ALKHOBAR, 15 March 2005 — Over in Santa Clara at the global headquarters of the world’s largest chipmaker, the lawyers are rolling up their sleeves, getting ready for some ugly legal maneuvering.
On March 8, Japan’s Fair Trade Commission (JFTC) made a recommendation concerning Intel Japan K.K.’s (Intel) infringement of Japan’s Antimonopoly Act. The JFTC found that Intel abused its monopoly power to exclude fair and open competition, thereby violating Section 3 of Japan’s Antimonopoly Act.
The findings revealed that Intel used illegal tactics to stop Advanced Micro Devices’ (AMD’s) growing success and increasing market share, which reached 22 percent in 2002, by imposing limitations on Japanese PC manufacturers. These manufacturers sell notebook and desktop computers to customers around the world, including those in the Middle East.
The JFTC recommendation is the culmination of an 11-month investigation that discovered patterns of anti-consumer and anti-competitive behavior. The commission found that, because of AMD’s inroads into Intel’s market share, Intel deliberately set out to artificially limit AMD by imposing conditions on five Japanese manufacturers that together represented 77 percent of all CPUs sold in Japan. Specifically, the JFTC noted that:
• One manufacturer was forced to agree to buy 100 percent of its CPUs from Intel; another manufacturer was forced to curtail its non-Intel purchases to 10 percent or less;
• Intel separately conditioned rebates on the exclusive use of Intel CPUs throughout an entire series of computers sold under a single brand name in order to exclude AMD CPUs from distribution;
• The mechanisms used to achieve these ends included rebates and marketing practices that included the “Intel Inside” program and market development funds provided through Intel’s corporate parent in the United States.
The recommendation found that Intel imposed these restrictions in direct response to AMD’s growing market share from 2000-2002. The recommendation also noted that as a result of this misconduct, the combined market share of AMD and a second, much smaller CPU company, Transmeta, fell from 24 percent in 2002 to 11 percent in 2003.
Intel must state by March 18 if they will accept the JFTC recommendation or not. If they do accept the recommendation there is a catalogue of remedies concerning what Intel must stop doing and what they must start doing. Among the remedies is that Intel must notify its customers and educate its employees that it may no longer provide rebates and other funds to Japanese computer manufacturers on conditions that exclude competitors’ CPUs. The JFTC would of course be monitoring Intel’s performance.
If Intel does not accept the JFTC recommendation then legal proceedings will begin. Intel’s acceptance of the recommendation appears highly unlikely in light of the statement released by the company:
“Intel continues to believe its business practices are both fair and lawful. The company is evaluating the assertions and the recommendation before deciding next steps. At the same time, Intel has expressed concern that the JFTC’s recommendation does not appear to take into account antitrust principles commonly accepted worldwide. ‘One of the core principles of competition policy is the notion that such policies should be based on sound economics,’ said Bruce Sewell, vice president and general counsel for Intel. ‘There is a broad consensus that competition regulators should only intervene where there is evidence of harm to consumers. It is apparent the JFTC’s recommendation did not sufficiently weigh these important principles.’”
AMD, Intel’s primary competitor, looked forward to the remedies to be imposed under the JFTC recommendation.
“The JFTC found that Intel illegally manipulated the market to exclude competition, hurting PC users around the world,” said Thomas M. McCoy, AMD executive vice president, legal affairs and chief administrative officer. “Using market power illegally to limit innovation and, more importantly, consumers’ freedom to choose, cannot be tolerated. We encourage governments around the globe to ensure that their markets are not being harmed as well.”
McCoy continued, “The evidence of harm to consumers is obvious. By preventing PC manufacturers from using CPUs of their choice, Intel’s misconduct deprived consumers worldwide of the freedom to purchase computers that best fit their needs. Efforts by an avowed monopolist to artificially set market shares to exclude competition clearly violates antitrust standards globally.”
In an Arab News interview with AMD management in the Europe, Middle East and Africa Region, Jens Drew, director, EMEA Government Relations, AMD, stated that AMD is examining its options and has “not ruled anything out at this point in time,” including its own legal action against Intel. The company is also hoping for a leap in the adoption of its products by Japanese technology manufacturers.
“We hope that by establishing Intel’s wrongdoing in the Japanese market that we will have a chance to compete on the merits of our products,” said Drew. “If you look at the long way AMD has come in recent years, how we’ve assumed technology leadership, I think we have a very attractive portfolio to offer to existing and potential customers. We are very confident that we have an excellent chance to compete in a fair and open market simply on the merits of our products. Their performance, prices, technological advantages and their ease of integration and other factors can really make a very good business proposal for all parties involved. This is what we want to get. We want to be able to compete on the merits of our products.”
Drew claimed not to have specific figures for AMD’s losses in the Japanese market but he did point out, “if you see that within 12 months our market share dropped from more than 20 percent to only 10 percent, you can imagine that it was quite significant.”
The Japanese are not the only ones investigating Intel.
“There is an EU investigation, which began in the year 2000 and was revived in late 2003,” Drew remarked. “The investigation is ongoing and it is our understanding from some reports that the EU authorities are cooperating with the Japanese authorities. We have no reason to believe that Intel’s practices are limited to Japan.”
Whatever Intel’s response to the JFTC on March 18, it seems certain that the company will not be in for an easy ride. European sources reported that already as a consequence of the EU’s continuing investigation, Ireland withdrew its offer of 170 million euros in promised aid to Intel to build a new manufacturing facility. Some industry insiders are also calling for scrutiny of Intel’s business practices in China. With the IBM-Lenovo deal moving forward, demands for such an inquiry will not be dissipating soon.
