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If anything, the appeals court concluded, the fine was appropriate in light of Intel's antitrust offenses

Intel Corp. (INTC) today was greeted by a major loss in one of Europe's top courts, and was ordered to pay a massive fine for abusive, illegal behavior that harmed consumers and drove up CPU prices over a decade ago.  While the abuses in question have long since passed, the effects are still being felt in the form of less competition today in the PC CPU market, in which Intel owns a roughly 90 percent market share.
 
I. Anticompetitive
 
A little over a decade ago the CPU industry was locked in the closing stretch of clock speed wars.  Intel Corp.'s (INTC) Pentium processors had long towered over its underdog competitor Advanced Micro Devices, Inc.'s (AMD) designs in performance.  But something funny happened: AMD's Athlon project saw success and quite unexpectedly Intel's aging Pentium 4 found itself trailing the second-generation K8 Sledgehammer core (which was inside Athlon 64 and Opteron chip lines).
 
But the feisty, unheralded AMD chip saw little OEM pickup.  And with the switch from a focus on clock speeds to a focus on multicore computing (the so-called "core war" era), Intel's Core-branded chips largely left AMD behind in terms of process, computing speeds, power efficiency, and process.  AMD has remained a competitive minority player, but only in the mid-to-low end where it can occasionally beat Intel on account of competitive pricing.

Intel Penryn
AMD never recovered fully as Intel seized a sizeable performance lead in the core war era.
[Image Source: Intel]

History might have played out quite differently had AMD had a fair shot at selling its chips and cashing in on its rare, hard-fought win over Intel.  But court records would later show that Intel wrote its own fate by showing little hesitation in using anticompetitive tactics to stifle its smaller competitor's sales prospects and ensure that its dominant market position was maintained.

A decade later, the court fallout of those tactics are finally coming to a close.  This week the European Union's Luxembourg-based General Court ruled that Intel must pay the €1.06B ($1.44B USD) fine levied against it by the European Commission, which in 2009 found Intel guilty of corporate crimes.

The 300-page ruling by the appeals court asserted:

The Commission demonstrated to the requisite legal standard that Intel attempted to conceal the anti-competitive nature of its practices and implemented a long term comprehensive strategy to foreclose AMD from the strategically most important sales channels.
...
The General Court considers that none of the arguments raised by Intel supports the conclusion that the fine imposed is disproportionate. On the contrary, it must be considered that that fine is appropriate in the light of the facts of the case.

In other words, the EU's highest appeals court -- after reviewing the evidence -- felt that Intel's violations of antitrust laws were so egregious that it was appropriate to fine the chipmaker 4.18 percent (1/25th) of its 2008 revenue.

Intel antitrust
 

Intel's well-documented violations in Europe mirror its tactics in other regions and were largely a two fold effort:
  • At the retail level
    • Pay retailers to only stock products contain Intel chips
    • The EC and EU General Court found that Intel paid off Media Saturn Holding not to carry AMD products
  • At the OEM level
    • Pay OEMs discounts if they bought the majority of their chips from Intel
    • The EC and EU General Court found Intel made these kinds of rebate payments to multiple PC OEMs, including:
The EU's fine came roughly five years after the alleged offenses occured, the appeal took another five years.  In total the process consumed nearly a decade.

II. Reaction

The BEUC ("Bureau Européen des Unions de Consommateurs"/"European Consumers' Bureau") -- a European nonprofit consumer advocacy group funded by an EU grant -- lauded the decision.  Its director-general Monique Goyens opined:

When large companies abuse their dominance of the market, it causes direct harm to consumers. The court's ruling issued a strong reminder that such behaviour is illegal and unacceptable.

The European Commission also praised the confirmation of its ruling in the case, which it spent substantial effort investigating.

Intel sign
[Image Source: etechmag]

Intel bitterly denies wrongdoing in the case, saying its discounts to OEMs benefited European consumers and didn't harm competition.  Intel spokeswoman Sophie Jacobs released a downbeat statement, commenting:

We are very disappointed about the decision. It's a complex case which is reflected in the decision. We will begin evaluating the decision.

Intel has no viable route to appeal.  Its only possible appeal route is to challenge the antitrust rules and laws behind the ruling, in an appeal to the Court of Justice of the European Union.  Such an appeal would be incredible complex, expensive, and unlikely to succeed.

Microsoft Corp. (MSFT) largely lost a similar battle over its own massive antitrust fine and after facing the General Court's ruling agreed to settle up.  After being fined 1.6B ($2.1B USD) in 2008 by the EC, Microsoft appealed the fine.  The outcome for Microsoft was only marginally better than Intel.  Its fine was reduced, but only by €39M (~$48M USD in 2012 dollars) -- an almost meaningless concession compared to the fine's overall magnitude.

McDermott Will & Emery partner Martina Maier told Reuters that the ruling could discourage other top U.S., Canadian, and Asian firms from appealing antitrust case rulings in the EU, particularly if their case is weak and focused on the "fairness" of the fine amount rather than the finding of guilt.

Comments Ms. Maier:

Companies under investigation by the Commission should not count on winning in court with the argument that the Commission would not have properly assessed the economic effects of an abuse of dominance.

This might well lead to a supplementary incentive for a company under investigation for an alleged abuse of dominance to settle with the Commission or to offer commitments in order to motivate the Commission to end its investigation.

Intel was also forced to pay major settlements in the U.S. under threat of fines.  In 2009 it paid AMD a settlement $1.25B USD and pledged to avoid certain business tactics, in order to lay to rest civil litigation and potential government fines over its actions.  It paid NVIDIA Corp. (NVDA) -- a top PC graphics maker -- $1.5B USD in 2009, as well, over similar tactics Intel used to gain dominance in the PC integrated graphics market.

Intel monopoly
Intel's dominant position delivered it twelve times as much profit as the fines and settlements cumulatively add to.

With the latest fine tacked on, in the last half decade Intel has paid over four billion dollars stemming from accusations of breaking antitrust laws and abusing its dominant position.  However, it's unclear if the old aphorism "crime doesn't pay" holds true in these cases, as in the last half decade Intel has made $49B+ USD in profit (according to its 2013 10K filing, thanks to its dominant position in the PC market.  That profit is roughly twelve times the cost of settlements and fines for the illegal tactics it allegedly used to maintain its position.

Sources: European Commission, BEUC, Reuters





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