Intel Corp, accused by the European Union(EU) of giving computer sellers rebates to exclude a rival’s chips, may be ordered to stop the discounts and pay a record antitrust fine of more than ¤1 billion ($1.36 billion).
The European Commission will rule this week on charges that Intel impeded competition and harmed consumers by muscling out Advanced Micro Devices Inc from the chip market. The penalty could double the record ¤497 million fine against Microsoft Corp in 2004 for abusing its monopoly in personal computer operating systems, said Thomas Graf, an antitrust lawyer at Cleary, Gottlieb, Steen & Hamilton LLP in Brussels.
“There is a good chance that there could be a record fine for an abuse of dominance case, and that it could exceed the fine against Microsoft,” Graf said.
The commission decision may increase pressure on Intel as computer sales decline because of the economic downturn. Intel the world’s biggest computer-chip maker, has kept its market share at about 80 per cent by granting rebates that are conditional on computer makers buying all or the majority of their chips from the company, the commission has charged.
Intel has been entangled in the dispute with the EU for more than eight years following a complaint by AMD. Intel, facing a related civil lawsuit filed by AMD in federal court in Delaware and an investigation by the US Federal Trade Commission for alleged unfair business practices, is likely to start a lengthy appeal at European courts to prevent the EU ban on rebates from taking effect, lawyers said.
“A lot of their business is based on this pricing strategy,” said David Anderson, an antitrust partner at Berwin Leighton Paisner LLP in Brussels. “If you’re defending your strategy, you’re defending something that’s pretty valuable. They’re taking a staunch defense and they are playing the long game.”
Santa Clara, California-based Intel has argued that it’s operating fairly in a competitive industry. Computer makers’ choice of its chips is based on quality and performance, Intel has said. AMD’s contention that Hewlett-Packard Co was “pressured” to use Intel processors is wring, Intel said in the Delaware case.
Robert Manetta, an Intel spokesman in London, said the company’s business practices are “legal, pro-competitive and good for consumers. Jonathan Todd, a commission spokesman, had no comment.
The commission uses 2006 guidelines to calculate fines. Lawyers expect a record amount because penalties are based on 30 per cent of the sales of products and are then multiplied by the number of years the violation occurred. The commission can raise levies against large companies as a deterrent. Failure to cooperate with investigators is also considered.
Intel’s European sales were $7.1 billion last year, meaning the potential starting amount is $2.1 billion. That amount would be then multiplied by years of the violation.
“We have new fining guidelines and the identified infringement has a fairly long duration,” Cleary Gottlieb’s Graf said. Intel has substantial sales “in the affected market and there have been reported tensions between Intel and the commission, which may render the commission less lenient.”
Intel had $7.8 billion in cash and short-term investments as of March 28, the company said April 14.
Intel lost a bid to delay the EU investigation last year by filing a lawsuit at the European Court of First Instance in Luxembourg. The tribunal said the company failed to demonstrate enough “urgency” to qualify for interim relief. Intel sued in October, arguing that the EU probe is discriminatory and that regulators breached the company’s rights by denying it access to relevant evidence.
The Brussels-based commission accused Intel in July of giving computer sellers “substantial rebates” not to sell machines using Sunnyvale, California-based AMD’s chips. Those charges followed an initial set of accusations in 2007 that Intel gave rebates and made below-cost sales to manufacturers, including Dell Inc and Hewlett-Packard, to coax them not to use AMD’s chips, according to the Court of First Instance ruling.
Intel fell 48 cents, or 3 per cent, to $15.29 in Nasdaq Stock Market trading in New York on May 8.
Intel said on April 14 that first-quarter profit fell 55 per cent to $647 million, or 11 cents a share, from a year earlier, because of slowing computer demand. The company signaled that sales won’t recover in the current period.
