By Andy Reinhardt On July 12, teams of investigators from the European Commission's competition directorate, joined by officials from at least four European countries, carried out a series of coordinated dawn raids on Intel's (INTC) European offices. They also paid visits to a half-dozen PC makers and distributors, including the British office of Dell (DELL).Investigators were seeking to probe claims that Intel has abused its dominant market share in microprocessors to force customers into exclusive contracts that allegedly shut out rival chipmaker Advanced Micro Devices (AMD) (see BW Online, 6/28/05, "AMD Hauls Intel Back to Court").
Officials have not revealed whether they seized electronic or paper documents, but such raids typically involve carting away piles of evidence. Investigators in the Intel case were likely looking for evidence -- in contracts, invoices, and e-mails -- that Intel arm-twisted PC makers or resellers into favoring its products over AMD's.
The raids send a strong signal that the European Commission is far along in a five-year investigation into Intel's business practices. A preliminary inquiry launched in 2000 at the behest of AMD fizzled after several years for lack of evidence, but it was never officially closed. AMD filed another complaint in 2004 and provided additional evidence of what it claims is a "relentless, worldwide campaign" to harm its business.
IMPACT ON RIVALS. The new complaints breathed life into an investigation on the verge of being closed. Now it appears more likely than ever that the EC will bring charges against Intel. "They wouldn't have done these raids if they weren't pretty certain of their case," says a Brussels official close to the case.
AMD is counting on the fact that European antitrust law generally gives more consideration to the impact of monopolistic behavior on competitors. In the U.S., by comparison, monopoly-abuse rulings rely mostly on demonstrating harm to consumers from the alleged behavior.
The European and U.S. systems have been edging toward each other in recent years, but Europe's is still tilted far more to proving harm to rivals that may be assumed to have hurt consumers.
OPERATING "AGGRESSIVELY." Given Europe's imminent summer-vacation break and the time needed to digest information gathered in the raids, it's unlikely the commission will issue an indictment, known in Euro-speak as a "Statement of Objections," until October at the earliest.
AMD has been nipping at Intel's heels for three decades. On June 27, the scrappy smaller company filed a private antitrust suit against Intel in U.S. federal court. A 48-page legal brief spells out in meticulous detail the marketing and incentive programs Intel allegedly uses to entice PC makers and retailers from straying to competing chips offered by AMD.
Intel has consistently denied doing anything unlawful. CEO Paul Otellini says Intel competes "aggressively," but he added in a statement released two days after AMD's suit that "Intel has always respected the laws of countries in which we operate."
JAPAN'S FIRST SHOT. The giant chipmaker, though known for its hardball tactics, has managed to stare down most of the antitrust claims made against it since it became king of PC processors in the early 1980s. But Intel's luck may have run its course.
In March, antitrust officials in Japan landed a blow against the chipmaker, ruling that the same kinds of marketing tactics AMD cites in its suit -- and that the EC is now investigating -- ran afoul of Japanese law.
Intel agreed to abide by the ruling from the Japanese Federal Trade Commission (JFTC) but denied the substance of the finding. Sources close to AMD say the JFTC case emboldened European investigators, who hope to see some of the evidence gathered by their Japanese counterparts. Moreover, it gave cover to AMD's own civil case.
FAMILIAR GROUNDS. What are the prospects for Intel in Brussels? The well-known Microsoft (MSFT) case, which took five years to reach its conclusion under the guidance of competition commissioner, Mario Monti, underscored Europe's role as an independent arbiter of high-tech antitrust -- even when it involved American companies. Found to have abused its software monopoly in desktop PCs and market power in server operating systems, Microsoft was ordered to release a version of Windows with the Media Player software stripped out, disclose secret "handshake" protocols used for communication among Windows desktops and servers, and pay a fine of $610 million.
The case has been accepted on appeal by the Luxembourg-based Court of First Instance, and a bid by Microsoft to postpone implementation of the remedies pending appeal was turned down by the court's president, Bo Vesterdorf, in a sharply worded decision last December.
If charges are brought against Intel, the case will rely on different aspects of European law than were used against Microsoft. Some key precedents that will be applied have been tested in court before, and the underlying issues are less technical than those in the Microsoft suit.
UNEXAMINED ISSUES. The most important precedent is a case against French tire maker Michelin, which was found in 2002 to have abused its market dominance by offering rebates and bonuses to dealers that had the effect of excluding other tire makers. The comparisons to the Intel-AMD situation are striking, because much of AMD's argument is built on the allegedly predatory impact of Intel's "market development fund" rebates to PC makers, also known as the "Intel Inside" program.
Another important precedent was set in late 2003, when the court upheld an EC case against British Airways (BAB). The airline was found to have abused its market dominance in British travel-agency services by offering graduated commissions to travel agents based on whether they reached certain sales targets -- a similar tactic to the way Intel allegedly operates.
While the Michelin and British Airways cases laid out rules that could work against Intel, both cases also suffer from flaws that Intel's savvy lawyers will try to exploit -- if it ever comes to that. The Michelin decision, for instance, doesn't adequately address economic issues such as whether consumers benefited from lower tire prices. That's a key argument Intel makes in defending its rebate programs.
NO ESCAPE? Likewise, in the British Airways case, the judges skipped past economic considerations such as considering that despite its commission program, BA lost market share during the period under investigation (see BW Online, 7/14/05, "Why Intel Faces an Uphill Slog").
It's not a foregone conclusion that the EC will bring charges against Intel. But the dawn raids suggest that a case is fairly likely. That's bound to send shivers through the hallways in Santa Clara, Calif., where Intel is based. No question, it's easier to stick a charge of monopoly abuse through incentive programs in Europe than it is in the U.S. The chip giant has dodged a lot of antitrust bullets so far, but Europe could be its Waterloo. Reinhardt is a correspondent in BusinessWeek's Paris bureau