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Intel insists its innocence as it responds to antitrust allegations from the European Union

Intel revels in the glory of being the CPU industry leader, at least for the time being.  However, like many industry leaders, they have found themselves the primary target of the crosshairs of criticism.  Further, as with any company that is dominating the market, allegations of antitrust violations become a serious threat to the company worldwide. 

AMD said Intel's anti-competitive practices established a monopoly in the microprocessor market.  AMD then sued Intel in U.S. courts in June of 2005.  The company since mounted a long-standing legal battle that included ads in major newspapers and the a website chastising Intel who it portrays as sinister and monopolistic.

AMD received an ally in the form of the European Union.  In July 2007, it announced that based on evidence collected in a multi year investigation, including materials found in a June 2005 raid of European Intel offices, it was filing charges against Intel for engaging in anticompetitive practices.

Intel's senior vice president and general counsel Bruce Sewell issued a carefully worded statement soon after, firmly insisting his belief that Intel was innocent of wrongdoing in the European market.

The charges were supposed to receive a formal response from Intel by October 8, but the EU showed a bit of mercy, extending Intel's window to respond to January 4.

Last week the European Union granted Intel another small measure of leniency, allowing it to file the response to be filed on Monday January 7, instead of Friday, as dictated by the previous extension.

At last Intel issued a response to the European Union and telling the Union to "bring it on."  Intel's formal written response to the EU states not only its innocence, but also challenges EU regulators to hold a hearing to evaluate claims that it illegally used rebates to seize sales from AMD.

Despite Intel's feisty tone, Washington based antitrust lawyer David Balto, a
former U.S. Federal Trade Commission policy director, stated that Intel faces a nearly impossible challenge in proving its innocence to the EU.  He explains, "Intel is going to have a really significant challenge in the proceedings before the EU.  The EU is much more sensitive to the long-term competition effects by dominant firms and much less ready to accept simple snapshots of a company's conduct."

As per EU regulations Intel may be fined up to 10 percent of its annual sales for antitrust violations.   Microsoft initially tried to argue against the EU when it was hit with similar charges and the end result was a painful $690M USD fine.  Intel has even more to lose as it is constantly price cutting to stay competitive and has smaller profit margins, which force it to engage in yearly layoffs.

Intel is also under investigation in South Korea and Japan following raids in these nations. 

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RE: Backwards
By smitty3268 on 1/8/2008 1:53:55 AM , Rating: 2
If you punished Intel for being a better company with a better product prices go up. If you fine Intel or subsidize AMD, prices go up.

In the short term, yes. The question is, what happens in the long run - if the competition between the 2 companies is about to end, then the short term loss for consumers results in a long term gain. But if there is no danger of the competition between them dying out, then there's no reason to do this.

There is no such thing as a monopoly in a free market.


RE: Backwards
By Christopher1 on 1/8/2008 2:46:04 AM , Rating: 1
Actually, he is half right. There is no such thing as a monopoly in a truly free market, but the problem is that the world economy has been no such thing for an extremely long time.

In a true free economy, the person spending the dollar chooses.... but when government limit choice with taxes, tariffs and other things..... that is when the 'free economy' fails to be free anymore and there is little choice.

Add to that government failing to monitor companies to make sure that they are not engaging in monopolistic practices (threatening to not sell to people unless they buy from them solely, etc.)..... and there is no free economy.

RE: Backwards
By smitty3268 on 1/8/2008 3:21:37 AM , Rating: 4
He's right in the sense that once a monopoly exists, there is no more free market. But a monopoly can be created in a truly free market, even if it isn't easy. You really just need to have a high barrier to entry. In some cases, this is a physical barrier - you don't want to have 50 different companies all with their own electrical system hooked up to your house. Other times, it's merely financial/intellectual - it takes a great deal of money and research in order to create something as complex as a cpu. That's a very different situation from something like selling fruit, which anyone can do.

RE: Backwards
By noirsoft on 1/8/2008 3:36:45 AM , Rating: 5
monopolistic practices (threatening to not sell to people unless they buy from them solely, etc.).....

You mean the way Apple forces you to buy their software if you buy their hardware, and the complete lack of support for running their software on other people's hardware?

RE: Backwards
By Xavian on 1/8/2008 4:34:06 AM , Rating: 2
But, you can choose to go Apple or someone else if you don't like what they do, i don't think you know what a Monopoly means.

Microsoft however have a few monopolies, you have to play most PC games on Windows, You have to play wma files with Windows Media Player, you have to use office files with the Microsoft Office Suite.

Usually this wouldn't be a problem, but there is no alternative to these products in most cases and that's what a monopoly is.

RE: Backwards
By Fox5 on 1/8/2008 5:16:50 AM , Rating: 2
Being a monopoly alone isn't a problem.
Sure, microsoft has the monopoly on WMA files, but WMA is hardly the only choice (or even the best) for music.

I thought Microsoft's monopoly problems were more relate to bundling and varying pricing and availability to discourage PC makers from using competitors (even among windows software).

Anyhow, as AMD is a somewhat major European corporation, it'd be interesting if some element of protectionism plays into the Intel monopoly case. Germany's bailed AMD out before, maybe the EU may try the same. At the very least, keeping a viable competitor in the cpu market may be seen as serving the EU's long term interests.

RE: Backwards
By Zandros on 1/8/2008 12:25:25 PM , Rating: 2
AMD is no more European than Intel is Malaysian.

Anyway, what happened to the presumption of innocence? I find it absurd Intel having to prove they are innocent.

RE: Backwards
By pauldovi on 1/8/2008 12:48:47 PM , Rating: 3
We are talking about Europe. You are presumed to be guilty. You get your rights from your government....

"The New Europe, reminding you why your ancestors left the old one."

RE: Backwards
By Oregonian2 on 1/8/2008 9:29:35 PM , Rating: 2
Not quite true I think. AMD has 100% of it's high-end processor fab in Germany I think. If they lost that fab due to an earthquake they'd be dead meat. If Intel lost a fab in Malaysia it would not be good, but they'd not be dead meat, they'd just have a sore elbow.

P.S. - Yes, AMD has now multiple fabs in Germany, but I think they're next to one another.

RE: Backwards
By nofranchise on 1/10/2008 10:20:51 AM , Rating: 2
Who said Intel are innocent? If you've seen the evidence discovered by the EU's lawyers, please let us in on it. But to think the European Union would go to court in a case like this withouth hard evidence is a tad more absurd.

RE: Backwards
By Oregonian2 on 1/8/2008 9:31:19 PM , Rating: 2
Good point. McDonald's has a monopoly on "Big Macs", but that doesn't seem to cause a problem. Burger King has a monopoly on "Whoppers" which compete with the other monopoly. :-)

RE: Backwards
By rdeegvainl on 1/8/2008 5:18:50 AM , Rating: 2
So you have to use windows media player, to play windows media? also there are alternatives to the products windows have. They may not be what you want or need but they are there. You have linux, you have open office. Oddly enough, the ones I mentioned are FREE.

RE: Backwards
By Lonyo on 1/8/2008 8:30:12 AM , Rating: 2
Xavian does seem to have no idea what he is saying.
Not only (in hardware terms) is there a wide range of support for wma files in portable players (Creative, Cowon, Philips, Microsoft, iRiver etc etc), but in terms of software on a computer for playing, there are many many many available options (Winamp, Foobar etc etc).
So not only does wma work in different software players, it also works on different hardware, unlike Apple iTunes tracks. Although I am not sure how the new Zune marketplace tracks work.

As for office files, as mentioned, OpenOffice (AFAIK) works with MS Office files, and it's free, and available for Windows and Linux.

RE: Backwards
By Joz on 1/8/2008 6:24:34 PM , Rating: 2
This post made me laugh.

First off, Microsoft no longer creates its own monopoly, it no longer has too, all the programs bring written are written for the majority OS (aka: Windows) if you want to get pissed off at someone for creating a monopoly, well, go yell at anyone who uses Windows.

Secondly, I do belive OpenOffice can handle any Microsoft Office file. And WMA can be played on other programs with a few minutes of googling codec packs.

THERE ARE MANY ALTERNATIVES, you just to much of a moron to find them, and I hope when you do, that your to stupid to use them.

RE: Backwards
By Ringold on 1/8/2008 6:37:19 PM , Rating: 3
THERE ARE MANY ALTERNATIVES, you just to much of a moron to find them, and I hope when you do, that your to stupid to use them.

Alternatives for the infirm of mind? Doesn't Apple corner that market? :)

(I kid! Sort of..)

RE: Backwards
By BMFPitt on 1/8/2008 10:57:17 AM , Rating: 2
Apple is a monopoly like Dennis Kusinich is a Presidential frontrunner.

RE: Backwards
By ghost101 on 1/8/2008 1:13:19 PM , Rating: 3
Itunes/ipod statistics would disagree.

RE: Backwards
By BMFPitt on 1/8/2008 3:08:24 PM , Rating: 2
There are dozens of available alternatives that are in many cases cheaper and/or better. Only a small fraction of songs stored on iPods are iTunes purchases. There is nothing at all that compels a music player buyer to pick an iPod (unlike, say, Comcast.)

RE: Backwards
By qwertyz on 1/8/08, Rating: -1
RE: Backwards
By nofranchise on 1/10/2008 10:23:19 AM , Rating: 2
LOL - You really have no idea about the world you live in do you?

RE: Backwards
By pauldovi on 1/8/2008 11:26:27 AM , Rating: 2
You cannot create artificial competition. If AMD cannot compete, the answer is not subsidies by the EU. That is artificial competition and results in higher prices and poor products.

Your mind has been twisted so much by your acceptance of the government control over your life. Stop gulping Kool-Aid and wake up. True free markets have no monopolies.

RE: Backwards
By JakLee on 1/8/2008 1:00:46 PM , Rating: 2
However if a company engage in monopolistic practices to the detriment of their competitor, then it is appropriate for them to "pay" for it so to speak. If it is true that Intel didn't play by the rules & caused AMD to be in the situation they are now by unfairly restricting AMD's ability make money; then we the consumer lose out on a potential better processor.

What would the field look like now if AMD had made 3 billion more on processors 3 years ago?

I don't know if intel has done anything wrong, and even if they had I don't know if that has had much if any real impact on amd's development...... but its hard not to speculate "what if's" if this is true.....

RE: Backwards
By ghost101 on 1/8/2008 1:03:36 PM , Rating: 2
The question is, if Intel did indeed practise anti competitive practices in order to maxmise sales and minimise AMDs sales in the period in question. Is the current situation where Intel have produced better products a big surprise? One could argue that AMD wouldnt be in the financial turmoil they are now if they had the sales they could have supposedly had. of course, we cant tell. But what we do know is that it isnt healthy for consumers in the long term.

RE: Backwards
By ghost101 on 1/8/2008 1:11:41 PM , Rating: 2
True free markets have no monopolies under assumptions that rarely hold.

This isnt about creating artificial competition, this is about promoting competition through punishing anti-competitive behaviour.

RE: Backwards
By Ringold on 1/8/2008 4:26:45 PM , Rating: 2
No, it's about funding the European Union.

If the EU were interested in investigating criminal activity by Intel, fines would not be on the table; jail time would be.

If the EU were interested in protecting the interests of EU residents (almost said citizens -- that's coming soon enough), then fines would not be on the table there either. They'd locate and identify any ongoing practices they think are done to the detriment of "competition", order Intel to stop, and if Intel did not, then the criminal charges against individuals again.

Fines hurt Intel, and a hurt Intel can't help but pass that on to the end consumers in the form of higher prices if the market will allow them to raise prices or, in the longer term, a delayed expansion of production or delayed new technology from the loss of money that otherwise would've remained in their coffers for investment.

Punishing Intel serves no economic purpose going forward; there are a few possible sources of this desire I can think of off hand-
a) The human need for revenge
b) Typical ignorance of the concept of sunk cost
c) Politicians desiring to exercise their power
d) A desire to fund the European Union by milking an "evil" corporation

Assuming these politicians don't feel personally offended by Intel, and that they really are semi-educated and know full well what they're doing, then c and d seem to be the answer.

RE: Backwards
By ghost101 on 1/9/2008 10:51:10 AM , Rating: 2
When was the last time the FTC jailed someone for an anti-trust violation? What you're debating about is whether something like this should have criminal or civil penalties. You could argue either way.

As for big evil corporations, the most of the cases the eu competition commission. It took the eu commission to get rid of the Bermuda II agreement, which created a legal cartel amogst 2 countries which view cartels as illegal.

Simply going on the website

you can see it does not discrimaate against US companies as such. Obviously there are political influences over certain cases just as there are in the USA. Boeing vs Airbus for example.

RE: Backwards
By ghost101 on 1/9/2008 10:53:09 AM , Rating: 2
*most of the cases the eu competition commission looks at are entirely within the EU.

RE: Backwards
By Ringold on 1/9/2008 11:18:56 AM , Rating: 2
When was the last time the FTC jailed someone for an anti-trust violation?

I was suggesting what would be a better alternative than damaging the market for damage done previously. It's entirely illogical. Your idea of civil penalties, against individuals, is better then my criminal jail time idea, I just didn't think of it.

you can see it does not discrimaate against US companies as such.

Is it just me or does a European government website that says "Competition: making markets work better" make one hurt with laughter? Hmm.. might just be me.

At any rate, they note there on their own website they haven't come close yet to properly liberalizing their utilities sector, for example. Assuming they don't have unlimited resources, I would imagine they'd generate significantly larger gains for the European Union members economies by focusing their energy there.. However, that wouldn't generate much revenue for the EU though, would it? It would also ruffle many political feathers along the way. Easier, then, for everybody to try to pick on Intel, Apple, Mr. Softie, and whatever other cash-rich multinational they can find with little local political support. I'm glad Intel is willing to fight back.

RE: Backwards
By ghost101 on 1/9/2008 11:17:11 AM , Rating: 2
As for whether fines are justified. If indeed it is passed onto consumers then it would help AMD compete. Small justice for AMD if Intel did engage in these practices.

We dont know what the burden Intel will have from this possible fine and what the burden on consumers will be. But it will reduce intel's profits. Therefore, they will always have an incentive to stop doing whatever the commission has an issue with. They may also consider lost profits because of the increase in competition. It seems Intel have stopped such practices but the fine serves as a reminder that it wont be accepted.

You also seem to be saying that it reduces investment and hurts consumers in the long run. Now you are debating whether profits through monopoly pricing is a bad thing. I think you are mistaken to think that shareholders would want investment in expanding beyond the profit maximising level of output when they can simply control sales in the market (ensurung profits) as they supposedly did in AMDs complaint.

RE: Backwards
By Ringold on 1/9/2008 11:34:09 AM , Rating: 2
think you are mistaken to think that shareholders would want investment in expanding beyond the profit maximising level of output when they can simply control sales in the market (ensurung profits) as they supposedly did in AMDs complaint.

That is not quite my argument. I don't know that Intel, or anybody, sits down in a board meeting and actively cuts back investment across the board if they're advancing too rapidly -- though Intel in fact may reach that point eventually in order to avoid annihilating AMD. At any rate, if a sufficiently large pile of cash evaporates, then Intel would simply not have that cash available to make as many investments across any time frame moving forward, short term or long term. Just like interest on a bond or interest on debt, that opportunity cost of taking a pound of flesh out of Intel simply grows the further out in the future one looks. From a shareholder perspective, even if Intel planned zero further R&D or cap-ex, they'd much rather have a share buy-back program or dividend then to fund the expansion of a pan-European superstate.

Of course, I am talking about substantial amounts, as in hundreds of millions. I doubt anything less would even move the stock. Not that it needs help falling lately...

Also, defending Intel now does not necessarily mean I'm pro-monopoly, I simply view it as appropriate to consider the past actions and resulting damage as sunk cost. Instead of being punitive, whatever needs to be done should be, IMHO, should be done to stop future anti-competitive behavior. They did not take the money they stole from Microsoft and donate it to Apple or Linux development projects, so the precedent of taking from Intel and giving to AMD isn't there. Plus, it also edges toward some fuzzy idea of income redistribution for the "less able" corporations -- pardon while I run away from the mere idea screaming.

RE: Backwards
By nofranchise on 1/10/2008 10:27:44 AM , Rating: 2
LOL again. You truly believe the EU uses a lawsuit like this to fund itself? You clearly have no idea what the EU is.

Punishing Intel has no purpose? What about justice and uphoolding the law?

I guess you and the other chumps from the milita just string people up when they steal out in the open. Corporate crime? I ain't never heard of it?

"People Don't Respect Confidentiality in This Industry" -- Sony Computer Entertainment of America President and CEO Jack Tretton
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