IE 11 is not supported. For an optimal experience visit our site on another browser.

Intel to comply with Japan's antitrust order

Intel announced it would comply with an order to eliminate discounts that Japanese antitrust authorities said had kept rivals out of the market.
/ Source: Reuters

Intel Corp. said it would comply with an order to eliminate discounts that Japanese antitrust authorities said had illegally locked rivals out of the market.

But the world's largest chip maker, in a decision announced as business opened in Tokyo on Friday, disputed the Japan Fair Trade Commission's assertion that it had violated antimonopoly laws and stifled competition from Advanced Micro Devices Inc..  It said the discounts were good for personal computer shoppers.

"We can live with the recommended cease and desist order, but we disagree respectfully with their interpretation of the facts," Intel spokesman Chuck Mulloy said, adding that Intel would not change its practices outside of Japan.

By complying with the order, Intel avoids a legal dispute that could have dragged on for years and harmed its standing in a country where it had $3 billion in sales last year.  Intel says it will still be allowed to offer discounts and rebates based on volume purchases and other factors.  In contrast, Microsoft Corp. chose to challenge an FTC order against it last year.  The case is being reviewed through the FTC's administrative hearing procedure.

Intel commands nearly 90 percent of the Japanese market for microprocessors, the central operating chips in personal computers.  It still faces scrutiny from European Union investigators looking into complaints from AMD. Europe is a far larger market for Intel, accounting for nearly 25 percent of its $34 billion in sales last year.

Saving image
Industry specialists say Intel's decision is not likely to threaten its market share in Japan and saves its corporate image, which might have been damaged in a prolonged legal process.  "This would not mean PC makers are not going to buy Intel chips any more. 

Given a small market share by AMD, they have no choice but to turn to Intel products," said Yoshihisa Toyosaki, president of research firm iSuppli Japan.  "By complying with the FTC order, Intel's presence in the market will be little affected, and it can save a lot of image problems."

Smaller rival AMD said Intel's decision to comply with the FTC order is a step in the right direction but that it is still dissatisfied with the latest move.  "(Intel) has conspicuously failed to either accept responsibility for its actions or acknowledge that competition is best served when customers and consumers have a choice," AMD Executive Vice President Thomas McCoy said in a statement.

Japanese investigators raided Intel offices last April after receiving complaints from AMD and Transmeta Corp. that Intel's cash incentives made it impossible to compete fairly.  Three weeks ago, the commission ordered Intel to stop linking rebates and discounts on microprocessors to the percentage of a company's PCs that use Intel chips.

AMD share declines
The commission said Intel's Japan unit set exclusivity thresholds of 90 percent and 100 percent that triggered lucrative discounts, rebates and "market development" funds.

AMD has applauded the order and has called Intel an "avowed monopolist."  It points to data showing its market share declining from 25 percent in 2002 to 10 percent at the end of last year.

Intel's Mulloy said AMD's 2002 market share was boosted by a one-time sale of older products and that in 2003 Intel's Centrino notebook chips were highly popular in Japan.

Intel received an extension on its original deadline to decide whether to accept or fight the order and had until the end of the week to give its answer.  As part of the agreement, Intel will no longer use market share levels in its sales pitches to Japan's PC industry, though it will continue to offer other types of discounts.

Intel and the Japanese will work out the specific details for implementing the order, and Intel will also have to send its Japanese sales staff to "antimonopoly training."  No fines were levied, Mulloy said.

This is not the first time Intel has had a run-in over alleged fair trade violations.  In the late 1990s, the U.S. Fair Trade Commission sued the chip maker for withholding critical technical information from customers, who sued it for patent infringement. Intel disputed the FTC's findings, but just before an important hearing it reached a compromise settlement.

The practice of tying discounts to market share levels doesn't necessarily violate antitrust laws in the United States or Europe but becomes a concern when the deals are driving a competitor out of the market, said A. Douglas Melamed, who worked as a deputy attorney general for antitrust enforcement under President Bill Clinton.

"Our law is very protective of price-cutting," Melamed, now a partner at the Washington law firm Wilmer, Cutler, Pickering, Hale and Dorr, which does not work for Intel.  "It benefits consumers; it increases output."