European Commission could slap record fine on Intel
11 May 2009
The European Commission will decide this week on charges that Intel used unfair practices in impeding competition and harming consumers to keep Advanced Micro Devices Inc from the chip market. The penalty could be twice the sum Microsoft was fined in 2004 for abusing its monopoly in personal computer operating systems according to industry sources.
The commission's decision could lead to increased pressure on the company at a time when computer sales are declining because of the economic downturn.
Intel the world's biggest computer-chip maker, has retained its 80-per cent market share by granting rebates that make it obligatory on computer manufacturers to buy all or the majority of their chips from the company as per the charges the company faces.
The company has been entangled in the dispute with the EU for over eight years following a complaint by AMD.
Intel is also facing a related civil lawsuit filed by AMD in a Delaware Federal Court. According to lawyers, the US Federal Trade Commission investigation that will follow when the suit comes up for hearing will likely start a lengthy appeal at European courts to prevent the EU ban on take effect.
Lawyers point out that a lot of Intel's business is based on the pricing strategy that the company is presently following and the company is likely to take a very tough defence to protect its strategy. It could be a very long game they add.
The Santa Clara, California-based company has argued that it is operating in a pretty competitive industry and computer manufacturers base their buying decisions on quality and performance of available products. The company maintains that the contention that Hwelett-Packard Co was 'pressured' to use Intel processors was wrong, Intel has said in the Delaware case.
Computing the fine
The commission will follow 2006 guidelines to calculate fines and lawyers expect a record amount as penalties are based on 30 per cent of the sales of products. These yearly fines are then multiplied by the number of years the violation has occurred. The commission can also raise levies against large companies as a deterrent and failure to cooperate is also factored in.
EU challenge
Intel's bid to delay EU investigation last year by filing a lawsuit in the European Court of First Instance came a cropper in Luxembourg last year. The tribunal ruled that the company failed to demonstrate urgency and was therefore not eligible for interim relief.
The company appealed in October, arguing that the EU probe was discriminatory. It alleged that the regulators breached the company's rights by denying it access to relevant evidence. (See: European court reject Intel's plea to delay inquiry on AMD's complaints)
The Brussels-based commission charged Intel in July of offering computer sellers 'substantial rebates' not to sell machines using AMD chips (See: EU commission levels unfair competition charge on Intel). Those charges added to the initial set of accusations in 2007 that the chipmaker gave rebates and sold below-cost to manufacturers including Dell Inc and Hewlett-Packard to influence them not to use AMD chips according to Court of First Instance ruling.
Intel shares fell 3 per cent to $15.29 in Nasdaq Market trading in New York on 8 May.
Intel said on 14 April that its first-quarter profit was down 55 per cent to $647 million, or 11 cents a share, from a year earlier, on slowing computer demand. The company said that it did not expect sales to recover in the current period.