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Monday, September 21, 2009
EU Publishes Decision Concerning Intel's Abuse of Dominant Position

The European Commission has today published a non-confidential version of its Intel Decision, adopted on 13 May 2009, together with a summary of the key elements of the Decision.

That Decision found that Intel broke EC Treaty antitrust rules by engaging in two types of illegal practice to exclude competitors from the market for x86 central processing units (CPUs). Intel was hit by a record EU antitrust fine of euro1.06 billion ($1.45 billion) last May. The company rejects the charges and is appealing to the EU courts.

By undermining its competitors? ability to compete on the merits of their products, Intel?s actions undermined competition, reduced consumer choice and hindered innovation, the EU said.

The EU provided details on how Intel broke the law:

- Intel abused its dominant position in the x86 CPU market by implementing a series of conditional rebates to computer manufacturers and to a European retailer and by taking other measures aimed at preventing or delaying the launch of computers based on competing products, according to the EU. The Commission's Decision outlines how Intel sought to conceal its practices and how computer manufacturers and Intel itself recognised the growing threat represented by the products of Intel's main competitor, AMD.

- Intel rebates to Dell from December 2002 to December 2005 were conditioned on Dell purchasing exclusively Intel CPUs. For example, in an internal Dell presentation of February 2003, Dell noted that should Dell switch any part of its CPU supplies from Intel to its competitor AMD, Intel retaliation " could be severe and prolonged with impact to all LOBs [Lines of Business]."

- Intel rebates to HP from November 2002 to May 2005 were conditioned in particular on HP purchasing no less than 95% of its CPU needs for business desktops from Intel.

- Intel rebates to NEC during the period ranging from October 2002 to November 2005 were conditioned on NEC purchasing no less than 80% of its CPU needs for its desktop and notebook segments from Intel.

- Intel rebates to Lenovo during year 2007 were conditioned on Lenovo purchasing its CPU needs for its notebook segment exclusively from Intel.

The EU also said that Intel paid to Media Saturn Holding (MSH), Europe's largest PC retailer, conditioned on MSH selling exclusively Intel-based PCs from October 2002 to December 2007.

Between November 2002 and May 2005, Intel payments to HP were conditioned on HP selling AMD-based business desktops only to small and medium enterprises, only via direct distribution channels (rather than distributors), and on HP postponing the launch of its first AMD-based business desktop in Europe by 6 months.

Intel payments to Acer were conditioned on Acer postponing the launch of an AMD-based notebook from September 2003 to January 2004.

Intel payments to Lenovo were linked to or conditioned on Lenovo postponing the launch of AMD-based notebooks from June 2006 to the end of 2006. Concealment

The Commission found that Intel generally sought to conceal the conditions in its arrangements with PC manufacturers and MSH. For example:

The rebate arrangement with Dell was not subject to a written agreement but was concluded orally at various meetings.

There was a written agreement with HP but the relevant conditions remained unwritten. In this regard for example, in a submission to the Commission, HP stated that the " unwritten conditions (...) were stated to be part of the HPA1 agreement by [Intel executive] , [Intel executive] and [Intel senior executive] in meetings with HP during the negotiations.

The evidence in the EU's 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. For example, in an October 2004 e-mail from Dell to Intel, a Dell executive stated that " 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 1-2 years." In a submission to the Commission, Dell also stated that as regards Opteron, " in Dell's perception this CPU generally performed approximately [?] better than the comparable Intel Xeon CPU at the time." As regards AMD's Athlon PC CPU, an internal HP presentation from 2002 stated that it " had a unique architecture", was " more efficient on many tasks" , and had been " CPU of [the] year [for] 3 consecutive years".

The fact that AMD had improved its products is also recognised by Intel itself. For example, in a 2005 submission to the Commission, Intel stated that " AMD improved its product offerings dramatically with the introduction of its successful Opteron processor". This is also confirmed by contemporaneous documents from Intel. For example, in a 2004 internal Intel e-mail, it is stated that " Opteron is real threat today? Opteron-based single WS [Workstation] benchmarks beat [Intel's] Xeon in all cases."

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