EC reveals details of Intel antitrust breaches

The EC releases evidence that allegedly shows how the chipmaker used rebates and direct payments to dissuade PC manufacturers from using AMD products.
Written by David Meyer, Contributor
The European Commission has released the evidence it gathered in its antitrust case against Intel, showing how the chipmaker used rebates and direct payments to dissuade PC manufacturers from using AMD products.

The EU's Competition Commission levied a €1.06bn (£959m) ($1.56bn - based on Monday's exchange rate) fine on Intel in May, after finding the company had given rebates to PC manufacturers and a European retail giant on condition they only or mostly sold Intel processors, rather than chips from rival AMD.

The regulators also found that Intel had made direct payments to manufacturers to delay or cancel their launch of systems using AMD chips. By engaging in these practices, the chipmaker broke EC Treaty antitrust rules, the commission decided.

The European Commission's full 518-page decision, published on Monday, includes evidence it gathered against Intel using unannounced on-site inspections, formal requests for information and submissions by other companies involved in the case.

"The evidence in the decision indicates the growing threat that AMD's products represented to Intel, and that Intel's customers were actively considering switching part of their x86 CPU supplies to AMD," the Commission said in a statement.

The decision quotes an October 2004 email from a Dell executive to Intel, which stated: "AMD is a great threat to our business. Intel is increasingly uncompetitive to AMD, which results in Dell being uncompetitive to [Dell competitors]. We have slower, hotter products that cost more across the board in the enterprise with no hope of closing the performance gap for one to two years."

Intel used illegal practices with Dell, according to the Commission. Between December 2002 and December 2005, Intel gave Dell conditional rebates based on the company buying only Intel CPUs. The evidence for this includes an internal Dell presentation in February 2003, which noted that if the PC manufacturer bought AMD processors, it could result in "severe and prolonged [retaliation] with impact to all LOBs [lines of business]".

In addition, an internal Dell email from February 2004 warned that selling AMD-based systems would result in Intel withholding its rebate for at least one quarter.

With HP, Intel gave rebates based on the PC maker buying at least 95 percent of its CPUs from the chipmaker, an arrangement that lasted from November 2002 to May 2005, the Commission found. In an internal email from July 2002, HP urged discretion over the terms of the deal, stating: "PLEASE DO NOT… communicate to the regions, your team members or AMD that we are constrained to five percent AMD by pursuing the Intel agreement."

During the same period, Intel constrained HP from selling AMD-based business desktops to any customers other than small and medium-sized enterprises. In addition, it put financial pressure on the PC maker to stop it from offering such desktops through any channel other than direct distribution.

"You can NOT use the commercial AMD line in the channel in any country, it must be done direct," an internal HP email from September 2004 read. "If you do and we get caught (and we will) the Intel moneys (each month) is gone (they would terminate the deal). The risk is too high."

NEC, meanwhile, received rebates between October 2002 and November 2005 for buying no less than 80 percent of its processors from Intel, according to the antitrust case decision.

In 2007, Lenovo bought its laptop CPUs exclusively from Intel. The evidence quotes a December 2006 email sent by a Lenovo executive which reads, in part: "Late last week Lenovo cut a lucrative deal with Intel. As a result of this, we will not be introducing AMD-based products in 2007 for our notebook products."

Lenovo also postponed the launch of AMD-based notebooks from June 2006 to the end of that year, in order to receive payments from Intel. Similarly, the chipmaker made payments to Acer on condition that the manufacturer delayed the introduction of an AMD-based laptop from September 2003 to January 2004.

Media Saturn Holding (MSH), owners of the German MediaMarkt retail chain, told the Commission in a submission that "the sale of AMD-equipped computers would result at least in a reduction of the amount of Intel's contribution payments per Intel CPU under the contribution agreements… although MSH never actually tested the issue with Intel".

The regulators' evidence also suggested that Intel had tried to conceal its rebate and payment deals with the manufacturers and MSH. In a submission to the Commission's investigators, Dell said its rebate arrangement was based entirely on verbal agreements. HP had a written agreement with Intel, but certain conditions remained unwritten.

MSH and Intel had a written agreement that contained a non-exclusivity provision, but the retail company told the Commission that "it was clear to MSH that despite the non-exclusivity clause, the exclusive nature of the relationship remained, for Intel, an essential element of the relationship between Intel and MSH".

"In fact, [an MSH executive] recalls that Intel representatives made it clear to him that the changes in the wording of the agreement had been requested by Intel's legal department, but that in reality the relationship was to continue as before, including the requirement that MSH sell essentially only Intel-based computers," MSH said in its written submission.

In late July, Intel launched an appeal against the Commission's decision, claiming that evidence had been "ignored or misinterpreted", and that the Commission had " ignored the realities of the microprocessor market, which is highly competitive".

This article was originally posted on ZDNet UK.

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