Intel Defiant Over EU Antitrust Ruling, AMD Jubilant

European Union regulators on Wednesday hit Intel with a record $1.45 billion fine for violating EU antitrust rules at the expense of competitors, customers and consumers, but the microprocessor giant disputes the ruling and says it will appeal.

"The allegations essentially come down to Intel granting conditional rebates where the conditions weren't just volume-based. Intel strongly disagrees with this decision. We do not have those kinds of conditions in our contracts," said Intel CEO Paul Otellini, referring to the European Commission's ruling that Intel gave secret rebates to computer manufacturers on the condition that they severely limit or completely exclude rival chip makers' x86 microprocessors in their product offerings.

Advanced Micro Devices, Intel's main rival in the x86 chip market and the main claimant in the eight-year EC investigation that culminated in Wednesday's ruling, described the decision as "an important step toward establishing a truly competitive market."

Otellini, speaking in a conference call with reporters, said Intel would appeal the EC decision to the European Court of First Instance, but also intended "to abide by whatever is in the decision while we go through the appeal process." Intel, headquartered in Santa Clara, Calif., has received notice that the fine must be paid in 90 days, Otellini said.

Regardless of the commission's decision, Intel would continue to innovate and push processor technology forward, he said.

"There's nothing in this ruling that reverses Moore's Law," Otellini said. As for the business implications of the decision, he said, "It's hard to imagine that the dynamics of competition would change."

"Most customers buy from both suppliers today. That dynamic hasn't changed in my career at Intel, which is 35 years. I don't expect it to change. I don't think a customer is going to put him or herself at a disadvantage by buying an inferior or more costly product just to try to walk a line that may be artificial," Otellini said.

The 1.06 billion euro fine imposed on Intel is a record for an antitrust penalty issued by the European Commission. The EC fined Microsoft 899 million euros ($1.35 billion) in 2008 for failure to comply with a 2004 antitrust ruling.

Evidence Ignored By The EC?

The EC named Acer, Dell, Hewlett-Packard, Lenovo and NEC as the computer manufacturers, also known as original equipment manufacturers (OEMs), that Intel provided with various rebates and payments to shut out its competitors, in particular AMD, in a period stretching from 2002 to 2007. In most of the cases cited by the EC, Intel gave rebates on the condition that a manufacturer purchase a certain percentage of its CPUs from Intel. In some cases, there was a requirement that a manufacturer buy from Intel exclusively, the EC stated.

In addition to the rebates, the EC found that Intel made "direct payments to 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." For instance, Intel paid one manufacturer to sell its AMD-based business desktop PCs "only to small and medium enterprises," according to the commission.

Finally, Intel also made direct payments from 2002 to 2007 to a large European retailer, Media Saturn Holding, "on condition that it exclusively sold Intel-based PCs," according to the EC.

Otellini directly disputed the EC's findings, saying that evidence refuting the charges against Intel was excluded from the European investigation.

"The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision," he said in an official statement, later adding more detail in Wednesday morning's press conference.

"There were a number of documents from the OEMs, or between Intel and the OEMs involved in the allegations, that refuted what was claimed here. In some cases, the OEMs made statements that in fact there were not exclusive deals and they were not under conditional terms and those documents were not allowed into the case file or not properly used by the case team in making their determination," Otellini said.

He said that some of that evidence emerged in an ongoing antitrust lawsuit in the United States being pursued by AMD and other claimants. That case, scheduled to go to trial in the U.S. District Court of Delaware in March 2010, is known to include depositions from leading OEMs, but such evidence is under a protective order at the agreement of the involved parties.

While the discovery in the Delaware case has been put under seal, Intel legal spokesman Chuck Mulloy said the agreement has a clause mandating the sharing of protected records with any interested regulatory or governmental investigative agencies that request them.

"We asked [the EC Directorate General for Competition] to get additional relevant information from the Delaware case but they refused to do so," Mulloy told Channelweb.com.

An AMD spokesperson countered that Intel had ample time to present evidence to the EC during the course of an eight-year investigation, and in particular, since the commission issued its original Statement of Objections against Intel in July 2007.

In addition to the Delaware case, investigations into Intel's practices are being conducted by the Federal Trade Commission and the New York Attorney General's office.

Next: Hitting Back At Critics

Otellini also was critical of some televised comments by Neelie Kroes, the European commissioner for competition policy.

"I would like to draw your attention to Intel's latest global advertising campaign, which proposes Intel as 'The sponsors of tomorrow.' Well, now they are the sponsors of the European taxpayers, I have to say," Kroes said Wednesday in the course of announcing the EC ruling against Intel.

"I don't think it's a joking matter, and I think she was making a joke," Otellini said when asked about Kroes' statement.

The EC ruling is the third major decision by a regulatory agency against Intel on antitrust grounds, following decisions by Japanese regulators in 2005 and South Korean authorities in 2007. But Otellini took on the argument that as the losses pile up for Intel, a pattern is developing.

"In Japan there was no admission of [Intel wrongdoing] and there was no fine," he said. The South Korean Fair Trade Commission did end up fining Intel $23 million in 2008, but Otellini seemed to indicate that this sum, contrasted against the much larger EC fine, was evidence that the two regulatory bodies were not on the same page in finding against Intel.

"Korea imposed a fine of $23 million dollars and Korea is not 1/1,000th the size of Europe. There seems to be no correlation between the number and the process," he said.

AMD, meanwhile, was demure in its official statement about the EC ruling, but more animated in a conversation with Channelweb.com.

A Level Playing Field

"Anything the authorities do to level the playing field, and we're not asking for an unfair advantage, is to make choice for consumers better," said Nigel Dessau, AMD's chief marketing officer. "We congratulate the EU and the commissioner for supporting the consumer and thinking about the consumer first."

Dessau, speaking to Channelweb.com Wednesday, said the size of the fine is less important to AMD than the ending of "the illegal practices by Intel."

"This is about a level playing field, one that's not controlled by a monopolistic player. Just so there is no doubt, [EU regulators] are disallowing the use of rebates whether in secret or not in secret to limit the access of competitors into the market, as well as paying retailers or paying OEMs illegally," he said.

Dessau took exception to some of the statements by Otellini in response to the ruling, particularly with regard to earlier decisions against Intel in Japan and South Korea.

"For a company that wants to have high morals, dismissing the Japanese and Korean trade commissions' findings is disingenuous. It's clear to me that either he doesn't get it or he's not remorseful or he's not willing to accept what the EU has ruled, or the Japan or Korea rulings," he said.

Dessau also addressed the argument that a major ruling against one of the world's most successful companies was not helpful for the recovery of the high-tech industry in a global recession.

"So when is it not OK to break the law? When is it unacceptable to use monopolistic powers? When the economy's doing well? Then it's OK to do it? That's a facile argument. Breaking the law is a pretty binary thing. Either you do it or you don't," he said.