The business world knew it was coming, but it still resounded loudly when the European Commission, in a bid to provide computer buyers with more choice, fined US computer chip maker Intel a record 1.06 billion Euro (USD 1.45 billion) for bribing retailers and manufacturers to shut its main rival out of the market. Intel “used illegal anti-competitive practices to exclude essentially its only competitor, and thus reduce consumer choice, in the worldwide market for x86 chips” between 2002 and 2007, EU Competition Commissioner Neelie Kroes said as she presented the findings of a lengthy anti-trust investigation.

Intel denied all charges and announced that it would challenge the fine in the European Court, setting the scene for a potentially marathon legal battle, unlike the previous record fine the EU slapped on American computer giant Microsoft, which ultimately decided to pay. “There has been absolutely zero harm to consumers. Intel will appeal,” Intel chief executive officer Paul Otellini said in a statement from the company’s headquarters in Santa Clara, California. The Commission began probing Intel, the world’s biggest chip maker, in 2001, acting on complaints filed by rival Advanced Micro Devices (AMD.)

The investigation, which included raids on Intel’s European base in southern Germany, revealed that the firm had moved to exclude AMD by offering computer manufacturers Acer, Dell, Hewlett-Packard, Lenovo and NEC generous rebates, on condition that they only use its products. It also paid manufacturers to delay the launch of products containing AMDchips and bribed major retailers, such as Germany’s Media Markt, to stop selling rival computers, the commission said. The penalty imposed on Intel is the largest single fine ever imposed by the EU on a private company for anti-competitive practices, smashing the previous record of 899 million Euro levied on US software giant Microsoft in February 2008.

US BLASTS BACK

The US Chamber of Commerce, which represents more than three million businesses in the United States, called the penalty part of a “larger, troubling pattern” and criticised the EU for not giving Intel enough chance to defend itself. Other critics of the EU have said it is trying to stifle the entrepreneurial leadership of American companies and force them to virtually give away their intellectual property to European competitors who can’t keep pace. “Fines by the Commission have escalated in size in recent years, raising serious concerns about due process and the method for determining these huge fines,” said Myron Brilliant, the chamber’s vice president for international affairs.

However, it is less than a third of the maximum fine the EU could have imposed, based on a figure of 10 percent of the company’s annual turnover, a figure that could break a company and put it out of business. “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,” Kroes said. Otellini insisted that the EU’s punishment was “wrong” and “ignores the reality of a highly competitive microprocessor marketplace.”

And Intel’s top lawyer, Bruce Sewell, told journalists in Brussels that the company’s incentives had been “matched by AMD at various times in the past.” He also argued that “regulations should not prevent one company, no matter how large that company is, from offering discounts or providing incentives.” Commission officials rejected this view, noting that while incentives can indeed lead to lower prices for consumers, “rebates that are conditional on buying less of a rival’s products, or not buying them at all, are abusive.” Kroes said Intel must “cease the illegal practices immediately” and accused the company of going “to great lengths to cover up many of its anti-competitive actions.” Intel will now be ordered to deposit the fine into a blocked account until the legal process is completed. The commission, meanwhile, will monitor Intel to make sure it does not keep breaking EU competition rules. “We are confident that the decision will stand up in court,” Kroes’ spokesman Jonathan Todd told the German Press Agency Deutsche- Presse-Agentur (dpa).

JOY IN EU

The decision was welcomed by consumer groups, with the European Consumers’ Organisation saying buyers had been paying “too much for their computers because of Intel’s anti-competitive practices.” In a statement, AMD said it expected the EU decision to “shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers,” although there is speculation the action may come too late to save AMD, which has been waiting two years for the EU to do something. Intel is the world’s largest chip maker by sales, with annual revenue totaling UJSD 37.6 billion in 2008 and has a commanding share of use in computers. AMD had argued that it had developed superior products in some cases that were shunted aside by unfair practices.

Intel has already been found guilty of abusing its dominant market position by regulators in Japan and South Korea. In its ruling, the EU said that Intel the firm had bribed computer makers and retailers to shut its rival out of the market and sold them its chips at below cost prices, an argument Intel rejected and steadfastly said it would fight. “Intel never sells products below cost. We have however, consistently invested in innovation, in manufacturing and in developing leadership technology.

The result is that we can discount our products to compete in a highly competitive marketplace,” Otellini said. During the course of its probe, the commission alleged that Intel had provided “substantial rebates” to leading European personal computer retailers to sell only Intel-based PCs, and that it had bribed manufacturers to delay the launch of products using AMD chips. EU inspectors carried out surprise raids at Intel offices in Germany and at retailers in Britain and Germany in February 2008 as part of the probe.