On 13 May 2009, the European Commission imposed a record fine of €1.06bn on Intel for engaging in illegal anti-competitive practices to exclude competitors from the market for computer chips, known as CPUs (central processing units). Amounting to some 4% of Intel's annual world-wide turnover, the fine emphasises the Commission's confidence post-Microsoft in tackling anti-competitive conduct in the technological sector and that it will not restrict the imposition of heavy penalties to simply cartel type behaviour.

The Conduct in Question

The Commission took issue with two types of practice:

  • Rebates granted by Intel to computer manufacturers on condition that they bought all, or almost all (80% plus), of their CPUs from Intel. The Commission found that, in order to compete with these rebates, a competitor would effectively have to price below cost. Intel also made direct payments to a major retailer on condition it stock only computers with Intel CPUs;
  • Direct payments made by Intel to computer manufacturers to halt or delay the launch of specific products containing competitors' CPUs and to limit the sales channels available to these products (e.g. so that they were sold only to SMEs).

The Commission, proceeding on the basis that Intel was dominant in a worldwide CPU market (with some 70% of the market), considered that these practices formed part of a strategy designed to exploit Intel's existing dominant position to the detriment of its main (but much smaller competitor), AMD.

The Commission's finding that these types of activities constitute an abuse of dominance comes, in principle, as no great surprise and, in particular, reflects well-established European Court case law relating to loyalty inducing rebates and regulatory concern as to their market foreclosing effects. It serves as a reminder to potentially dominant companies that they should carefully assess their marketing strategies and their rebate/discount schemes to ensure that they are beyond reproach from the competition angle (or risk the imposition of increasingly heavy fines). This is particularly so in the technological sector where competition authorities often take a narrow approach to market definition and where patents and other intellectual property rights are often in play.

A Patchwork of Regulatory Enforcement

The Commission's investigation stemmed from a series of complaints made to it and the EU national competition authorities by AMD over a four-year period. This illustrates that, while it can take a large degree of effort and persistence to get off the ground, regulatory investigations by the Commission offer the complainant the great advantage of a pan-European decision with fairly minimal costs compared with court action. Another great benefit is the wide investigative powers that the Commission has, particularly its ability to carry out unannounced "dawn raids" at a company's premises. Indeed, the Commission has indicated that it obtained proof of many of the infringements from, amongst other things, emails obtained at an on-site visit to Intel's premises.

Outside the EU, AMD has also secured beneficial regulatory decisions in both Japan and South Korea. Interesting now will be the attitude of the US competition authorities that have traditionally adopted a more lenient attitude towards dominance than that in the EU. The Obama administration has a stated intention of aggressively pursuing abuses of dominance and it remains to be seen how this feeds into the FTC's investigation into Intel that was opened in June 2008.

Next Steps?

Intel has signalled that it will appeal the Commission's decision to the courts. A great deal of argument can be expected on the Commission's approach to market definition/dominance as well as on the foreclosing effect of the practices in question. In the meantime, Intel has indicated that it will seek to comply with the Commission's decision as the appeal process runs its course.