Intel Fined Record $1.45 Billion in Antitrust Case

BRUSSELS — The European Commission on Wednesday fined Intel a record €1.06 billion for abusing its dominance in the market for computer chips to exclude Advanced Micro Devices, which is Intel’s only serious rival.

The E.U. competition commissioner, Neelie Kroes, said the penalty against Intel, the world’s largest chip maker, was justified because the company had skewed competition and robbed consumers of choice.

Kroes said Intel “used illegal anticompetitive practices to exclude its only competitor and reduce consumers’ choice — and the whole story is about consumers. ” She added that Intel’s practices “undermined innovation.”

The previous record fine for similar abuses in the European Union was €497 million, or $677 million at current exchange rates, imposed on Microsoft in March 2004 for blocking competition in markets for server computers and media software.

Ms. Kroes said Intel had pursued a strategy aimed mainly at excluding AMD by paying computer makers and retailers to postpone, cancel or avoid AMD products entirely.

She also ordered Intel 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 AMD from increasing its share beyond about 20 percent of that market.

Giuliano Meroni, the president of AMD’s operations in Europe, said the decision would “shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers.”

Intel had no immediate comment, but antitrust experts have said Intel would almost certainly appeal both the fine and orders to change its business practices to the European Court of First Instance, which is the trade bloc’s second-highest tribunal.

On Tuesday, Intel’s chief executive Paul S. Otellini, declined to answer questions about the case in Europe ahead of any official announcement from regulators. “I prefer not to comment on a rumor,” Mr. Otellini said, speaking to investors gathered at the company’s headquarters in Santa Clara, California, for an annual meeting.

In typical fashion, Mr. Otellini vowed Intel would continue spending vast sums of money toward advancing its manufacturing lead over rivals. Intel has long embraced a strategy of keeping its research and development investments high during downturns as a means of applying more pressure on competitors when better times return.

Under the order, Intel must change its business practices immediately pending its appeal, although it could ask for an injunction. Intel also must pay the fine right away, though that sum would be held in a bank account until appeals are exhausted, a process that could take years.

The commission is entitled to levy fines up to 10 percent of a company’s annual global sales. Intel’s annual sales were $37.6 billion in 2008, thus the company could have faced a maximum penalty of close to $4 billion dollars. Money collected in antitrust cases is added to the trade bloc’s annual budget of around €130 billion.

The commission found that Intel “went to great lengths to cover up its anticompetitive actions,” Ms. Kroes said Wednesday, adding that her officials had uncovered “serious wrongdoing” in the chip market by Intel that had harmed millions of consumers.

The decision to impose severe punishment on Intel is another reminder of the emergence of European regulators as some of the world’s most activist enforcers of antitrust law, and it is a further sign authorities all over the world are raising the stakes for the biggest technology companies.

Last year, the U.S. Federal Trade Commission stepped up its inquiries into Intel, opening a formal investigation.

This week, the head of the U.S. Justice Department's antitrust division, Christine A. Varney, made clear that authorities would return to an aggressive enforcement policy against corporations that abuse their market dominance, following a lull under President George W. Bush.

While Bush was in office, many smaller companies chose to take their complaints to the E.U. regulators and to Asian authorities.

The E.U. began stepping up its pursuit of violators — and in particular cases in the technology sector — early this decade when the Bush administration backed away from pursuing its toughest penalties against Microsoft, settling the case instead.

E.U. regulators first began investigating Intel in 2001, after Advanced Micro Devices, its only serious rival, filed a complaint a year before with the E.U. authority in Brussels. Both chip makers are based in the United States.

In two sets of charges, in 2007 and 2008, the commission accused Intel of abusing its dominant position in computer chips by giving large rebates to computer makers, by paying computer makers to delay or cancel product lines and by offering chips for powerful server computers at prices below actual cost.

The commission also charged the firm with paying retailers not to sell personal computers using AMD chips.

Intel has repeatedly said it did nothing wrong and that its rebates and discounts were legal and a commonly used way of rewarding companies for purchasing very high volumes of its products.

Intel also has suggested that E.U. officials have imperiled its rights of defense during the investigation.

Critics of the approach in Europe say it has little concrete effect on technology markets, and has done little to lessen the dominance of entrenched companies like Microsoft.

Since 2004, Microsoft has paid additional penalties in Europe of nearly €1.2 billion for failing to comply with the commission’s administrative orders. And in January, the commission issued yet more charges against Microsoft for again leveraging its near-ubiquitous Windows operating system to promote other applications, this time its browser.

The Intel decision also is likely to be closely scrutinized for its effectiveness, in particular for signs that orders to cease rebate practices will make the microchip market more competitive.

Those orders could have a far greater impact on the Intel’s prospects than the fine. The orders also are a strong signal to other technology companies under investigation that additional decisions probably are on the way.

Lawyers based in Brussels say that Ms. Kroes is eager to reach conclusions in ongoing inquiries into other U.S. companies, including Rambus, which holds patents on memory chips, and Qualcomm, which develops wireless technology for phones, before her term ends later this year.

E.U. regulators also are questioning Cisco Systems, the world’s largest maker of networking equipment, about whether it restricts competition for network maintenance services.

IBM, which settled a long-running antitrust case with the commission in the 1980s, faces a new antitrust complaint. And Google, the industry’s newest giant, is also coming under closer scrutiny, in particular for its domination of advertising over the Internet.

Nokia, the Finnish mobile phone giant, has filed a complaint with the commission against a German company, IPCom, over its patenting policy, according to news reports. That would make Nokia one of the few major European technology companies to bring a case in Brussels.