Ensuring competitive markets

The European Commission is adamant not to tolerate any nonsense when it comes to ensuring competitive markets in Europe. A staggering fine to the tune of €1.06 billion has recently been imposed on the world's leading chipmaker, Intel, as proof of this.

The Commission found Intel, a US company, guilty of abusing its dominant position on the relevant market. Chip-driven processors are an essential component of every computer. There is fierce competition in this market between two major players - Intel and its sole remaining competitor of note, AMD, which holds a much smaller market share.

Following complaints by AMD that Intel was abusing its dominant position the Commission launched a full-blown investigation into the matter. This investigation has now culminated in a decision by the Commission whereby it has found Intel guilty of breaching EU competition rules by abusing its dominant position in the market in question.

In the Commission's view, such an abuse consists in the granting of illegal rebates and payments in favour of computer manufacturers and one retail store chain and to the detriment of his competitor AMD and to consumers in general.

Certain rebates can indeed lead to lower prices for consumers. However, when a company is in a dominant position in a particular market, rebates that are conditional on buying less of a competitor's products, or not buying them at all, are as a rule deemed to be abusive. In this case, Intel forced computer makers to accept discounts tied to exclusivity clauses, which made it impossible for them to accept offers from AMD. It gave wholly or partially hidden rebates to computer manufacturers on condition that they bought all, or almost all, their central processing units (CPUs) from Intel.

Intel also made direct payments to a major retailer on condition it stocks only computers with Intel x86 CPUs. It also made direct payments to computer manufacturers to halt or delay the launch of specific products containing a competitor's x86 CPUs and to limit the sales channels available to these products. Owing to the lack of competition in the CPU market, such deals lead to an increase in computer prices and to a lack of choice to the detriment of consumers.

The Commission has now obliged Intel to desist from engaging in such restrictive practices. Intel must also pay the fine imposed within three months of the date of notification of the Commission's decision. Indeed, it is interesting to note that though the amount imposed is the highest ever imposed in a competition case and represents 4.15 per cent of Intel's turnover in 2008, it is actually less than half the allowable maximum in terms of EU law, which is 10 per cent of a company's annual turnover. On its part, Intel has denied all the accusations and made clear its intentions to appeal the Commission's decision.

The Commission's message is loud and clear. It will not tolerate anti-competitive practices which impair competition on EU markets - be they forthcoming from EU-based companies or be they forthcoming from companies based outside Europe. Any company based in the US which conducts business within Europe must respect EU antitrust rules in the same way that European companies must respect US law when targeting markets on the other side of the Atlantic.

Practices such as the ones Intel engaged in limit choice and stifle innovation to the detriment of consumers. This is something which the Commission is not prepared to accept.

Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.

mariosa@vellacardona.com