EC Exposes Intel Email Evidence

The European Commission has published a series of internal emails from PC makers’ dealings with Intel, which form the basis of its £953m anti-trust case with the chip maker.

In May, the European Commission imposed a fine of €1 060 000 000 (£953m) on Intel for abusing its market position. The EC said that Intel had engaged in “illegal anticompetitive practices to exclude competitors from the market for computer chips”.

As part of the original ruling, the EC disclosed the names of the PC makers which had been involved in the “illegal practices” including Dell, HP, and Lenovo. This week, the commission went a step further and released internal emails from some of the companies involved which provide more detail on Intel’s market tactics.

“Intel abused its dominant position in the x86 CPU market by implementing a series of conditional rebates to computer manufacturers and to a European retailer and by taking other measures aimed at preventing or delaying the launch of computers based on competing products (so-called ‘naked restrictions’),” the EC said in a statement.

The EC’s case against Intel is based on complaints – in 2000, 2003 and 2006 – from rival chip-maker AMD. The EC said that Intel “interfered directly in the relations between computer manufacturers and AMD”.

According to the EC, the illegal activity took two forms. Firstly Intel gave rebates to computer vendors on the condition that they bought their x86 processors from the chip maker and made direct payments to one major retailer on the condition that only stocked PCs with Intel chips. The EC also claims that Intel made payments to computer makers to delay the release of products using alternative x86 processors.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years. Such a serious and sustained violation of the EU’s antitrust rules cannot be tolerated,” said EC competition commissioner Neelie Kroes.

Examples of the conditional rebates imposed by Intel include email evidence from Dell. The EC said that between December 2002 and December 2005, Intel rebates granted to Dell were based on the condition that the PC maker purchased Intel’s chips exclusively. “In an internal Dell presentation of February 2003, Dell noted that should Dell switch any part of its CPU supplies from Intel to its competitor AMD, Intel retaliation ‘could be severe and prolonged with impact to all LOBs [Lines of Business]’,” the EC stated.

HP was also brought into the rebate scheme according to the EC. “In an e-mail written in July 2002 during the negotiation of the rebate agreement between HP and Intel, 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’,” the EC stated.

Other companies involved in the rebate scheme included Lenovo, NEC and Media Saturn Holding (MSH) – Europe’s largest PC retailer.

The other approach used by Intel to essentially rig the market in its favour was “naked restrictions” according to the EC. Rather than rebates, Intel is alleged to have paid computer makers such as HP directly to limit the distribution of PCs and laptops based on AMD technology.

“Between November 2002 and May 2005, Intel payments to HP were conditioned on HP selling AMD-based business desktops only to small and medium enterprises, only via direct distribution channels (rather than distributors), and on HP postponing the launch of its first AMD-based business desktop in Europe by 6 months,” the EC stated. “For example, in an internal September 2004 HP e-mail, an HP executive stated: ‘ You can NOT use the commercial AMD line in the channel in any country, it must be done direct. If you do and we get caught (and we will) the Intel moneys (each month) is gone (they would terminate the deal). The risk is too high’.”

While Intel’s defence has been based around the idea it’s tactics were justified given the competitiveness of the chip market, the EC has also alleged that the company knew it was doing something wrong because it tried to conceal its various rebates and payments to computer makers.

“The Commission found that Intel generally sought to conceal the conditions in its arrangements with PC manufacturers and MSH,” the EC stated. “For example: The rebate arrangement with Dell was not subject to a written agreement but was concluded orally at various meetings. In this regard for example, in a submission to the Commission, Dell stated that ‘there is no written agreement between Intel and Dell concerning the MCP [rebate] discount, rather, the discount is the subject of constant oral negotiations and agreement’.”

The EC’s case against Intel was based on complaints – in 2000, 2003 and 2006 – from rival chip-maker AMD. The EC said that Intel “interfered directly in the relations between computer manufacturers and AMD”.

According to the EC, the illegal activity took two forms. Firstly Intel gave rebates to computer vendors on the condition that they bought their x86 processors from the chip maker and made direct payments to one major retailer on the condition that only stocked PCs with Intel chips. The EC also claims that Intel made payments to computer makers to delay the release of products using alternative x86 processors.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years. Such a serious and sustained violation of the EU’s antitrust rules cannot be tolerated,” said EC competition commissioner Neelie Kroes.

Intel filed an appeal on 22 July, claiming the EC’s ruling did not take into account the realities of the highly competitive processor marketplace, which has resulted in lower prices and better products for consumers and businesses, according to a spokesman. “In real terms, microprocessor prices have fallen faster than the prices of any other product tracked by the US government,” Intel spokesman Bill Kircos said in a statement. “Similar research supports this worldwide including Europe.

Intel also released a statement this week which claims that the EC has been selective in its use of email and other oral evidence from companies such as Dell and other.

“Under established Commission procedures, much of the evidence before the Commission continues to be deemed confidential, and Intel is not free to elaborate on it publicly,” Intel said. “However, we can observe that the Commission relied heavily on emotional exchanges and speculation found in emails if they favored the Commission’s case, while ignoring or minimizing 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.”

Intel also accused the EC of suppressing evidence. “In August of 2006, the Commission interviewed a senior executive of Dell. All indications are that this individual provided evidence favorable to Intel on key points of the case. No official record of the meeting was kept or placed in the Commission’s file, however, in contravention of the Commission’s obligations. When Intel asked about the meeting the Commission first denied it had happened, and later denied any obligation to inform Intel about the meeting.”

Intel said it then took the matter to the Commission’s Ombudsman, who concluded in a decision on July 14 that the failure to record and preserve the evidence produced at this key meeting “amounted to maladministration on the part of the Commission”.