Intel Corporation's European Union Antitrust Case
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Case Code: ECON068 Case Length: 17 Pages Period: 2009 - 2018 Pub Date: 2018 Teaching Note: Not Available |
Price: Rs.500 Organization : Intel Corporation Industry : Computers, IT and ITeS Countries : Europe Themes: Market Structure, Competition, Business Law |
Abstract Case Intro 1 Excerpts
Excerpts
Background Note
Intel, headquartered in Santa Clara, California, USA, recorded revenues of US$ 59.38 billion 7 for the year ended 2016 (See Exhibit I for Intel’s financials). It manufactured microprocessors for desktops, servers, workstations, network cards, and integrated circuits, motherboard chipsets, graphics chips, flash memory, embedded processors, and other devices related to computing and communications, consumer electronics, software, etc. The history of Intel goes back to the late 1950s, when two engineers, Gordon Moore (Moore) and Robert Noyce (Noyce), started working at Shockley Semiconductor Laboratories 11 (SSL), a research lab founded by Nobel Laureate William Shockley (Shockley). In 1957, Moore and Noyce started Fairchild Semiconductor International Inc. (Fairchild), a semiconductor company, with six other engineers....
Competition Between Intel and AMD
Intel's closest competitor in the processors market was AMD. Though Intel hugely dominated the PC and server market for microprocessors, AMD surpassed Intel’s sales of microprocessors in Germany, Europe's biggest market for PCs, for the first time in August 2017. In March 2017, Intel’s microprocessors totaled 72.4 percent of the sales. On March 2, 2017, AMD launched Ryzen processors for consumer PCs and captured 27.6 percent of the market for the month of March 2017. AMD's sales began rising after that, hitting 56.1 percent in August 2017 to overtake Intel for the first time in one decade (See Exhibit II for monthly revenue of AMD vs Intel in Germany)....
Intel's Initial Troubles with the EC
While Intel attributed its dominance in the microprocessors market to its innovations and advertising campaigns, its rival AMD believed that Intel’s market dominance was due to its anticompetitive behavior. In 2001, AMD filed a complaint with the EC stating that Intel used unfair business practices to persuade computer manufacturers to buy its microprocessors and had violated the EU’s competition rules (See Exhibit IV for EU’s competition policy). AMD complained that Intel was offering conditional rebates to Original Equipment Manufacturers (OEMs) that required them to stock PCs with only Intel’s microprocessors (See Exhibit V for chronology of events in the Intel – EU antitrust case). Consequently, the EC began its investigations into Intel’s business practices.....
EC Reopens the Probe
In June 2004, the EC reopened the probe after AMD offered new information alleging that Intel offered illegal rebates to computer manufacturers. Thus, in July 2005, the EC raided Intel’s European offices in Munich, Germany, and Swindon, England, to look for evidence of anti- competitive actions. The EC also sought help from the UK’s Office of Fair Trading 20 for on-site inspections of Intel’s offices located in Swindon. The FTCs in Japan and South Korea also investigated Intel's business practices....
EC Issues Supplementary Statement of Objections
Continuing its probe against Intel, the EC raided the company's offices in Germany. In addition to this, it also raided the offices of PC retailers such as Media Markt, DSG International, and PPR since they stocked PCs with Intel's microprocessors. In March 2008, Intel requested the EC for an oral hearing. The hearing took place on March 11 and March 12, 2008, at Brussels. This was an opportunity for Intel to defend its actions and respond to the allegations against it. However, the hearing failed to generate any positive results since Intel refused to accept the allegations, and pointed out instead that the nature of the market was itself competitive....
Intel Appeals to the Court of First Instance
In August 2008, Intel wrote a letter to the Directorate General for Competition 25 (DG-COMP) requesting it to ask AMD to produce documents to substantiate its allegations of anti-competitive business practices against Intel. It said that the charges levied against it in the SSO were due to documents provided by AMD against Intel’s business practices. The DG-COMP refused to produce any document from AMD. With its request being turned down, Intel said that it could not defend its position because it could not see what was listed in the documents. On September 4, 2008, Intel requested the DG-COMP to extend the deadline for its reply to the objections raised in the SO and the SSO to December 15, 2008....
EC Fines Intel
On May 13, 2009, the EC concluded that Intel had “violated EU competition rules by exploiting its dominant position with a deliberate strategy to shut out AMD.". After consulting with 27 EU governments, the EC levied a fine of € 1.06 billion, the highest ever in the history of the EU, on Intel. Intel had to pay the fine within 90 days....
Intel Appeals to the General Court
After the EC slapped the € 1.06 billion fine on Intel, the company appealed to the General Court, which specifically dealt with complaints against other EU institutions, on the basis that the fine was excessive and should be reduced or annulled. The General Court categorized the rebates into three categories for assessing whether Intel’s rebates infringed competition law. First, quantity rebates, linked to volume of purchase, were permissible as they did not foreclose the market to competitors. Second, exclusitivity rebates, offered by dominant companies, were capable of restricting competition and hence were termed as abusive. Third were other loyalty enhancing debates, which did not fall into these two categories and had to be assessed on a case-by-case basis. The General Court concluded that Intel’s rebates fell into the “exclusitivity” category and were therefore illegal. The General Court turned down Intel’s plea, arguing that the exclusivity rebates were by nature “incompatible with the objective of undistorted competition within the common market."....
Intel Moves to the CJEU
In 2014, Intel took the case to the CJEU appealing the legal characterization of exclusitivity rebates by the General Court. The company also requested the CJEU to set aside the judgment of the General Court, annul the decision at issue partially or wholly, and cancel or substantially reduce the fine imposed. The company also requested the CJEU to refer the case back to the General Court for determination in accordance with the judgment of the CJEU and order the EC to pay the costs of these proceedings before the General Court....
The Road Ahead
The CJEU's rejection of the 2014 General Court's decision did not imply that the EC's original 2009 decision to fine Intel would be overturned. However, analysts felt that Intel had gained yet another reprieve as far as paying the penalty was concerned for several more years considering the speed at which the case had progressed....
Exhibits
Exhibit I: Intel's Financials
Exhibit II: Monthly Revenue of AMD Vs Intel in Germany (March to August 2017)
Exhibit III: Market Share of Intel Vs. AMD (For Q1 2004 - 2018)
Exhibit IV: EU's Competition Policy
Exhibit V: Chronology of Events in the Intel – EU Antitrust Case
Exhibit VI: Intel's Allegedly Abusive Marketing Practices between 2002 and 2007
Exhibit VII: Conclusions from EC's Investigation
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