The Business of Tech: Intel Gets Fined For Antitrust Violations

There are some records you just don't want to set - the EU record for a single fine is one of them.

In our previous business articles we've discussed Intel's legal situation in the European Union. In 2001 AMD went to the EU to file complaints about Intel over anti-competitive actions. This perked the interest of the EU and set into motion a long and slow chain of events, leading up to antitrust charges being filed in 2007 for Intel's actions in the 2002-2007 time frame. In terms of technology, what was being considered were Intel's actions during the late Athlon XP era and most of the Athlon64 era.

After quite some time, the investigation has wrapped up and the European Commission has made it's ruling: Intel has been found guilty of violating EU antitrust laws, and has been fined €1.06bil ($1.45bil) for past actions and ordered to stop any ongoing anti-competitive practices. This gives Intel the unsavory position of the single largest fine in the history of the EU, surpassing Microsoft’s previously lofty fine of nearly €500mil in 2004.

The European Commission has a complete press release up on the charges, but they specifically boil down to two things: Intel was giving OEMs rebates if and only if they sold few-to-no AMD processors, and Intel was paying retailers not to carry computers with AMD processors. The report doesn’t list the specific OEMs, but we know it was NEC, Lenovo (and for some of the time, IBM), HP, Dell, and Acer. The retailer was Media Markt.

Intel has already said that they are going to appeal the fine, and that it “ignores the reality of a highly competitive microprocessor market.” Notably, they aren’t appealing the facts, but rather the conclusion (that it was harmful to consumers) and the fine. It’s likely that any appeal will take just as long as the initial examination, so it’s unlikely that this will be over before 2011, if not later.

As Intel does not talk about their pricing and marketing strategies publicly, there’s no way to know if the order to cease ongoing activities will have any effect. If Intel is still offering any EU OEMs rebates, then they would need to immediately stop. Since the immediate impact of the rebates to OEMs would have been to depress computer prices slightly (at least some of the rebate money would likely have been passed to consumers in pricing due to heavy competition) we’re not ready to throw out the idea that this may drive computer prices in the EU a bit higher if Intel has been continuing to offer rebates.

Meanwhile the fine, while the EU’s largest, is not abnormally large given Intel’s size and that the fine is only computed against Intel’s EU sales. Their net profit for their terrible Q1’09 was $630mil, so while it’s a stiff fine, it’s not one that Intel would be unable to pay off (although it certainly will turn some heads in the process). The fine goes directly to the EU, so AMD will not immediately benefit from this beyond the cessation of any ongoing illegal activities.

It should also be noted that Intel has been facing an investigation in the United States since 2008. While EU decisions are non-binding, this may be an indication of how that investigation will turn out. We’ll undoubtedly have more on that investigation in the coming months as it continues to move along.