Bloomberg News

Intel Says EU Fine Based on Simplistic, Flawed Analysis

July 03, 2012

Intel Corp. (INTC:US)’s 1.06 billion-euro ($1.33 billion) fine by the European Union for using rebates to block rivals is based on an inconsistent, simplistic and error- ridden analysis, company lawyers told an EU appeals court.

The European Commission, the EU’s antitrust regulator, failed to provide the required proof to uphold its 2009 decision and ignored “potentially exculpatory” documents from a competitor and failed to record a meeting with a Dell Inc. executive, Intel lawyers said.

“Prosecutors cannot pick and choose what evidence to record and which to ignore and thereby prevent exculpatory evidence,” Nicholas Green, a lawyer for Intel, told the EU General Court in Luxembourg in its opening arguments of a hearing scheduled to last four days. “It represents a wider systemic failure by the commission” and “must lead to the decision being set aside.”

The EU probe found that Intel impeded competition by giving rebates to computer makers from 2002 until 2005 on the condition that they buy at least 95 percent of chips for personal computers from Intel. The company imposed “restrictive conditions” for the remaining 5 percent, supplied by Advanced Micro Devices Inc. (AMD:US), which struggled to overcome Intel’s hold on the market for PC processors, the EU said.

Simplistic, Static

“The commission simply has not met the burden of proof,” Green said. “The commission’s analysis is simplistic and static and fails to capture the dynamics of competition.”

At the time, had companies such as Dell and Hewlett-Packard Co. bought chips from AMD, it “would have had a threatening effect” on Intel, said Nicholas Khan, a lawyer for the commission. Intel opted to shut out AMD with the rebates “unless or until it could rise to that technological challenge,” he said.

The computer makers allegedly coaxed to avoid AMD’s chips included Acer Inc., Dell (DELL:US), Hewlett-Packard, Lenovo Group Ltd. and NEC Corp., the commission said in 2009. Intel made payments to Metro AG’s electronics retailer Media Markt on the condition that it only sell Intel-based PCs, the EU said. It ordered Intel to stop using illegal rebates to thwart competitors, an instruction that Intel complained was unclear.

Customer Loyalty

“Intel needed to increase its customers’ loyalty,” Khan said. “The industry was rife with the sort of practices which were condemned by this decision.”

The EU began investigating after AMD complained in 2000 about the rebates. Santa Clara, California-based Intel agreed to pay AMD $1.25 billion in 2009 to end all litigation by the rival.

In August 2010, Intel settled an antitrust case with the U.S. Federal Trade Commission and agreed not to give computer makers discounts or other inducements in exchange for promises they will buy chips exclusively from Intel.

Intel said in May it expects “record revenues” in 2012 with growth in the mobile-phone market adding to its 80 percent market share for PC chips.

Numerous Errors

Intel’s appeal claims there are numerous errors in the EU decision, including that it failed to include notes from a witness who was “highly likely” to provide evidence supporting Intel’s argument that its rebates to PC makers weren’t conditional on excluding AMD from the market. The company also said the EU should have sought documents from AMD in U.S. proceedings that were “potentially exculpatory” and given Intel an additional hearing to defend itself.

Intel wouldn’t have been able to get the disputed documents from AMD, because of the lawsuit between the two companies, Green said.

“One had to be in the midst of the heat of battle in Delaware to understand how hostile the litigation was,” Green said. “All the commission had to do was ask.”

The commission says Intel has no basis to claim that a 2006 meeting with a Dell executive was crucial to its case.

“Intel repeatedly accuses the commission of speculation, but the greater speculation comes from Intel,” said Khan. It was “highly unlikely” that the Dell meeting would have supplied evidence to help Intel, because the same executive also gave evidence over several days in a U.S. lawsuit.

Not Adduced

“Yet we’re led to believe in a meeting with the commission he disclosed something that wasn’t adduced” in discussions in other jurisdictions and in follow-up documents, Khan said.

The competition ruling has already been criticized by the EU’s own ombudsman, who said in 2009 that the antitrust agency was guilty of “maladministration” for failing to record notes of a meeting with Round Rock, Texas-based Dell. The report wasn’t binding on the commission, which disagreed on the need for formal minutes.

The antitrust fine was the EU’s biggest, more than double the 497 million-euro penalty against Microsoft Corp. (MSFT:US) in 2004. It represented about 4 percent of Intel’s $37.6 billion in sales (INTC:US) in 2008, below the maximum penalty of 10 percent of annual sales regulators can impose.

Sunnyvale, California-based AMD, which initiated the EU antitrust case, is no longer involved in the case and won’t intervene at this week’s hearing after settling with Intel, according to court records.

The case is T-286/09 Intel Corp. v. Commission.

To contact the reporters on this story: Aoife White in Luxembourg at awhite62@bloomberg.net and; Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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Companies Mentioned

  • INTC
    (Intel Corp)
    • $34.82 USD
    • -0.35
    • -1.01%
  • AMD
    (Advanced Micro Devices Inc)
    • $3.81 USD
    • -0.07
    • -1.84%
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