September 21, 2009
European regulators on Monday released details of illegal deals Intel allegedly made with Acer, Dell, Hewlett-Packard, Lenovo, and NEC in an attempt to limit the release of PCs based on competing products from Advanced Micro Devices.
The latest document from the European Commission, the governing body of the European Union, stemmed from an EC decision in May that found Intel guilty of anti-competitive practices that aimed to defeat AMD. The ruling resulted in a record $1.45 billion fine.
While the charges against Intel have largely been reported, the latest disclosure provides more specifics on the chipmaker's alleged abuse of its market dominance. The document also names the computer makers that allegedly entered deals with Intel.
In a statement, Intel spokesman Chuck Mulloy said there was nothing new in the latest document.
"This decision reflects the underlying bias we have come to expect from the case team that ran this investigation," Mulloy said. "We are convinced that the commission's conclusions regarding our business practices are wrong, both factually and legally."
In general, the commission accuses Intel of paying computer makers through rebates for either not shipping or delaying the launch of PCs based on competing products from its main rival, AMD. Unlike previous disclosures, however, the latest document provides the names of computer makers that acknowledged receiving the rebates.
For example, Dell received rebates from December 2002 to December 2005 for buying exclusively from Intel, according to the EC. In an internal presentation in February 2003, Dell executives noted that buying from AMD could bring retalation from Intel that would be "severe and prolonged with impact to all LOBs (lines of business)."
Intel also provided rebates to HP from November 2002 to May 2005 on the condition that HP buy no less than 95% of its CPUs for business desktops from Intel, the EC said. In an e-mail written in July 2002 during rebate negotiations, an HP executive wrote, "Please do not... communicate to the regions, your team members, or AMD that we are constrained to 5% AMD by pursuing the Intel agreement."
Manufacturer NEC received Intel rebates from October 2002 to November 2005 on the condition that it purchase no less than 80% of its processors for desktops and notebooks from Intel, the EC said. Rebates received by Lenovo in 2007 were predicated on buying notebook chips exclusively from Intel.
In a December 2006 e-mail obtained by the EC, a Lenovo executive said, "Late last week Lenovo cut a lucrative deal with Intel. As a result of this, we will not be introducing AMD-based products in 2007 for our notebook products."
According to the EC, Intel also provided rebates to Europe's largest PC retailer, Media Saturn Holding, on condition that MSH sell Intel-based PCs exclusively from October 2002 to December 2007. The EC also accuses Intel of paying computer makers to restrict shipments of AMD-based PCs. Under such deals, called "naked restrictions," HP agreed to sell AMD-based business desktops between November 2002 and May 2005 only to small and medium-sized businesses exclusively through direct distribution channels, rather than channel partners. HP also delayed the launch of its first AMD-based business desktop in Europe for six months.
Other examples included Acer postponing the launch of an AMD-based notebook from September 2003 to January 2004, and Lenovo postponing the launch of AMD-based notebooks from June 2006 to the end of 2006.
The EC also found that Intel sought to conceal its arrangements with PC makers and MSH. The rebate deal with Dell, for example, was the result of "constant oral negotiations and agreement," Dell allegedly told the EC.
While HP had a written agreement with Intel, the conditions of the rebates were unwritten, the EC said. In the case of MSH, the written deal said the agreement was non-exclusive, but the evidence pointed to the opposite. "It was clear to MSH that despite the non-exclusivity clause the exclusive nature of the relationship remained, for Intel, an essential element of the relationship between Intel and MSH," the retailer told the EC.
Intel's Mulloy said the EC's evidence "relied heavily on speculation found in e-mails from lower-level employees that did not participate in the negotiation of the relevant agreements."
"At the same time, they (the EC) ignored or minimized hard evidence of what actually happened, including highly authoritative documents, written declarations, and testimony given under oath by senior individuals who negotiated the transactions at issue," Mulloy said. "Also, the commission consistently construed ambiguous documents in a manner adverse to Intel, while overlooking or dismissing authoritative documents as 'insufficiently clear' when they contradicted the Commission's case."
Indeed, the EU's ombudsman in August criticized European regulators for failing to record evidence that favored Intel and said the EC committed "maladministration" by not recording in the case file "potentially exculpatory" comments from a senior executive with Dell, the Wall Street Journal reported.
The EC claimed that when Intel made the illegal deals with customers, AMD was a growing threat. For example, in an October 2004 e-mail from Dell to Intel, an executive with the computer maker said, "Intel is increasingly uncompetitive to AMD which results in Dell being uncompetitive to [Dell competitors]. We have slower, hotter products that cost more across the board in the enterprise with no hope of closing the performance gap for 1-2 years."
At the time, AMD was making headway in the market with its Opteron server processor, which competed against Intel's Xeon CPU. Since then, Intel has regained market share against its smaller rival.
In an e-mailed statement, Tom McCoy, AMD executive VP of legal affairs, said Monday, "This is the first time that Intel has had to confront now publicly available facts of its illegal behavior and it won't be the last."
Other potential headaches for Intel include continuing investigations by the Federal Trade Commission and the New York attorney general's office, and an antitrust lawsuit filed by AMD against Intel. That case is expected to go to trial in March, according to AMD.
Intel has appealed the EC's fine and decision, a process that's likely to take years. In the meantime, EU regulators have said that Intel must stop all unlawful practices immediately, and they have promised to "actively monitor Intel's compliance with this decision."
InformationWeek has published an in-depth report on e-discovery. Download the report here (registration required).
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