Intel hit with $1.45 billion fine in Europe

The problem is that our copyright laws which were designed to protect innovators have become tools to exploit it. What's really scary is how our government allows these industries (computers, media, pharma, etc...) to take advantage of us - I mean its not like the EU is North Korea or Iran!

While I certainly agree on the copyright laws (very muchso, they need to be altered to fit today's economy), I think that's only a minor part of the blame here. While it's possible to have an unintentional semi-monopoly, marked by good ethics and spurring innovation, and has happened before, this is a case of over-aggressive and unethical business practices.

The EU said Intel gave rebates to computer manufacturers Acer Inc., Dell Inc., Hewlett-Packard Co., Lenovo Group Ltd. and NEC Corp. for buying all or most of their chips from Intel and paid them to stop or delay the launch of computers based on AMD chips.

The EU said rebates like the ones Intel offered PC makers, with discounts for large orders, are illegal when a monopoly company makes them conditional on buying less of a rival's products or not buying them at all. EU officials said the discounts were so steep that only a competitor that sold chips for less than they cost to make would have any chance of grabbing customers.

An intentional monopoly, where competitors were shut out, strong-armed, lobbied against, etc, is quite another (Standard Oil and US Steel being prime examples; Microsoft being a more modern example). This is poor business practices, as Dan in Manassas points out in #2

Can you see Wrigley paying to keep Juicy Fruit off the shelf, Playtex keeping Bali off the shelf, Gleem to keep Crest out??

Unfortunately, these practices do happen, and it's damaging to Capitalism itself in that it functions off of mob-like wars rather than innovation and product and price competition. (although Wrigley owns Juicy Fruit, just as a correction)

Did you read the article?

It said Intel gave rebates to computer manufacturers Acer, Dell, HP, Lenovo and NEC for buying all or almost all their x86 computer processing units, or CPUs, from Intel and paid them to stop or delay the launch of computers based on chips from AMD, which is headquartered in Sunnyvale, California.

Intel paid retailers to not stock their competitor's products. This is not market forces, this is illegal and well it should be. I hope they go after the retailers too.

Dung Beetle! *sssshhhhh* don't point out reality, that ruins the Free Market narrative! How can our corporate overlords slowly and surely monopolize the entire economy if we don't first brainwash the masses with the Free-Market gospel?

Obviously you've never heard of the art of the deal. Manufacturers did not have to take the deal. If they were that concerned,they would have passed on it,for the simple merit of they wouldn't want that to happen to them. According to MSN stocks,Intel had 35+ Billion in sales,while AMD had $5.5 Billion,and Intel employs 82,500 vs AMD's 14,700. Purely a case of AMD trying to compete over its head. Since AMD can't win locally,they use the European courts to get what they want,poor little fellas. Meanwhile,the European courts don't mind a few Billion in loose change during these tough times,clearly the law is monopolized in Europe as well,could almost be construed as collusion for AMD and the courts,not alot of difference for what AMD went to court for is it? Can't wait for the lawsuit by Toyota for losing market share to Ford.

Verbal - your analysis is all well and good if you want to live in an economy where a dominant corporation exploits its market share and cash position to "eradicate" the competition. Sorry this is not Capitalism, nor is it fair to consumers, etc.... The role of Government is to do exactly what the EU did - improve competition. The problem in the USA is that our government seems far more interested in kickbacks and contributions form these kinds of companies, than looking after you and me ...

Very nice Adrian Thorn. It made me chuckle.

Econ101 - I will agree that having a dominant company using its monetary muscle to do business is not the least bit fair for the rest. I do think the government butting in and deciding what is or is not fair in business pure hypocrosy. As you stated,the governments other interests is proof enough to say the least. It looks to me that the government has the same goal as Intel,benefit at the loss of others. The government is not concerned with whats fair,they just want to see the money. Another issue is,AMD better be sure they can hold up to the same scrutiny they used on Intel,just because AMD is smaller,doesn't mean they don't have skeletons too.

Verbal,

The problem is that our "capitalist" system encourages effective competition. Competition eventually results in domination. The role of government in this system is only to intercede when competition has resulted in domination - ie. to reintroduce competition.

Modern Governments have become little more than cheerleaders for the dominant corporation, especially domestically domiciled ones. Therefore, we see Intel and MSFT having no issues in the USA, but facing stiff opposition in the EU. How about SAP?? There aren't too many Eurozone companies who don't use SAP, or Airbus, etc....

So I don't disagree with intervention in this case, but do not favor intervention most of the time. Gvernments should stay out of business and get to dealing with the problems that they were elected to fix - health care, housing, finance and banking regulation, poverty .... based on the backwards slide in these things, they could use a little attention.

Point taken Econ,I guess I'm inclined to be too emotional vs political when it comes to the government saying what is or is not fair when the entity itself is a joke across the board. If it weren't for the fact that Intel and others are publicy traded,I'd love to see the results if Intel were to suddenly shut its doors. No one says they must stay in business and AMD could enjoy the benefits of being the sole supplier.

Yeah,only one political group is responsible for all of the issues in business today. Lets go after 3M for making too much red tape.

Can someone please tell me who Intel hurts other than AMD?

Well, by blocking competition, the consumers for one thing. But, if looking for specific companies, there are practically none, because the industry is so expensive to come in to; for the single main market-share holder to then pay and strong-arm to keep it's competitors from practicing business, they have quite easily broken monopoly laws and damaged Capitalist competition itself. These aren't business practices, these are mafia-like territory wars. Who knows how cheap or far along our CPUs could be if they HAD allowed competition.

these are mafia-like territory wars.

Yes, because I'm sure Intel has paid to have AMD trustees "offed". Perhaps you are going just a tad bit overboard on the rhetoric.

For many years, AMD chips were faster and cheaper than Intels, and yet they barely had any market share outside of the hobbyists who build their own computers due to the fact that Intel was paying major distributors to NOT use AMD chips, for fear of losing Intel rebates that would diminish their bottom line.

I'd say that hurts many people, because costs may have been lowered, and AMD would have gained marketshare thereby funding them to make even better chips.

Plain and simple, paying off distributors to not use your competitor is illegal, as well it should be.

If Intel was selling their chips for less, aka "paying major distributors to not use AMD chips", then how exactly were AMD chips cheaper? You can't have it both ways. Either the final costs of Intel chips were cheaper, or the final costs of AMD chips.

So your argument boils down to Intel should be forced to sell their chips for more money, which hurts the consumer since they now have to spend more on computers.

No, Adam, apparently you can't read the article.

The EU said Intel gave rebates to computer manufacturers Acer Inc., Dell Inc., Hewlett-Packard Co., Lenovo Group Ltd. and NEC Corp. for buying all or most of their chips from Intel and paid them to stop or delay the launch of computers based on AMD chips.

It said they were cheaper ONLY IF the producer agreed to not use, make, or sell products with AMD. That is why it is illegal; selling your product at a cheaper price is not, if done in a direct-competition way. This is strong-arming the competition. Whether you agree with it or not, it is illegal (and it should be), and the fine stands.

Yes, because I'm sure Intel has paid to have AMD trustees "offed". Perhaps you are going just a tad bit overboard on the rhetoric.

Mafia's make more money off extortion than "offing" people. Intel using these rebates as leverage is a form of business coercion, which is highly illegal in most industrialized nations, including ours.

And again, if it is cheaper for companies to go all Intel than it is to go Intel and AMD or just AMD, then that means the chips are cheaper. Each computer produced with those chips will be cheaper, and consumers will spend less money. The only thing this practice hurts is AMD.

Intel is being pretty out and open with the rebates. They aren't tricking anyone into taking them. They aren't committing fraud. They aren't threatening the lives of anyone. The transaction between Intel and Apple, or Acer or Dell or whoever is 100% open and up front. Both parties know exactly what they are getting themselves into. If these deals were bad for Apple or Acer or Dell, then those companies would stop making them. If these deals were bad for the consumer, then they'd start buying up computers without Intel chips.

Well, again, Adam, any company can have lower costs if they gaurantee that they will never use another company. Monopolies can have lowest costs (no advertising, higher production, etc), but it is their lack of competition that creates the disinterest in a capitalist society. Not to mention that is asking a lot for a company to self-regulate if there is no competition; eventually prices will rise if there is no competition. If the market was split between 7 different power-houses, all with about-equal shares, then the practice might not be as damaging, but to block any competition while already owning 80-90% marketshare is precisely what makes a dangerous monopoly.

Intel is being pretty out and open with the rebates. They aren't tricking anyone into taking them. They aren't committing fraud. They aren't threatening the lives of anyone. The transaction between Intel and Apple, or Acer or Dell or whoever is 100% open and up front.

Although this article has changed since last written on Newsvine, in its first drafts it did mention raids that found the information; it was not upfront and open.

Here's an earlier article that mentions the raids

He said the Commission, accompanied by local law enforcement staff, conducted the raids because it had reason to believe the companies "may have violated EC (European Community) Treaty rules on restrictive business practices and/or abuse of a dominant market position."

Once again, it is the law that Intel broke, not merely being a monopoly, but using business practices to drive out its competition, so no the consumers do not win. It was a ploy to drive further down the market share of AMD, thus freeing up the ability for Intel to future price-set to its desire. If you need more clarification of damaging effects of a monopoly business practices, take an econ/history class, focusing on the 1880s-1930s. Standard Oil, US Steel, and US rail companies are all examples.

eventually prices will rise if there is no competition.

Yes, but if you take it one step further, as prices rise, that opens up holes for new competition to come in and undercut the monopoly.

I guess it really boils down to whether you think monopoly itself is bad regardless of how it was formed, or what actions it currently takes, or whether you actually wait for underhanded practices.

in its first drafts it did mention raids that found the information; it was not upfront and open.

Not upfront and open with who though? There were two parties involved in the deal, Intel and their client. Intel was 100% upfront and honest with their clients. They offered the rebates under set conditions. That was pretty damn clear. Their clients were not defrauded or lied to. They decided to take the deal, or not, based on clear and open information.

Now whether Intel was open with the deals to AMD or governments they weren't even headquartered in, who cares? Those are all third parties who have nothing to do with the deal.

take an econ/history class, focusing on the 1880s-1930s. Standard Oil, US Steel, and US rail companies are all examples.

I have much knowledge of that period and those monopolies, but the thing to remember is that was one of the most corrupt periods in United States history. Those monopolies weren't formed from "rebates", but instead from bribes and kickbacks to government officials who actually made it illegal for many of their smaller competitors to operate.

Now the opposite is taking place, you have the smaller companies like AMD who are using their lobbyist groups to buy influence in the European courts to harm it's larger competitor because it's just not that great of a company.

new competition to come in and undercut the monopoly

See, but that's just the thing, when someone does, Intel can use the full weight of its company to short-sell its products below cost to temporarily cut out the competition, then price increase later, which is precisely what was happening (otherwise, why would Intel have sold its processors below cost). That is the dangerous part, and that is precisely what Standard Oil did in the 1890-1910 era. It is that part alone that makes Intel's practices unlawful; if they had just offered a discount for say buying bulk, that's fine, but offering a discount only if they refuse to use AMD makes it illegal due to the size of Intel.

They decided to take the deal, or not, based on clear and open information.

Once again, that's the danger BECAUSE they are such a large share of the market. If they didn't take the deal, the companies would themselves become non-competitive, therefore taking the deal was not optional. That's why we have the SEC here in the US to look into deals like this, and it won't surprise me if they follow suit, and why they have the EU to look into affairs over there. It's called strong-arming the competition, it is illegal, and I'm done discussing this.

Adam:

Yes, but if you take it one step further, as prices rise, that opens up holes for new competition to come in and undercut the monopoly.

Intel and AMD operate as an oligopoly. Since the market share is split between them, classical economists suggest that this is the most vigorous type of competition. The basis for this argument is that producers will fight a "price war" to gain market share from time to time benefiting the consumer. They can also benefit from economies of scale to produce goods at the "lowest" cost.

I venture to say that none of this is true. The main determinant of price in this situation is market share and total units shipped. This is affected by 2 factors - elasticity of demand based on price and marketing/partnerships. AMD had very little market share untill they formed alliances with major manufacturers. When their MS rose, Intel made deals with the same group - the main problem here is where's the competition, price discovery, propensity to innovate/improve? This is about making deals, marketing, backroom "rebates" and payioffs ....

Secondly, since virtually everyone now has a computer (I mean a homeless person can get one cheaper than an appliance box), the decision to "upgrade" is what is driving new chip sales. As such, for most of us, the cost of the upgrade drives that decision. This is what is putting downward pressure on price, not competition, innovation, whatever.

The EU was correct in finding against Intel, since the computer industry seems hell bent on cornering market share at all costs, it is encumbant on Government to make sure that the consumer is not exploited.

it is encumbant on Government to make sure that the consumer is not exploited.

Okay, that's all fine and good, but shouldn't government wait until the consumer is actually exploited? It's like the EU has decided that Intel is guilty until proven innocent. There has still been no one who has shown how consumers are hurt by Intel right now. Right now all Intel is hurting is AMD, their competitor. Yea, you guys have been great at predicting possible future consumer harm, but none of that is a certainty. Shouldn't government wait until actually consumer harm before it starts handing down rulings? It just seems to me to be a terrible precedent to set with the government assuming consumer harm before there even is any. That's going to create an environment where rather than companies fighting it our in the marketplace, they are going to fight it out in the courts. Already corrupt European and Asian courts are being abused by companies to attack their competitors when they can't do so with actual competition. When the courts decide the fate of companies, that's not competition, that is monopoly power.

Adam,

in our economic system, the actual role of government is that of regulator of competition. We regulate competition because it is an excercise in semantics to determine when the consumer is being "exploited" or not. For example, it is pretty clear that our banking system has the illusion of competion, but is actually a cartel which generally exploits their customers. The same can be said for Telecos and utilities ....

So when the banks raise4 your credit card interest rate to 55% per annum (as has been allowed by the "law") or the gas company charges you $800 per month for gas? When should the government intervene?

All this nonsense about "intervention" is silly. Corporations need government to operate - they are the heaviest users of the courts, the police, borders, immigration, etc .... How long would your bank operate if the courts didn't allow them to enforce their "loaqn agreements" or show up when the bank robbers arrived?

The question of when and how governments intervene is important. Economists agree (since Adam Smith) that competiton guarentees "fair" prices. Lack of competition, especially in necessities, leads to exploitation. In the case of AMD/Intel, we are talking about market share competition, not real competition. Presumably consumers will chose between the two choices and buy something. However, it is naive to suggest that costs associated with these "rebates" and "deals" are not passed on to the consumers ....

Corporations need government to operate - they are the heaviest users of the courts, the police, borders, immigration, etc .

Without corporations,public services would soon dwindle severely. Many cities right now are feeling the hurt from auto dealers and others closing,laying off emergency workers and regular employees. I can't wait for the governments un-employement rate to catch up with the private sector. Perhaps they'll finally find out what the rest of us have to deal with.

VH

Thats not necessarily true. Regardless, my point is that corporations and their shareholders often complain that government "leave them alone" - this is a fallacy. They want all the things that government does to protect them (lets be strait about this one of the main purposes of Government is to protect those who have from those who don't), but none of the negative stuff like taxes, regulation, anti trust, etc.

I find it difficult to believe that all the corporations would shut their doors, or change anything at all if we doubled, tripled, etc the red tape to make sure they played fair .... I mean what else would they do?

How is it dishonest? Who are they lying to? As for confusing, it's not Intel's fault if you aren't smart enough to comprehend their deals.

And by the way, AMD is big business as well.

Lets see - theres a number of anti trust laws in virtually every country on earth. These "deals" were certain implicitly in violation of them. The cost of an expensive lawyer is mainly in their ability to make things that are obviously illegal, "legal" - that doesn't mean its actually so!

As for confusing, it's not Intel's fault if you aren't smart enough to comprehend their deals.

After years of taking the time (I am smart enough) to investigate and analyze mass mailings, contracts, promotions, and marketing tactics in America, I have discovered that there are a great many people who think like you. While I was watching your rather depressing attitude about humanity and your fellow Americans, I watched many many good people fall prey to their own ignorance. Senior citizens, college students, young parents.... The term "free market" does not authorize a company or an individual to use misleading information to sucker-punch people. (Have a prime example of such sitting on my coffee table right this minute, from a major auto company, no less.)

Just in case big business hasn't recognized the total package of a$$--whipping that's coming their way in the form of consumer and government, they need to take notice. There is a way to do business. They have a great many misdeeds to atone for.

~big grins.... GO GO EU!

Its amazing how we live in a soceity where there are two tiers of contract law. I mean how many attorneys can actually "understand" the current credit card or mortgage contract? Its interesting that ability to read is the established standard for "competance" under the law, but rarely does it make much iof a difference in the outcome!

How is offering lower prices and rebates not competing fairly? Is your local supermarket being unfair when they send you coupons in the mail?

Nothing is stopping AMD from competing other than their prices are too high.

Adam, stop being obtuse. When you have a dominant monopolistic position in the market and use anti-competitive methods of doing business, you are breaking the law. The EU was investigating this for years, do you thing Intel was railroaded? Or do you just enjoy trolling as the devil's advocate on every story on Newsvine?

I've still yet to hear anyone actually explain why lowering prices and offering rebates is "anti-competitive". Nothing was stopping AMD from lowering their own prices in competition other than their own incompetence.

As for breaking the law, considering that the EU basically doesn't exist in the Internet, hardware or software markets, maybe there's something wrong with EU laws that's putting the entire continent at a competitive disadvantage.

OK Adam, I'll tell you why AMD couldn't. Intel was offering their product at/below cost to manufacturers for not using AMD. If AMD offered the same deal, both companies would be selling below cost. Now, how long do you think a company with 10% of the market share, with far less assets, would last against a company that has 90% of the market share, and far more assets? If we waited until it was "unbeneficial" to the consumer as you like to point out, it would have already been too late. And that benefit to the consumer would have been short-lived until AMD and any other competitors (if there are any) were squeezed out; and if that sort of practice is to be considered lawful, as you have suggested, they would just do it again as soon as another chip company starts up. It is a bad/unethical business practice because they own such a large share of the market, it is unlawful, and they are in the wrong.

It wasn't a lawsuit in attempt to shrink their market share; it was a punitive fine that was actually less than what they are allowed to go after (yes, despite it being such a large fine). Believe it or not, Intel can easily absorb this; their stock barely flinched at the news. I do not believe it will severly delay any product releases, as that is how they can legally keep their market share, through product innovation (there are no laws against that). If they wished to alter Intel's market share, they would have forced the breakup of part or all of the company, as has been done numerous times before (or barred Intel from selling in the EU until the US forces compliance). However, that course of action is currently not taking place, so they will just get a heavy slap on the wrist for their actions.