Wednesday, May 13, 2009

EU Intel Fine Reverberates In U.S.

Microprocessor giant Intel Corp. took a beating by the European Commission on Wednesday as regulators fined the company $1.45 billion for violating antitrust rules by engaging in illegal anticompetitive practices to exclude competitors from the market for computer chips called x86 central processing units. The Commission ordered Intel to cease the illegal practices immediately to the extent that they are still ongoing. The company has vowed to fight the ruling. "We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace -- characterized by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers. Intel will appeal," CEO Paul Otellini said.

But EC Competition Commissioner Neelie Kroes disagrees. She issued a statement saying Intel has harmed millions of European consumers "by deliberately acting to keep competitors out of the market for computer chips for many years." "Such a serious and sustained violation of the EU's antitrust rules cannot be tolerated," she said. Intel rival AMD cheered the decision, saying it was a critical step toward a truly competitive market. "After an exhaustive investigation, the EU came to one conclusion - Intel broke the law and consumers were hurt," AMD Executive Vice President Tom McCoy said. "With this ruling, the industry will benefit from an end to Intel's monopoly-inflated pricing and European consumers will enjoy greater choice, value and innovation."

The international significance of the ruling should not be overlooked, Computer & Communications Industry Association President Ed Black said. Black said he hoped that the Justice Department and FTC will take note. "Since the evidence has been compelling to all those who so far reviewed it, a vigorous U.S. investigation focused on the evidence in the case leaves us believing Intel will have its day of reckoning in the US as well." Ken Ferree, president of the Progress and Freedom Foundation, a free market think tank, urged U.S. policymakers to "think carefully before adopting a competition policy that handicaps the very companies that are the key to sustaining this country's long-term economic health." "Decisions like this do nothing to illuminate the path to a vibrant and growing economy, but rather obscure it," he added.

Update: TechNet acting CEO Jim Hawley said he is concerned about the decision, its impact on innovation and "the troubling trend of targeting of American high-tech firms." The central threshold for antitrust violations should be consumer harm as defined a day earlier by Assistant Attorney General for Antitrust Christine Varney during a speech at the U.S. Chamber of Commerce. He added that the average price of microprocessors has fallen dramatically in the last decade and he fears that the ruling will lead to higher prices for computers and IT equipment. Such a prospect is problematic particularly amid the current economic crisis. Hawley added he is worried that the ruling will result in a diversion of R&D dollars that otherwise would have been spent on new cutting-edge discoveries in the United States to Europe to pay exorbitant fines.