Europe hits Intel with $1.45B antitrust fine

In a landmark ruling, the European Commission on Wednesday slammed chipmaker Intelintcwith a record $1.45 billion fine for using illegal monopolistic practices.

The commission found Intel guilty of manipulating rebates to unfairly restrict computers equipped with microprocessors by rival Advanced Micro Devicesamd from reaching Europe.

Intel CEO Paul Otellini said the company would appeal. He issued a statement saying Intel "takes strong exception" to the ruling but declined to discuss the rebates.

In the culmination of an investigation that began in 2000, regulators found nothing wrong with Intel offering rebates per se, Gartner analyst Martin Reynolds says. The sanction hinged on evidence that Intel threatened to, in effect, withhold rebates from certain PC makers and retailers if they declined to shun computers using AMD chips. "The illegal practice wasn't reflected in any contracts," Reynolds says. "It was happening behind closed doors."

Intel's fine surpassed the $613 million penalty the commission levied against Microsoft in 2004 for anti-competitive practices associated with distributing Windows Media Player and Windows Server. Microsoft was later hit with fines of $424 million and $1.35 billion for failing to comply with the 2004 ruling. The software giant remains under investigation for allegations that it uses illegal practices to distribute its Internet Explorer Web browser in Europe.

In the Intel case, regulators ruled Intel's sales dealings with Asian PC manufacturers were subject to European law if the end result was fewer AMD products available in Europe. "The EU is telling Intel, 'Make sure this doesn't happen anywhere else in the world,' " Reynolds says.

AMD, which brought the original allegations, celebrated. "Intel broke the law, and consumers were hurt," says Tom McCoy, executive vice president for legal affairs. "With this ruling, European consumers will enjoy greater choice."

Microsoft's dealings with European regulators suggest Intel faces a drawn-out battle. Both cases derive from Europe's belief in "ordoliberalism" — competition based on many firms competing to serve the market, says Luke Froeb, a professor at Vanderbilt University's Owen Graduate School of Management.

"If you apply that vision to the chip industry, you're going to come up with a very aggressive enforcement posture," says Froeb, a former Federal Trade Commission official. "They'd rather have two chipmakers with higher costs than one that can realize economies of scale."