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Intel Fined 1.45 Billion Euros

May 14, 2009

Intel Corp. was commanded to pay a record $1.45 billion by the European Union on Wednesday for employing harsh sales tactics, a punishment that may increase the pressure on U.S. regulators to reprimand the company, also.

The fine is a gigantic victory for Intel’s rival, Advanced Micro Devices Inc., the No. 2 contractor of microprocessors to PC makers. AMD has sued Intel and insisted to regulators worldwide for the past five years that Intel was punishing PC makers in the U.S. and abroad for having business with AMD.

Even though the U.S. Federal Trade Commission is looking into the situation, AMD has found help in Europe.

EU Competition Commissioner Neelie Kroes stated that Intel has damaged millions of European clients by “deliberately acting to keep competitors out of the market.”

“Intel did not compete fairly, frustrating innovation and reducing consumer welfare in the process,” she said.

The commission informed Intel to without delay halt several sales practices in Europe. Intel is “mystified” about what practices they mean, but will obey as they appeal the fine. The company also insisted that its practices are legitimate.

“This is really just a matter of competition at work, which is something I think we all want to see, versus something nefarious,” Intel CEO Paul Otellini said in a conference call.

However, AMD Chief Executive Dirk Meyer feels the fine was “an important step toward establishing a truly competitive market. We are looking forward to the move from a world in which Intel ruled, to one which is ruled by customers.”

The largest fine levied by the European Union for poor behavior was only $1.3 billion, charged against Microsoft Corp. in 2008.
It is uncertain if the U.S. is going to fine Intel at all. However, the EU’s fine might force the issue into the limelight.

“If there was ever a time not to appear to be a large firm behaving badly, this would be it, as the financial collapse has the U.S. and EU competing for which government is the most proactively protecting consumer rights,” said Rob Enderle, a technology analyst. “This judgment makes Intel the ball in what is likely an international game of one-upmanship.”

The Federal Trade Commission’s inquiry of Intel may result in court action to force Intel to change its practices. Stephen Kinsella, a European antitrust lawyer, warned that Europe is aggressive with antitrust enforcement and the U.S. may be more lenient.

The EU fine is “hugely significant because it’s Intel, and the amounts at stake are enormous,” Kinsella said to AP News. But “it is known that the commission takes a very hard line on this type of behavior.”

The fine unveils an ugly fraction of the microprocessor race.

Unlike other areas of the PC industry, microprocessors only come from two companies. Intel has cornered 80%, and AMD has the rest. The European Commission claims that Intel unlawfully damaged AMD’s name with computer makers Acer, Dell, Hewlett-Packard, Lenovo and NEC.

In AMD’s U.S. lawsuit filed against Intel, executives from Gateway protested that Intel’s threats of retribution for doing business with AMD thrashed them “into guacamole.” The lawsuit also quotes Toshiba officials stating that Intel’s financial enticements included “cocaine.”

The chip makers also try to convince stores to sell PCs equipped with their processors, and offer money for their promotion. EU regulators stated that Intel paid a German store to only sell Intel-based computers at its MediaMarkt superstores.

Kinsella said “loyalty rebate” programs are normal, but are an issue when huge companies employ them.

Kinsella said the allegation of Intel insisting companies specifically not to stock AMD’s products is unique.

“If that’s true,” he said, “that would be pretty far out there in terms of examples of abuse.”

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