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Intel CEO Paul Otellini arrives at the EC hearing building in Brussels to argue Intel's case.   (Source: REUTERS/Francois Lenoir)
Chipmaker continues to plead its innocence before the EU

The European Commission (EC), the executive arm of the European Union (EU), has already brought one mighty opponent to its knees.  It fined Microsoft almost $2.6B USD overall for antitrust violations, including fines of $690M USD and $1.4B USD.  Microsoft tried to refuse to comply with EC's verdict, but ended up paying for it even more in the end.

Now the EU is pursuing chipmaker Intel for allegedly employing anticompetitive practices such as a price slashing and illegal rebates to drive smaller chipmakers out of business.  The EU issued formal charges against Intel in July.  Intel responded quickly that the charges were nonsense and that AMD was the one complaining, not the customers.  AMD claimed that Intel reaped $60B USD in monopoly profits.

Intel fought back demanding a hearing before the EC where it could argue its viewpoint.  Meanwhile, Intel suffered another loss when its German offices were raided last month by EU agents, who seized documents applicable in the antitrust case.  Germany was one of the countries in which Intel is allegedly to have employed price manipulation and illegal rebates.

Now Intel has finally gotten its way, in effect, as it had a chance to plead its case before an EC hearing.  Intel's chief executive Paul Otellini travelled to Brussels to represent his company at the hearing.  Intel, whose chips are in four out of every five of the world's servers and PCs, has also been accused by the EC of paying off computer manufacturers to pick Intel chips over AMD chips.  Intel has denied these claims saying it competes fiercely and legally.

Mr. Otellini addressed Hearing Officer Karen Williams, arguing that Intel's financial practices were well within the law and that its success was from having a better product, not illegal maneuvers.  Ms. Williams will report to Competition Commissioner Neelie Kroes on the case at the end of the hearing. 

Commissioner Kroes, who recently championed the $1.4B USD fine against Microsoft, will make a final suggestion to the full European Commission about Intel's fate and the amount of a possible fine.  Fines can be up to 10% of a company's global revenue, under EU business law.  Commissioner Kroes previously stated that Intel may be a larger threat to E.U. business then Microsoft.  Following Commissioner Kroes statement, the EC will put the issue to a vote and come to a judgment.

Intel had most of the day yesterday to plead its case.   It discussed proprietary information during the hearing, requiring several participants to have to leave for extended periods.  The U.S. Federal Trade Commission and New York attorney general's office, who are investigating possible Intel antitrust violations within the U.S, were both represented.  It is expected that they may launch similar antitrust campaigns following in the EU's footsteps.

Today several consumer groups will have their chance to speak.  BEUC, a European umbrella group for consumer groups, and individual groups from the Netherlands, Spain and France will all be represented.  The groups so far have not come out with a firm stance on the allegations, but Monique Goyens, BEUC director general assured, "We may do so later."

She further stated that BEUC wants to ensure that consumer issues about pricing and innovation are properly examined and addressed.  AMD and Hewlett Packard are also both going to speak today.  Their accounts and testimony will be critical as their relationships with Intel figures heavily with the charges leveled against the chipmaker.

The EU, in addition to the Intel office raids, raided multiple retailers that sold only Intel chips and not AMD chips.  The materials gathered in these raids cannot be used in the hearing.  However the EC could elect to issue new charges against Intel at any point.  It did so three times during the Microsoft case, so such a result is not unexpected.



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By The Irish Patient on 3/12/2008 3:56:42 PM , Rating: 2
(1) Cost of entry is indeed daunting, but it is not punishable anticompetitive conduct. Costs of entry also apply to companies like AMD that are already in a market, but making a somewhat obsolete product. AMD faces a tough cost of entry to design a product that can equal or better the Core 2 architecture. AMD also faces a multi-billion dollar barrier to begin 45 nm production. That was my point. Barriers like these do more to explain AMD's problems than Intel's conduct.

(2) Japan's Fair Trade Commission merely issued a three page report criticizing Intel's rebate practices. Intel revised the program, and that was the end of the matter. There was never any discussion in Japan about imposing penalties of up to 10% of global revenue. BTW, Intel has also changed its rebate practices in Europe. This is all old news; time to move on as the Japanese have done.

As for the DOJ investigation in the USA, there is no consensus that Intel violated US law. US anticompetition laws generally require collusive action among potential competitors. Rebates offered by a competitor generally aren't enough, as long as the final price after rebate doesn't represent dumping at below cost. More fundamentally, US law doesn't require a competitor to back off on its efforts merely because its market share reaches X percentage.

Oddly, AMD unsuccessfully offered a bride that would have violated US anticompetition law had it been accepted. AMD freely admits that it offered HP one million CPUs in 2002 at zero cost as an "incentive." Unfortunately for AMD, HP liked Intel's rebates better. There is no claim by AMD that Intel's CPUs were priced below cost after rebate. Clearly, one million AMD CPUs for free is well below cost, making AMD's failed effort a clear violation of US law.

(3)
quote:
You can advertise your product as much as you like - if no store is willing to carry it because of your competitor's illegal actions, it is worthless.


Funny, that didn't stop AMD from trouncing Intel during the last quarters of the Netburst era. AMD does well when it has a superior product and poorly when it has an inferior product. US law is not receptive to antitrust lawsuits under these circumstances.

(4)
quote:
if a corporation wants to do business in a country, it must abide by the country's laws.


I agree, and the corporation should be free to price its product accordingly in each country. But the EU isn't content with enforcing EU law within the EU. The EU claims the right to enforce EU law worldwide, by making all global revenue subject to EU penalty.



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