EC: Intel 'abused dominant position' vs AMD; fined record $1.45 billion in antitrust case

EC: Intel 'abused dominant position' vs AMD; fined record $1.45 billion in antitrust case

Summary: The European Commission on Wednesday fined Intel a record €1.06 billion, or about $1.446 billion, for abusing its dominance in the computer chips market to exclude longtime rival AMD. The move comes just a day after Intel CEO Paul Otellini was reported to say that chip orders for Q2 2009 have been "a little better than we expected" and refused to comment on the antitrust case.

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The European Commission on Wednesday fined Intel a record €1.06 billion, or about $1.446 billion, for abusing its dominance in the computer chip market to exclude longtime rival AMD. (techmeme)

The move comes just a day after Intel CEO Paul Otellini was reported to say that chip orders for Q2 2009 have been "a little better than we expected" and refused to comment on the antitrust case.

The E.U. competition commissioner, Neelie Kroes, said the penalty against the world's largest chip maker was justified because the company had skewed competition and robbed consumers of choice.

Kroes said Intel "used illegal anticompetitive practices to exclude its only competitor and reduce consumers' choice — and the whole story is about consumers," adding that Intel's practices "undermined innovation."

From her remarks at the press conference:

"The Commission Decision contains evidence that Intel went to great lengths to cover-up many of its anti-competitive actions. Many of the conditions mentioned above were not to be found in Intel’s official contracts. However, the Commission was able to gather a broad range of evidence demonstrating Intel's illegal conduct through statements from companies, on-site inspections, and formal requests for information."

UPDATE: In a response, Intel CEO Paul Otellini had this to say:

"Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace – characterized by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers. Intel will appeal."

"We do not believe our practices violated European law. The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not. The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision. We believe this evidence shows that when companies perform well the market rewards them, when they don't perform the market acts accordingly."

"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, passing along to consumers everywhere the efficiencies of being the world's leading volume manufacturer of microprocessors."

UPDATE 2: AMD executive vice president for legal affairs Tom McCoy had this to say in the company's official statement:

"After an exhaustive investigation, the EU came to one conclusion – Intel broke the law and consumers were hurt. With this ruling, the industry will benefit from an end to Intel's monopoly-inflated pricing and European consumers will enjoy greater choice, value and innovation."

UPDATE 3: More from AMD, this time from CMO Nigel Dessau: "I think [Otellini] doesn’t get, or has no remorse about, what they’ve been doing: disrespecting the consumer." More here.

The previous record fine for similar abuses in the EU was €497 million, or about $677 million, levied at -- you guessed it -- Microsoft in March 2004 for blocking competition in markets for server computers and media software.

ZDNet UK: Intel hit with record €1bn EU antitrust fine

EC statement and remarks

Intel response

AMD statement

(The fine also is the largest ever imposed for any breach of competition law in the E.U.)

Focus on rebates

Kroes said Intel had pursued a strategy aimed mainly at excluding AMD by paying computer makers and retailers to postpone, cancel or avoid AMD products entirely.

Kroes ordered Intel to cease offering rebates to computer makers that had helped it "maintain a share of about 80 percent of the market for microchip sales and blocked AMD from increasing its share beyond about 20 percent of that market," according to the New York Times.

Giuliano Meroni, the president of AMD's operations in Europe, said the decision would "shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers."

Intel had no immediate comment, but it's safe to expect the company to appeal the fine and orders to change its practices.

Under the order, Intel must change its business practices immediately pending its appeal, but could request an injunction in the meantime. Intel must pay the fine immediately, though the sum will be held in a bank account until the appeals process is over, a process that could take years.

You might say Intel got off easy: the commission is entitled to levy fines up to 10 percent of a company's annual global sales; Intel's annual sales were $37.6 billion in 2008, thus making the maximum penalty nearly $4 billion.

Money collected in antitrust cases is added to the trade bloc’s annual budget of roughly €130 billion, or about $177 billion USD.

Just last year, the U.S. Federal Trade Commission stepped up its inquiries into Intel, opening a formal investigation.

E.U. regulators first began investigating Intel in 2001 after AMD filed a complaint the year before with the E.U. authority in Brussels. In two sets of charges in 2007 and 2008, the commission accused Intel of similar tactics: by abusing its dominant position in computer chips by giving large rebates to computer makers, by paying computer makers to delay or cancel product lines and by offering chips for powerful server computers at prices below actual cost.

The commission also charged the firm with paying retailers not to sell personal computers using AMD chips.

Intel has maintained that it has done nothing wrong and has suggested that E.U. officials have not provided Intel with proper rights of defense during the investigation.

The EC has ongoing inquiries into other U.S. companies, including Rambus, which holds patents on memory chips, and Qualcomm, which develops wireless technology for phones. Regulators are also questioning Cisco Systems, the world's largest maker of networking equipment, about whether it restricts competition for network maintenance services.

Topics: Enterprise Software, CXO, Hardware, Intel, Security

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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354 comments
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  • Nobody was fining AMD a couple years ago

    When they were kicking Intel's butt
    this is completely ridiculous
    zmud
    • Major Difference

      And how much market share did AMD take back then? Any? If they did, have they kept it? You don't seem to understand the full pissues here.
      Rick_S1
      • You have to be kidding

        Now I cannot say I have the first clue how much market share increase AMD captured a couple of years back when they were producing chips superior to what Intel was offering at the time, but from the claims I seen being made back then it was obvious that from the perspective of almost every AMD enthusiast who was offering up comments about the situation that they were convinced that not only was AMD gaining mountains of market share, some were even claiming that AMD would eventually drag Intel into bankruptcy if Intel didn't pick up its socks and produce something worthwhile.

        Even when the Conroe was just starting to come out there were still those die-hard AMD fans who predicted Intel was going to teeter off the brink because they had put all their money into developing the Conroe chip and it would never measure up and it could finish Intel against AMD's far superior chips.

        http://blogs.zdnet.com/Foremski/?p=118

        Poster sharikou was (and still is) more than a little far out there in his appreciation of AMD, but he certainly made a lot of posts at the time claiming to know all about how AMD and Intel was doing and that Intel was in big trouble.

        Even as reports of the Conroes great performance came rolling in from bloggers, the AMD fanatics just didn't see anything good coming for Intel. They just turned a blind eye and mostly predicted the Conroe as "vaporware" or simple flop that would end up wrecking Intel.

        http://blogs.zdnet.com/Ou/?p=170

        http://blogs.zdnet.com/Ou/?p=240

        Now here we are, all this time later and the AMD fanatics who absolutely swore that Intel was all but finished are now crying a river and still refuse to eat a single one of their words about Intel spiraling into oblivion.

        It is so typical of the fanatic type crowd around here, as soon as anyone blogs or posts that a competing product looks like its doing something good, the fanatics jump in with both feet making stupid outrageous claims against that competition forgetting that the internet holds onto their B.S. commentary plenty long enough to show the world how full of crap they really were.

        So here we sit, Intel so far from bankruptcy that they are getting fined for being so profitable. In the end, no company should be getting into anti competition practices, its just plain wrong and if thats what Intel did, they were wrong. But lets not try and pretend it lead to stifled innovation, just look back to 2006, the AMD fans all felt AMD was so innovative that nothing Intel could do would stop them.
        Cayble
        • You miss the point

          No one is fining Intel for making profit, but for making them on the back of under the table, low life, antitrust dealings.
          pwoff
          • He didn't miss the point...

            The person he was responding to made a completely ludicrous argument. It had nothing to do with why intel was fined, he was just pointing out that the person had a completely flawed view of the situation.
            Spiritusindomit
        • It would seem that Intel was acting like

          it was going under. Why else would they use underhanded practices, like limiting the amount of AMD chips a builder could use. That is different than making a better chip to get the sales.

          AMD lost enough momentum because of those practices, that their R&D suffered, the consumer lost because AMD didn't keep up the pressure on Intel.

          Before the Athlon Chip came out, Intel had such a lead in chip technology, they slowed down the whole industry. Their chips were way overpriced, they didn't keep it moving at a reasonable pace. When AMD brought the Athlon chip out 10 years ago, the prices dropped fast. The other gain was that processor speed gain increasingly.

          Can you not see the advantage to the consumer? Why would you not want the level playing field? Is your income based on how Intel does?
          mjolnar
        • I think you missed the point

          Not saying the EU was right but this has nothing to do with superior products or market share. Obviously, the better product should get the lions share of the market. That's not anticompetitive. What they were accused of is bribing and/or forcing their way into the market. It's perfectly legal to make a better product and therefore, end up with 100% of a manufacturer's business. It is not legal to pay a manufacturer not to use a competitors product or threaten them if they do.
          Intel has a better product at the moment and really doesn't need to do this anymore. Back when AMD was making a better product, these illegal practices were the only way to retain market share.
          20kwfence
        • Wrong! AMD's performance edge had little market impact.

          The reason why is Intel's anti-competitive behavior. Intel never dropped below 70%.

          The fact is that Intel never came close to bankruptcy or falling out of the market because they had so much of the industry securely in their pocket. Even when AMD chips beat Intel in every metric you still couldn't get them because people would only sell Intel chips for the fear of losing their Intel deal.
          T1Oracle
    • Why is Intel so frieghtened of AMD?

      Why was Intel so frightened of a tiny company with a fraction of their market share that they actually paid retailers not to sell products with AMD parts in them?

      Intel brings a Chevy Corvette to the race, but they still paid some idiot to pour sugar into the tank of AMD's VW Bug - it's the competitive spirit run amok.

      If Intel just competes on the basis of their products alone (which are excellent) they will easily retain their dominant market position. There is simply no reason to pay retailers and manufacturers to scuttle AMD. Shame on you Intel (although I still love your CPUs).
      WiredGuy
      • Because the availability of a suitable competitor

        means they can't again take the short cuts they took with the original Pentium chip and sell a product with a very minor fault. With AMD around, another gaff like that will see all the big PC makers switch to AMD, not AMD and they have to stay with Intel while they fix their mistakes.
        Deadly Ernest
      • Why is Intel so Frightened of AMD?

        If person really dived into the difference of the two companies, with a non-biased approach, they would see the difference in the two as way of true mission and vision. Back before I new much about either company, I had to write a paper about the two companies. What I found was and is the difference in my mind. AMD would not put out a product until they new it was as perfect as it could be. Where as Intel would release a product with known flaws, with the thought that they will fix it later--after customers complained enough.

        Intel then focused on aggressive marketing and promotions, to overcome the quality issue. The promotions apparently also included bribing PC manufacturers to inhibit the sale of AMD products, only this time they got caught. If Intel's chips are superior to AMD, let it compete directly without underhanded marketing schemes. This is not the first time Intel was hit with breaches of anti trust litigation, if you go back over the years you will see several allegations and court hearings on the subject (public record). I like AMD not because it is necessarily the fastest processor, but the fact that the company has the consumer's interest in mind when they design and create a microchip. When AMD decides like Intel did to only worry about the bottom line, forgetting about the consumers, they should be reprimanded as Intel is now. Point is: deceptive business practices hurt everyone, but should hurt the business responsible for them.
        rcbarr83
    • AMD never had dominace, never even led Intel

      It had a very small lead in "retail" CPU sales for a time but even at that time Intel held a substantial overall lead, thanks probably to the Dell exclusive (Dell is a direct, not retail sale, a very confusing distinction as it has skewed many a comparison). Even if AMD HAD gained market dominance you would have to show they gained it by illegal means. At that time AMD was the clear performance and value king and still somehow Intel was winning.
      eggmanbubbagee
      • RE: AMD never had dominace, never even led Intel

        You obviously don't know your history.
        The first time AMD publicly made a fool out of Intel was in the 90's when an Intel engineer proclaimed that the 368DX cpu had maxed out and could never exceed 33mhz within days AMD released a 386DX40 making Intel look like idiots. The AMD 386DX40 went on to be one of the most popular CPUs of its time.

        AMD and Intel have been playing leapfrog for years.
        blaze1024
        • show me

          give me a link of any sort that shows AMD outselling Intel on CPUs for any year (all sales, not retail).

          I'm not talking about performance and neither was the OP. We all know AMD took the performance lead from time to time.
          eggmanbubbagee
          • I know kungfu

            You'll notice that the fine was decided due to the innovation stifling that Intel's wrong practices caused:

            - the 386DX40 didn't ship much; it was, however, more powerful than anything Intel had in shop at the time, and didn't cost more than Intel's top processor. Why? In a normal market, the 386DX should have been all the hype, yet only a few left OEM shops...

            - the DX4/120 was cheaper and more powerful than Intel's Pentium 75. And yet, all you could find were 'Intel Inside' boxes.

            - the AMD K6 ran any PC faster than any Intel processor of the time for the same frequency, while costing less; floating point performance was on par with slightly lower clocked Intel processors, but for the same price (and on identical platform), an AMD processor would beat an Intel one black and blue without fail. Why weren't more AMD systems available?

            - the AMD K7 was more powerful than ANY chip Intel proposed at the time: more powerful in 16-bit, 32-bit, floating point and MMX computation clock for clock, and much cheaper. However, motherboard makers didn't dare sell compatible motherboards (one of the discoveries at the time was that Intel threatened chipset makers to withdraw x86 licenses if they made K7-compatible chipsets). So, while AMD filled up its inventories with chips, they had to rush and develop an adequate chipset for it, that hardly any mobo maker wanted due to pressure from Intel (Asus made unbranded mobos for K7 and sold them through a third-party retailer in Taiwan, yay). during that time, Intel sold the Pentium 4: an expensive power guzzler that sucked performance-wise (an Athlon 2600+, clocked at 1,8GHz, smoked a P4 2.8 GHz while costing less and using up half the power). Why didn't AMD sell more? If Japan is any indication, AMD-equipped laptop shipments stopped altogether in 1999, although Intel and AMD CPUs were priced competitively and AMD was nearing 30% market share. Investigations showed that Intel paid laptop makers a handsome bonus if they didn't include AMD chips in their inventories.

            - the K8 smoked Intel's processors across the range from the day they were started (2003) until Intel managed to pull out the Core 2 in 2006. However, during that time, AMD hardly gained market share - eventhough innovations such as native dual core, integrated memory controller, and 64-bit were theirs. Investigations showed other dubious practices from Intel to OEMs.

            - recently, Intel tried to rescind AMD's license to x86 technology because AMD shipped processors containing an embedded memory controller (which AMD had developed for the Athlon64 in 2003, and Intel started using in 2008 after saying for years that it was useless). AMD attacked back, saying that since Intel chips used their (AMD) 64-bit instruction set, then Intel had to stop shipping Core 2 and Core i7, as they actually were in a cross-licensing agreement: while Intel has AMD by the throat, AMD has a good grasp on Intel's jewels.

            So, AMD didn't merely leapfrog Intel once in a while, it did beat it soundly on several technical challenges and lead the race for years. Why didn't they get more market share? With such a technological lead, why did they hit a ceiling at 20% overall shipments? Why were there such strong drops in market shares from AMD at times when Intel didn't produce anything better (I'm not speaking about Core2's arrival, which was indeed better than AMD's product)?

            Thus, the long investigation, and the fine - and don't get started on "EU vs. US", since AMD is also a US company! EU could have cared less.
            Mitch 74
          • k6 floating point sucked, at least in Quake

            I know, I had one. K62 with 3d now! improved the situation. Quake ran like CRAP on a k6. You were better off with a Pentium MMX.

            Anyway, if you bothered to read the post which you obviously did not, you would see the point was about AMD taking the SALES lead, not the performance lead.
            eggmanbubbagee
          • Kung fu, Schmung fu...

            You asked a rather valid question, but failed to answer it. Despite any threats that Intel may have issued to various chipset manufacturer's or to PC makers, AMD's offerings continued for a rather long time to require unique patches for various pieces of software, and early on, it was the game software that was most commonly affected.

            With that kind of problem being so common, and so long-lasting, how anyone could expect AMD to have done as well as they have for any reason OTHER than price is ludicrous. Even today, there exists software for which there is a different version that will run on an AMD processor than on an Intel.

            If I were in a position to do something, I'd take that $1.446 BILLION USD and establish a consumer PC standards board, and create the facilities necessary to test ANY cpu coming from ANY manufacturer, and ensure that it is pin for pin 100% compatible with the published standard. That way, there would no longer need to be ANY differences in a motherboard just because the CPU comes from AMD vs Intel or vice versa. The consumer IS suffering from that fact alone. Until the cpus are all executing the exact same instruction set, and the only variables are clock speed and net performance. That still leaves the motherboard manufacturers freedom to innovate, as all one need do is look at Asus vs almost any other motherboard manufacturer, and there's clearly a difference in features/functions.

            Unfortunately, I'm not in a position to do anything more than express my discontent that this settlement only funds further investigations. In general, law enforcement is soemething that tax revenue is supposed to take care of. I've never cared much for the EU anyway, as I disagree with it's very existence, as the Euro could exist with it or without it and nothing would be different.
            sgmunson
          • The Intel PLATFORM was better, more ad $ too

            Once the chips went their seperate ways requering different motherboards and chipsets there was a period where you had to use patches to get the AMD system up to speed and there were various incompatibility issues - not a lot, but enough, and more than enough to create critical FUD. If you went into a computer shop and asked for AMD they would frown at you and in general customers demanded Intel. Yes, on enthusiast sites you could learn that AMD was good or better but this info never got widely accepted - that takes time, a LOT of time. Intel still had the reputation and the advertising muscle and it seemed to be this more than anything which was winning the game.

            When AMD clealry passed Intel through the p4 years and virtually ended compatibility fears AMD did in fact finally reach widespread acceptance and for a while it was the leading CPU seller at retail (not including direct sales).

            What stopped THAT momentum? The core 2 duo's massive performance victory, pure and simple. Even enthusiasts who HATED Intel and LOVED AMD came around fairly quickly.

            Yes. Intel may have used strongarm tactics but these tactics DO NOT explain Intel dominace.
            eggmanbubbagee
          • RE: Kung fu, Schmung fu...

            I have a problem with the overuse of standards. If things are standardized too much it stiffles inovation. Perhaps a better bus methode could develope from one motherboad vs another. However if a product is labeld as meeting a standard than of couse it should in every respect.
            Col Mustard
          • it does however, explain AMD nearly being bankrupt

            If Intel competed fairly AMD would have earned the revenue necessary to support competitive R&D. Now we are risking the possibility of AMD falling out of the market eliminating any chance of Intel competition or market choice.
            T1Oracle