE: EU leads the way
By masher2 (blog) on 7/12/2006 5:38:50 PM , Rating: 4
> "Now imagine this. We both operate in Germany, selling the approximately the same type of product. However, I am 10 times richer than you so I can just pay the buyer some extra money so that they stop selling your product "

Paying someone to sell only your product is expensive...if buyers truly want your competitors product, then distributors and resellers won't give it up without serious compensation. And-- for every business that DOES sign an exclusive deal-- the sales and profit margin for those still sellin your competitors product rises. Meaning there's even more incentive for new dealers to arise, and less incentive for existing dealerships to give up their choice. Buying someone out of a market entirely is therefore impossible in a free market situation.

I strongly suspect that, in Germany as here in the US, you can find AMD products easily, in most every store and reseller in the nation. I seriously doubt they're being "squeezed out" of the market.


RE: EU leads the way
By TomZ on 7/12/2006 9:43:30 PM , Rating: 2
quote:
Now imagine this. We both operate in Germany, selling the approximately the same type of product. However, I am 10 times richer than you so I can just pay the buyer some extra money so that they stop selling your product


Your scenario could be simplified to saying that you decide to sell your product at a lower price than me, or offering a rebate, taking less profit in order to gain market share, thus shutting me out of the market. I don't see anything illegal or unethical in that. You win fair and square.

As I've said elsewhere, what makes the situation more interesting is that it cannot be said that Intel has a monopoly at all. All you have to do is look at how quickly AMD won market share from Intel and forced Intel to drop prices. Having the ability to set (high) prices is the hallmark of being monopolistic, and it is clear that Intel did not have that ability. Also you can see that there is no effective barrier to AMD entering and being successful in that market. Competition is alive and well, and it would behoove the FCO to recognize this and treat this development as interesting but inconsequential.


RE: EU leads the way
By CalT on 7/13/2006 2:26:45 AM , Rating: 2
>Your scenario could be simplified to saying that you decide to sell your product at a lower price than me, or offering a rebate, taking less profit in order to gain market share, thus shutting me out of the market. I don't see anything illegal or unethical in that.

Note there is a difference between offering a rebate and giving a distributor/reseller monetary incentive. Monetary incentive, in this case, is where Intel gives cash to the distributor/reseller.

Instant cash in hand is obviously better for any companies, as it gives them cash to invest in other projects, hence, giving them return over time. This instant cash in hand can be compared to bribery, where you get instant “profit” by offering only one type of product. This is anti-competitive practices, and should be avoided as it is illegal in most developed countries.

FCO’s job, in this case, is to allow free competition, hence, they must stop anti-competitive behavior. However, it is not confirmed that Intel is doing so, but if they do, they will end up in legal trouble.

>I strongly suspect that, in Germany as here in the US, you can find AMD products easily, in most every store and reseller in the nation. I seriously doubt they're being "squeezed out" of the market.

Now, in this case, the complaint filed is an attempt to stop Intel from unfair business practices of giving monetary incentives IF they are doing so. The case is not on whether they have the power to do so.


Nothing new here - move along
By DallasTexas on 7/12/2006 5:32:10 PM , Rating: 2
Regulators (FTC,..) are obligated by law - in every country, to investigate complaints filed no matter how large or how small.
The intel thing seems like a big deal due to the heavy promotion of this "news" by the media and of course, AMD markets this as some "smoking gun" find. Think about it - it's a story about collusion, mystery and money. If had sex in it, there would be a movie.

Now back to the facts - someone (let's assume AMD) filed a complaint and the regulators are just giddy over pursuing it because solitaire is getting boring and it's their job to pursue. That's it - nothing more, nothing less.

Then, politicians get into the mix because, face it, what politician wouldn't want to be associated with hunting big game,like Intel, and winning? Even if they lose, they put "fought battle with monopolist" on their resume'. It's a win-win for everyone, including AMD. They get to focus attention away from their now obsolete product line and back to the good old standby - Intel hurt me mode.




RE: Nothing new here - move along
By Crassus on 7/12/2006 6:12:06 PM , Rating: 2
quote:
Regulators (FTC,..) are obligated by law - in every country, to investigate complaints filed no matter how large or how small.

At least for Germany, that is not correct. Regulators first exercise discretion to decide IF they want to start an investigation and later HOW they conduct an investigation. Quite possibly they can decide that the complaint is meritless and will not investigate. I'm not saying they will, but they may.


By DallasTexas on 7/13/2006 9:59:35 AM , Rating: 2
Good point. With that, even less news is here!

A complaint was filed and look at all the hubbub. It's amazing. It reminds me of the Salem witchhunts. Someone "files a complaint" that Edna is a witch and the village sets her on fire "just in case".


RE: Nothing new here - move along
By bobdelt on 7/12/2006 6:23:51 PM , Rating: 2
I think we all know sex was involved. Intel doesn't use those blue suits for nothing!


RE: Nothing new here - move along
By TomZ on 7/12/2006 9:44:37 PM , Rating: 2
Nice post - IMO explains why politicians and regulators sometimes act "irrationally."


By Wonga on 7/12/2006 1:05:36 PM , Rating: 2
LOL, I'm always dubious of posts which contain words such as "MICROSUCKS" or "Micro$0ft". Don't have to look too hard to find a biased opinion there :D


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