The European Commission (“EC”) imposed a €1.06 billion fine on US-based chipmaker Intel for abuses of dominant position. This is the highest individual fine ever imposed by the EC. Intel said it would appeal the decision.
Intel fined for abuses of dominance
Intel is the world’s largest producer of x86 central processing units (“CPUs”), the main hardware component of a computer. From 2000 onwards, Intel’s main rival Advanced Micro Devices (“AMD”) has submitted several complaints to the EC regarding Intel’s business strategies. AMD argued that Intel engaged in illegal practices aimed at excluding AMD from the market for x86 CPUs.
Following a nine-year long investigation, the EC concluded that Intel has abused its dominant position in the market for x86 CPUs. The EC found that Intel had offered loyalty rebates to computer manufacturers, i.e. rebates that were conditional on the manufacturers purchasing all, or almost all, of their CPU requirements from Intel. Intel had also made payments to retailer MediaMarkt on condition that MediaMarkt stores stocked only computers containing Intel x86 CPUs. Finally, Intel had made payments to computer manufacturers to delay the launch of certain products that incorporated AMD’s CPUs (“pay for delay”).
The EC emphasised that it did not object to the rebates per se, but to the conditions Intel attached to its rebates. According to the EC , rebates are abusive if offered by a dominant firm and made conditional on buying less (or none) of a rival’s products, unless specific reasons justify such rebates
The highest fine ever imposed by the EC
The EC fined Intel €1.06 billion (approx. $1.45 billion). This record-breaking fine exceeds each of the three fines imposed by the EC on Microsoft from 2004 to 2008 for abuses of dominance and for failure to comply with the EC ’s orders (although the total of the fines imposed on Microsoft amounts to €1.68 billion). It also exceeds the record cartel fine of €896 million imposed by the EC in 2008 on the French group Saint-Gobain.
The fine represents 4.15% of Intel’s 2008 worldwide revenues. The EC can impose fines of up to 10% of the company’s worldwide annual revenues. The EC has also ordered Intel to cease all ongoing illegal practices immediately.
Intel had previously been ordered by the Japanese regulator to discontinue its loyalty rebates and was fined $25 million by the Korean regulator for similar practices. Both the U.S. Federal Trade Commission and the New York Attorney General’s Office have recently opened investigations into Intel’s pricing strategies. Moreover, AMD is suing Intel before U.S. federal courts.
The crackdown on abuses of dominance will continue
The Intel investigation and the resulting record fine is the latest example of the EC ’s focus on the enforcement of Article 82 of the EC Treaty, which prohibits abuses of dominance. The EC has been emboldened by several recent cases in which EU courts have confirmed its interpretation of Article 82 (cf. France Telecom ruling summarised in See You in Court). It has issued detailed guidelines on the application of Article 82 and is currently conducting other high-profile investigations into alleged abuses of dominance (including new inquiries into Microsoft’s practices, described in EU Developments).
Rebate practices, such as the ones involved in the Intel case, are but one of many types of commercial behaviour that could potentially raise concerns. Given this environment, it is essential for leading market players to carefully consider the manner in which they deal with their suppliers, distributors, customers, and competitors.