Server Farming

May 13 2009   7:40PM GMT

Intel breaks another record; biggest anti-trust fine ever

Bridget Botelho Bridget Botelho Profile: Bridget Botelho

Intel just broke another record – this time for getting the largest anti-trust fine ever.

The European Commission (EC) slapped Intel with a $1.45 billion fine for violating EC Treaty antitrust rules against engaging anti-competitive practices that excludes competitors from the market.

The European Commissioner for Competition Policy stated throughout the period covered by the decision, Intel held at least 70% of the worldwide market in x86 server CPUs, and used anti-competitive practices to hold that position.

“The fact that Intel had such a large market share is not a problem in itself. What is a problem is that Intel abused its dominant position. Specifically, Intel used illegal anti-competitive practices to exclude essentially its only competitor, and thus reduce consumer choice, in the worldwide market for x86 chips,” the commissioner, Neelie Kroes, told press. “Given that Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for over five years, the size of the fine should come as no surprise.”

The EC found that Intel gave rebate to computer manufacturers who bought all, or almost all, of their x86 CPUs from Intel. Intel also made direct payments to a major retailer on the condition that it only sell computers with Intel x86 CPUs.APC Mag image

Intel also paid computer manufacturers to halt or delay the launch of specific products containing competitors’ x86 CPUs and to limit the sales channels available to these products, according to the EC.

Intel also faces another anti-trust lawsuit, filed by AMD for similar anti-competitive practices in the U.S. The court date for that trial is in February 2010.

As expected, Intel’s CEO Paul Ottellini denied any wrongdoing and is appealing the decision. In a statement, Ottellini said, “As we go through the appeals process we plan to work with the Commission to ensure we’re in compliance with their decision… there should be no doubt whatsoever that Intel will continue to invest in the products and technologies that provide Europe and the rest of the world the industry’s best performing processors at lower prices.”

And some U.S. based legal pros issued statements today saying the EU’s fine was far too harsh.

“The EC’s use of huge fines against market-leading firms – fines calculated from a firm’s world-wide sales, not from harm to European consumers – discourages aggressive competition that benefits consumers,”  Ronald A. Cass, Chairman, Center for the Rule of Law, said in a statement. “Consumer harm should be the concern for competition law, and here instead consumers saw sharp declines in cost and increases in product quality – even Intel’s complaining rival, AMD, enjoyed historic success during the period it claims Intel’s actions foreclosed competition.”

But the manufacturers concerned by Intel’s conduct in the EC case – Acer, Dell, HP, Lenovo and NEC – aren’t playing the violin for Intel right now, and reports say Intel’s closest competitor, AMD, is celebrating the EC’s decision.

And the EC’s commissioner doesn’t seem to feel bad about the massive fine either. In his closing statement to the press, he drew attention to Intel’s latest global advertising campaign, “Sponsors of Tomorrow,” in which Intel invites visitors to add their ‘vision of tomorrow’ to their website.

“Well, I can give my vision of tomorrow for Intel here and now: “obey the law,” Kroes said.

As large a fine as $1.45 billion is, it’s really a drop in the bucket for Intel; they reported $7.1 billion in revenue for the first quarter of 2009 alone,  so I doubt this will have any affect on their ability to churn out CPUs on the tick-tock cycle. The real issues for Intel is the tarnish the EC’s decision puts on them and that it takes the focus away from their technology – two side effects that are sure to help the competition gain some ground in the CPU market.

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