Europe to Nail Intel on Antitrust

The EU could fine the U.S. chipmaker more than $1.36 billion for allegedly anticompetitive moves against AMD that limited choice in PCs

By Andy Reinhardt

Things are heating up in Brussels for the world's largest chipmaker, U.S.-based Intel (INTC). In a case with far-reaching implications for the technology sector and global antitrust enforcement, the European Union's top brass will probably decide on May 13 to find the dominant maker of computer processors guilty of violating EU monopoly rules. The penalty could include a large fine in excess of €1 billion ($1.36 billion) and restrictions placed on Intel's marketing practices. Spokespeople for both the European Commission and Intel declined to comment on the case or the news reports leaking out about it.

The long-running antitrust case, first launched in 2000 at the request of semiconductor rival Advanced Micro Devices (AMD), hinges on Intel's use of rebates to computer makers and retailers to encourage the purchase of its microprocessors or PCs containing them. While it's perfectly legal for companies to offer sales incentives, the law takes a more jaundiced view of rebates offered by companies with dominant market positions, because the payments may serve to lock in a monopoly. Intel currently enjoys nearly 80% global market share in PC processors. EU law also forbids companies from selling products at below cost to exclude competitors, which AMD claims Intel did in some cases.

In its original complaint to the EU's Competition Directorate—then headed by Italian academic Mario Monti and now led by Dutch businesswoman Neelie Kroes—AMD alleged that Intel's rebates (also known as the "Intel Inside" program) were anticompetitive because they encouraged PC makers to buy Intel chips instead of AMD's. The case was expanded in 2008 to encompass PC retailers, after AMD claimed that Germany's Media Markt and others had been paid by Intel not to stock PCs built on AMD processors.

Confiscatory Fines

Although the size of the potential penalty hasn't yet been announced, it could top €1 billion, based on a 2006 formula that fines companies up to 30% of their revenue from allegedly infringing practices, multiplied by the number of years the violation occurred. The maximum amount the EU could fine Intel is 10% of its total annual revenues, which were $37.6 billion last year.

It's unlikely, though, that the Commission would order a penalty as large as $3.8 billion. Its largest-ever fine to date was the €497 million ($675 million at current exchange rates) it ordered Microsoft (MSFT) to pay in 2004 after finding the software company's business practices violated European antitrust laws. That fine eventually grew to $1.16 billion last year after the Commission accused Microsoft of noncompliance with its executive order.

The big question, of course, is what this could mean for Intel and other antitrust authorities in the future. Intel, which will undoubtedly appeal the expected ruling, argues strenuously that its rebate program is legal and helps consumers by lowering prices for computers. But one of the key differences in European and American antitrust law is that while both examine the competitive impact of company behavior on consumers, Europe also considers its impact—real or potential—on rivals.

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