May 13 (Bloomberg) -- European Union regulators levied a record 1.06 billion-euro ($1.45 billion) fine against Intel Corp., the world’s biggest computer-chip maker, and ordered the company to stop using illegal rebates to thwart competitors.

Following an eight-year investigation, the European Commission found that Intel impeded competition by giving rebates to computer makers that buy all or almost all of their chips from Intel. The penalty is the biggest antitrust fine in the 27-nation EU’s history, more than double the 497 million- euro penalty against Microsoft Corp. in 2004.

The commission’s attack on rebates may increases pressure on Intel as computer sales decline in the global economic recession. Advanced Micro Devices Inc., which originally filed the antitrust complaint in the EU case, has been struggling to make inroads into Intel’s hold on 80 percent of the market for processors that run PCs.

“AMD will be throwing a party today,” said Wim Zwanenburg, a fund manager at Bank Degroof Group, which oversees 23 billion euros including Intel shares. “It’s a bit like David versus Goliath for them.”

The EU said Intel gave rebates to computer makers from 2002 until 2005 on the condition that they buy at least 95 percent of chips for PCs from Intel. The commission said the Santa Clara, California-based company imposed “restrictive conditions” for the remaining 5 percent, supplied by AMD.

Intel will appeal the commission’s decision to a European court in Luxembourg, said Bruce Sewell, Intel’s general counsel, in a telephone interview.

‘Ignored’

Intel intends to use documents that prove there was no coercion of PC makers, Chief Executive Officer Paul Otellini said on a conference call.

“We believe a significant amount of evidence was either ignored or disregarded, or both by the case team that would refute their own case,” Otellini said. “Our contracts are straightforward. They are consistent worldwide and they are volume-based: the more you buy, the less you pay.”

Intel fell 8 cents to $15.13 at 4 p.m. New York time in Nasdaq Stock Market trading. AMD rose 3 cents, or 0.7 percent, to $4.38 in New York Stock Exchange composite trading.

EU Competition Commissioner Neelie Kroes said that Intel’s conduct harmed millions of consumers by trying to keep competitors out of the market. Intel kept its market share at about 80 percent by giving rebates to PC makers that bought all or most of their chips from the company, the commission said.

“Such a serious and sustained violation of the EU’s antitrust rules cannot be tolerated,” she said in a statement.

Acer, Dell

The computer makers coaxed to not use AMD’s chips included Acer Inc., Dell Inc., Hewlett-Packard Co., Lenovo Group Ltd. and NEC Corp., the commission said.

The commission also said Intel made payments to electronics retailer Media Markt on the condition that it only sell Intel- based PCs. The EU has evidence that Intel “went to great lengths” to cover up its illegal practices and the conditions weren’t in the company’s contracts, Kroes said.

“The Commission was able to gather a broad range of evidence demonstrating Intel’s illegal conduct through statements from companies, on-site inspections, and formal requests for information,” Kroes said.

The 1.06 billion-euro fine is the highest issued by the EU, surpassing an 896 million euro fine against Cie. de Saint-Gobain SA in a cartel case in November. The 497 million-euro penalty against Microsoft came in an abuse-of-dominance case, the same cause of action as the EU’s case against Intel.

“The fine is clearly designed to grab people’s attention,” said Michael Reynolds, an antitrust lawyer at Allen & Overy LLP in Brussels.

‘Lingering’ Issues

The penalty represents about 4 percent of Intel’s $37.6 billion in sales last year. It had $12.8 billion in cash, debt instruments included in trading assets, and short- and long-term investments as of March 28, Intel said last month.

While the amount of the fine won’t affect Intel, continuing EU oversight may be an issue for the company, said Michiel Plakman, a fund manager in Rotterdam at Robeco NV, which oversees the equivalent of $150 billion including Intel shares.

“These sorts of issues keep lingering, just like with Microsoft,” Plakman said. “As soon as you caught Brussels’ interest, it’s going to be like that for a while and I don’t think Intel will let this slide.”

The EU regulator said Intel’s unlawful practices must stop immediately and that it would “actively monitor Intel’s compliance with this decision.”

Sewell said it’s not clear from Kroes’s comments what kind of rebates must be abolished.

‘Mystified’

“I’m somewhat mystified,” Sewell said. “I don’t know exactly what we’ll have to forgo. It’s about certain kinds of rebates. I’m not sure how she’s making that distinction.”

Martin Reynolds, an analyst at research firm Gartner Inc., said that while Intel “can still do rebates, they can no longer tie them to loyalty.”

“Intel is likely to inspect its sales force more closely because of this,” he said. “It seems like it’s necessary for Intel to be very careful in the future.”

The commission can fine companies for not complying with antitrust decisions. The regulator levied additional penalties totaling 1.18 billion euros against Microsoft for failing to comply with an order to provide rivals information on how Windows communicates over a network.

Giuliano Meroni, president of AMD’s European unit, said in a statement that the decision “will shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers.”

To contact the reporters on this story: Matthew Newman in Brussels at Mnewman6@bloomberg.net.

Last Updated: May 13, 2009 16:07 EDT