Europe Rules on Intel Misconduct; Antitrust Sanctions to Follow

BY CCIA Staff
May 13, 2009

The Intel decision in Europe has many in Washington wondering whether US action may soon follow, especially in light of the major policy speech Monday by Assistant Attorney General Christine Varney, which set aside a Bush administration directive that had made it tougher to police antitrust violations.

Wednesday, the European Commission announced that it is taking disciplinary action against Intel for violating European competition law. Because of the scope of the violations and Intel’s size, the fine of $1.45 billion is the largest in the history of EU antitrust enforcement.

More importantly for competition and consumers, the Commission’s ruling bans Intel from engaging in its anti-competitive rebate practices in the future. If correctly implemented, this decision will pave the way to preserve and increase competition and innovation in the crucial x86 microprocessor market.

While the Federal Trade Commission [FTC], not Justice would rule on the Intel case, Varney’s speech signaled a new era of antitrust enforcement, which is likely to be in greater sync with the EU.

The EU decision is not a great surprise since it follows similar decisions by Japanese and Korean competition authorities in recent years. While antitrust authorities in the United States have been slower to engage, the Federal Trade Commission and the New York State Attorney General’s Office have opened official investigations and are considering actions of their own.

The following statement can be attributed to Ed Black, President and CEO of the Computer & Communications Industry Association:

“The significance of this ruling should not be overlooked. The Japanese and Korean decisions were important, but this European action is the culmination of a very thorough and broader investigation and is a sweeping condemnation of Intel’s practices. When coupled with the publicly known evidence, the steady drumbeat of adverse rulings by government after government, a convincing picture has emerged revealing that Intel’s actions were unquestionably strategically premeditated to be anti-competitive and willfully illegal.

“U.S. regulatory agencies have indicated this week they will once again be watchdogs on antitrust enforcement under the new Administration. Since the evidence has been compelling to all those who so far reviewed it, a vigorous U.S. investigation focused on the evidence in the case leaves us believing Intel will have its day of reckoning in the U.S. as well.

“While recent actions in the political sphere indicate an attempt to try to interject political factors into the US enforcement process, the Obama Administration’s commitment to the rule of law and its ongoing rejection of narrow special interest pleadings should mean a future US decision will be based solely on the merits.

“CCIA has monitored competition and antitrust issues for more than 35 years now. Competition spurs innovation and innovation is a major driver of economic progress. We need innovation now more than ever. What we don’t need are companies that are too big to fail, too big to innovate, and too big to compete on a level playing field.

“Although there has been much antitrust discussion as of late about companies at the edges of the high-tech market, it is important to also focus on the foundational markets at the very heart of technology industry and the overall economy. Intel, with its monopoly on x86 computer chips, is a perfect example. These chips power approximately 95 percent of computers and servers available on the market today. The downstream effects of Intel’s misuse of its market power have a negative effect on virtually all industries and consumers.

“Innovation is essential to economic vitality. As the economy begins to improve and a new order begins to solidify, regulators need to be especially vigilant and thoughtful. Cutting-edge, high-tech industries will lead us out of the current recession and serve as the engine driving future economic growth – if they’re not squashed by unfair, illegal business practices. Because high-tech markets are so interdependent, the consequences of anti-competitive practices in them are often more serious. It is vitally important that regulators take steps to preserve competition in this critical sector, especially as the economy recovers.”

Background/Timeline:

– In March 2005, Japan’s Fair Trade Commission concluded that Intel had violated the country’s anti-monopoly laws by illegally forcing exclusivity on five Japanese PC makers.

– In June 2005, AMD filed an antitrust complaint in U.S. Federal District Court for the District of Delaware under Section 2 of the Sherman Antitrust Act, Section 4 and 16 of the Clayton Act, and the California Business and Professions Code.

– In July 2007, the EC charged Intel with abusing its dominant market position and maintaining its market share through illegal anti-competitive actions. The Commission stated in the accompanying press briefing that “in the short, medium and long-term, we think that the actions of Intel are bad news for competition and consumers.”

– In January 2008, the New York State Attorney General launched an antitrust investigation of Intel. The AG served a “wide-ranging” subpoena seeking information on whether Intel penalized customers from using competitor’s products, improperly paid customers for exclusivity and illegally cut off competitors from distribution channels.

– In June 2008 South Korean antitrust authorities fined Intel $25 million for abusing its dominant position in the microprocessor market and ordered the company to cease its illegal rebates to PC makers.

– In June 2008, the U.S. Federal Trade Commission announced its investigation of Intel on antitrust issues.

– In July 2008, the European Commission announced it would expand its Intel antitrust investigation to include additional allegations that Intel offered retailers incentives not to sell computers that contained chips made by its competitor AMD. The new allegations involving retailers are more serious as they would negate Intel’s previous argument that its rebates to computer manufacturers helped consumers by keeping prices low.

– In May 2009 the European Commission fines Intel $1.45 billion and orders it to cease its illegal business practices that were shutting down competition. The commission said it calculated the fine based on European chip sales during the five years and three months that Intel broke the law while under investigation.

 

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