This article is from the source 'nytimes' and was first published or seen
on .
It last changed over 40 days ago and won't be checked again for changes.
European Court Upholds $1.44 Billion Fine Against Intel
European Court Upholds $1.44 Billion Fine Against Intel
(about 10 hours later)
BRUSSELS — A top European court on Thursday upheld a record fine of 1.06 billion euros imposed five years ago on Intel, the world’s largest computer chip maker, by Europe’s top antitrust authority.
BRUSSELS — An appeals court on Thursday upheld an antitrust fine of 1.06 billion euros against the computer chip giant Intel, giving more teeth to the European Union’s power to hold multinational technology giants accountable — even if the case is years old and Intel no longer wields the sort of power over consumers that got it into trouble in the first place.
The European Commission levied the fine, equivalent to $1.44 billion, in 2009 after it accused the American company of abusing its dominance in the computer processor market by offering rebates to computer makers who used its chips more than other brands.
In its ruling, the General Court said the penalty, an amount now equivalent to $1.44 billion, was proportionate to the company’s anticompetitive behavior. It is the largest antitrust penalty that the authorities in Brussels have levied on a single company.
It was the highest single antitrust penalty that the authorities in Brussels have levied on a single company.
Chuck Mulloy, a spokesman for Intel, said the company had 70 days in which to decide whether to appeal to Europe’s highest court, the European Court of Justice.
“Intel’s action against the Commission’s decision is dismissed in its entirety,” said the General Court of the European Union, the blocs second-highest court, in a summary of its ruling.
Five years ago, the European Commission, the executive arm of the European Union, found Intel guilty of misdeeds that included paying rebates to personal computer makers like Dell and Lenovo for favoring its chips over competing ones from Advanced Micro Devices, Intel’s chief competitor in PC chips.
The court said it “considers that none of the arguments raised by Intel supports the conclusion that the fine imposed is disproportionate.”
Antoine Colombani, a spokesman for the European Commission, said at a news conference on Thursday that the decision was a “significant judgment” that showed that regulators were “fully justified in pursuing the anticompetitive conduct in question in a major worldwide market.” Mr. Colombani also suggested that the ruling had emboldened regulators to “vigorously pursue such cases” in the future.
Intel still can appeal the case to Europe’s highest court, the European Court of Justice.
Intel, which has denied breaking antitrust laws, expressed disappointment in the decision, which has no direct financial effect on it because the company has already paid the fine.
E.U. officials said they were emboldened by the ruling.
The ruling might give pause to other big companies with strong market shares in Europe because of the way the court sided with the antitrust regulators’ reasoning in the case.
“This is of course a significant judgment,” Antoine Colombani, a spokesman for the commission, said at a news conference. “It confirms that the commission was fully justified in pursuing the anticompetitive conduct in question in a major worldwide market.” The commission “will continue to vigorously pursue abuses of dominant positions,” he added.
Intel has repeatedly said that its rebates and discounts were legal and a commonly used practice of rewarding companies for purchasing its products in large quantities. But antitrust officials said that, because of its dominance, the way Intel granted exclusivity rebates to gain the loyalty of computer makers was anticompetitive in itself and that no proof of harm was required to deem the actions illegal.
Intel had been appealing a decision where it was found to have offered illegal rebates to computer makers that used fewer or no chips made by its main competitor, Advanced Micro Devices.
“The big concern for large firms with this ruling is that the top European antitrust enforcer is not required to show actual, or even potential, harm to competitors or consumers in dominance cases,” said Paul Lugard, a partner in Brussels with the law firm Baker Botts and the former head of antitrust for Philips, the Dutch electronics company.
The commission, which had been investigating Intel since 2000 after a complaint by A.M.D., issued two sets of formal charges in 2007 and 2008.
“What businesses are now looking at is a formalistic standard essentially based on case law from the 1970s that doesn’t reflect modern-day economic insights,” Mr. Lugard, who does not represent any of the companies involved in the judgment, said on Thursday.
Intel has repeatedly said it had done nothing wrong and that its rebates and discounts were legal and a commonly used way of rewarding companies for purchasing its products in large quantities.
Microsoft is another technology titan that has been hit with antitrust fines by the European Commission. And Google has been trying for at least three years to settle an antitrust case with the commission.
The European Union authorities began stepping up their pursuit of antitrust violators — and in particular cases in the technology sector — early last decade when the United States authorities backed away from pursuing their toughest penalties against Microsoft, settling the case instead.
The decision against Intel, which is the world’s biggest semiconductor company and has about $10 billion in cash and short-term investments, is unlikely to have a significant effect on the company’s operations. But if anything, it is a reminder of the changes buffeting Intel.
The decision to impose severe punishment on Intel was another reminder of how European regulators have emerged as some of the world’s staunchest enforcers of antitrust laws, and it was an early signal that global authorities were gearing up to raise the stakes for the biggest technology companies.
The European Commission’s decision to fine Intel five years ago concerned actions that occurred in the personal computer market over much of the previous decade.
In the ruling on Thursday, the court fully endorsed the commission’s approach. The authorities had said that the way Intel granted so-called exclusivity rebates to gain the loyalty of manufacturers like Dell and Lenovo was anticompetitive and did not require further proof to be deemed illegal.
Since that time, consumers worldwide have taken to buying smartphones and tablets instead of PCs. According to IDC, a technology research firm, worldwide PC shipments last year were 314.5 million units, a drop of 10 percent from 2012. Shipments were lower over most of 2012, as well.
Despite the claims by Intel during its appeal, the commission did not need to show that such rebates “are capable of restricting competition on a case-by-case basis in the light of the facts of the individual case,” the court said.
But Intel has been a laggard in expanding into the new categories, losing out to companies like ARM Holdings and Qualcomm.
Exclusivity rebates “are, by their very nature, capable of restricting competition,” the court said.
Intel’s protracted antitrust case reflects the slow grinding of bureaucratic gears in Brussels; by the time behavior is formally censured, the competitive marketplace can look very different.
As part of its far-reaching powers to fine companies directly in antitrust cases, the commission is entitled to levy a penalty of up to 10 percent of a company’s annual global sales. Intel’s annual sales were $37.6 billion in 2008, and it could have faced a maximum penalty of close to $4 billion.
That is one reason antitrust officials here are now taking different tack, seeking quick settlements that avoid fines and seemingly endless litigation. But that approach has been only partly successful so far.
The European Union authorities imposed the second-largest single antitrust penalty, €899 million, on Microsoft in 2008, after the tech giant failed to comply with an order to provide other companies with enough information to work with its operating system.
In the latest big battle with an American technology giant undertaken by Brussels, Joaquín Almunia, the European Union’s competition commissioner, has struggled to reach a settlement in a case against Google focused on its search and advertising businesses.
In 2012, the same court that upheld the penalty against Intel on Thursday handed a small victory to Microsoft by reducing the fine by €39 million, to €860 million, finding that the commission had miscalculated the amount.
Mr. Almunia still aims to complete a preliminary deal he reached with Google last year. But rivals including Microsoft strongly oppose the deal. Powerful politicians and influential publishers, including many in Germany, have called for the Google deal to be modified or even scrapped.
But, overall, Microsoft has been required to pay a total of more than €2 billion to European regulators as it faced numerous, separate penalties.
Even so, antitrust experts said that the ruling on Thursday should give the commission even more scope to seek rapid settlements in cases involving market dominance.
Critics of the approach in Europe — which has involved nearly decade-long battles with Intel and Microsoft — say it has had little concrete effect on technology markets.
“High fines and the continued failure of appeals before the E.U. courts to effectively reduce them in cases such as Intel will lead companies to look increasingly to settle with the commission and avoid a fight and a fine,” Dave Anderson, a partner in Brussels with the law firm Berwin Leighton Paisner, who does not represent any of the companies involved in the judgment, said on Thursday.
Intel has remained the world’s largest semiconductor manufacturer, even as consumers worldwide have shifted from personal computers to smartphones and tablets.
But, Mr. Anderson warned, “Fine levels can certainly rise now.”
Under Brian Krzanich, who became Intel chief executive in 2013, the company is trying to expand into servers for large data centers, and new products like wearable computers, as well as phones and tablets.
Still, Intel has lagged in the new categories, losing out to companies like ARM Holdings and Qualcomm. Revenue in the first quarter of this year was $12.8 billion, a drop of 8 percent from a year earlier. Gross margins and net income also fell.
While Intel’s stock has increased 73 percent since 2009, ARM is up over 700 percent.
A.M.D., hurt worse than Intel by the move away from PCs, has since changed its focus to chips for things like graphics in games, and semiconductors for computer servers and embedded devices like digital signs.
In the latest battle undertaken by Brussels, against Google, Joaquín Almunia, the European Union’s competition commissioner, has sought a settlement from the early stages of the investigation. Mr. Almunia, who has been formally investigating Google since 2011, has repeatedly explained that prolonged investigations risk failing to keep pace with changes in technology and markets.
He still may struggle to wrap up the case before he leaves office at the end of October.
Neelie Kroes, Mr. Almunia’s predecessor, fined Intel in 2009 and ordered the company to cease offering rebates to computer makers that had helped it maintain a share of about 80 percent of the market for microchip sales and blocked A.M.D. from increasing its share beyond about 20 percent of that market.
As a result of the ruling by Ms. Kroes, Intel had to change its business practices and pay the fine immediately, though that sum is being held in a bank account until appeals are exhausted. Intel currently has about $10 billion in cash and short-term investments.
During its appeal, Intel accused European Union investigators of ignoring or minimizing evidence and imperiling its rights of defense. It said the commission failed to “make a proper note of its meeting with a key witness from one of Intel’s customers, who was highly likely to have given exculpatory evidence.”
In what became a bitter and public fight, the commission then published e-mail messages and documents to back up its contention that the record fine against Intel was justified.
In one of these messages, from 2004, an executive from Dell warned his boss what would happen if chips from Advanced Micro Devices were used in Dell’s personal computers instead of chips from its main supplier, Intel.
The scale of retaliation by Intel would be so severe, the executive wrote, that Dell would “have to bite and scratch to even hold” its 50 percent discount on the price of the Intel chips. He warned that using A.M.D. chips in computers for sales to companies would lead Intel to offer an even slimmer discount.
“Boss,” the executive wrote, Intel is “prepared for” all-out war “if Dell joins the A.M.D. exodus.”
