European antitrust officials have come down hard on Intel for its past actions, which the EU has deemed anticompetitive. While the case is being appealed, the chipmaker will have to put $1.45 billion (just over 1 billion) into a bank account in case the appeal fails.

Although the Obama administration is indicating that it will be more aggressive about enforcing antitrust regulations, the European Union has been pursuing high-profile cases for years, having levied a large fine against Microsoft back in 2004, and hitting the software giant again last year. The latest target of the EU's Competition group is the chipmaker Intel and, this morning, the EU announced that it too would face a hefty fine: slightly over 1 billion, which comes in just shy of $1.5 billion. Intel is already promising to appeal but, in the meantime, it's going to have to drop over half a year of its current profits into a bank account in case its appeal fails.

The full decision, which is over 500 pages long, hasn't yet been released to the public, but a summary of the EU's case is available. It focuses primarily on the company's pricing practices during the years 2002-2005, when Intel was facing growing competition from AMD in the desktop and server space. The EU authorities also cite an instance of similar practices in the notebook space in 2007, a time when that market was rising in prominence.
In short, based on information gained from internal e-mails and testimony from OEMs such as Acer, Dell, HP, Lenovo, and NEC, the EU found that Intel provided companies volume rebates that prevented AMD from expanding its market share. Different companies got the rebates at different percentages of their total sales; some got the rebates provided they kept Intel processors in over 80 percent of their machines, while Intel managed to keep one OEM an Intel-only shop.

The EU argues that Intel's market dominance ensured it was the only one with the capacity to supply the majority of processors to these companies, which made what might otherwise be optional discounts essential for OEMs. EU Competition Commissioner Neelie Kroes said that the decision was based in part on an analysis of whether a smaller, but equally efficient competitor could have matched the post-rebate prices, and found that they couldn't. Real-world evidence to back up that analysis came from the finding that one company turned down AMD's offer to supply it with a million free processors, and accepted only a fraction of that number.

It could be argued that there's nothing especially unusual about volume discounts' and Intel certainly has done so - but the EU has also documented some more obviously egregious activities, where Intel paid companies to limit AMD's market penetration. The Commission has concluded that Intel paid one manufacturer to delay the release of AMD business desktops, keep them from being sold through distributors, and block their sales to enterprise customers. Two other OEMs were paid to delay the introduction of AMD-based notebooks. The retailing chain MediaMarkt was also paid to keep AMD computers off its shelves.

All of this, in the EU's view, seriously distorted competition in the microprocessor market. "The fact that Intel had such a large market share is not a problem in itself," said Kroes. "What is a problem is that Intel abused its dominant position. Specifically, Intel used illegal anti-competitive practices to exclude essentially its only competitor, and thus reduce consumer choice, in the worldwide market for x86 chips."

EU documents also cite Intel's attempts to conceal these practices in several places -the rebates weren't part of the text of Intel's contracts with these companies' which suggests that this might have contributed to the size of the fine.

Intel, for its part, couldn't disagree more. Paul Otellini, Intel's CEO, released a statement at what was roughly 4:00 a.m., Santa Clara time, in which he said, "Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace."

But, in the face of some of the specific allegations made by the EU, some of Otellini's statements seem almost besides the point. For example, Otellini states that, "Intel never sells products below cost," and "there has been absolutely zero harm to consumers." Both of those may be true, but that doesn't necessarily mean that Intel wasn't abusing its dominant market position.

Nevertheless, Otellini did say that the investigators, "ignored or refused to obtain significant evidence that contradicts the assertions in this decision," and that these would be the grounds for its appeal. In the meantime, it will have to cough up the cash. The company had nearly $8 billion in cash and short-term investments at the end of its last quarter, so this won't hurt its business operations at all. But, at current profit levels, it will take the company over half a year to refresh the hole in its balance books, which can't make the accountants happy. Wall Street, for its part, seems rather indifferent to it all; the company's stock is up slightly in premarket trading.

by John Timmer