Not Just Microsoft

[unixronin]

The EU has just hit Intel with a $1.45 billion fine for “engaging in illegal anticompetitive practices to exclude competitors from the market”, referring specifically to dirty tricks targeting AMD.

Between October 2002 and December 2007, Intel held more than 70 percent of the worldwide x86 CPU market. The Commission found that during the period in question, Intel engaged in two illegal practices. The first was that it gave wholly or partially hidden rebates to computer manufacturers on the condition that they buy all or almost all of their x86 CPUs from Intel. This illegal practice also included Intel’s making direct payments to a major retailer so that it would stock only computers with Intel x86 CPUs.

The second illegal practice was that Intel made direct payments to computer manufacturers to halt or delay the launch of specific products containing competitors’ x86 CPUs and to limit the sales channels available to these products.

The computer manufacturers named by the Commission as being involved in the rebates and payments included Acer, Dell, Hewlett-Packard, Lenovo, and NEC. The retailer was Media Saturn Holding, the parent company of the MediaMarkt chain.

You know, I’d probably feel better about buying Intel products if Intel apparently believed it could compete fairly with AMD on a level playing field. Every time I hear about another case of Intel playing below-the-belt like this, it makes me feel more strongly that if Intel is this afraid of AMD — and this dishonest — I should be continuing to buy AMD products, not Intel.

Naturally, Intel doesn’t think it did anything wrong:

Intel said in a statement Wednesday that it did not believe its practices had violated European law and that it would appeal the fine.

“Intel takes strong exception to this decision,” the chipmaker’s chief executive, Paul Otellini, said in the statement. “We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace — characterized by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers. Intel will appeal.”

Oh, really? This is all fair and above-board? I suppose that’s why Intel tried to conceal what it was doing it, is it? Just suppose for one moment that AMD, not Intel, had been doing this, and imagine the resulting howls of outrage we would be hearing from Intel.

Intel has three months to pay the €1.06 billion fine, the largest ever assessed by the EU. If they don’t, they’ll likely be hit with additional penalties — like the €899 million penalty the EU hit Microsoft with in February 2008, after Microsoft failed to pay the €497 million fine assessed against it by the EU in 2004, the previous largest-ever EU antitrust fine.

Comments

[radarrider]

Otellini said, "There has been absolutely zero harm to consumers." Regardless of whether or not this is true (and I ain't saying it is), European laws regarding anticompetitive behavior are geared more toward protecting competition than protecting consumers. Even if Intel can prove this statement to be true, if it's determined that AMD was injured, they'll still be on the block.

In the US, it's the other way around. That's why the browser wars had a different result here than in the EU.

[ilcylic.livejournal.com]

Bah. Intel may have been playing vicious hardball, but the EU is just a bunch of looters.

[perspicuity.livejournal.com]

be amusing if intel and M$ "decide" to limit their european market, and raise prices :)

#

[masgramondou.livejournal.com]

It would be excellent if they did so. They can't because of the linux/ARM netbook threat. Its going to be an interesting year or two but the rumors that MSFT is porting a cutdown windows 7 to ARM is telling even if the rumor is untrue.

Right now an Android OS on a top range ARM core can perform pretty much everything that the average punter needs on a PC. Gamers need something more as do some high end users, but the average web-surfing email-writing, document- editing person doesn't need anything more powerful. I expect the next netbook I buy - probably early next year - to be something like this and to cost about $100.

If Wintel withdrew from the EU market place then all those companies and governments who have been flirting with linux and open source software would have an incentive to get serious, which would be just the incentive needed for some Tawanese companies to flood the place in cheapo ARMed computers runing Linux.

[perspicuity.livejournal.com]

microsoft could deny future licenses to govts/etc, and as well make sure that EVERY desktop was compliant and not pirated and counter sue /etc to make sure ;) hahahahahaha. love it. istr some agency here getting nailed to the wall for having a corporate pirate disk and most "seats" were loaded with everything and the same license times 500. mmm.

#

[ithildae.livejournal.com]

I have been using AMD processors, by preference, for a long time. Even though processor specs appear to achieve parity on paper, the method used to produce those numbers is seldom the same. A simple example: AMD use to use Maximum power dissipation, while Intel used Average power dissipated in their specs. Both numbers were real, but the represented different things, even if the units were the same. Often the numbers were the same. Guess which chips run cooler?

Intel has learned an awful lot in their partnership with Micro$oft.

[unixronin.livejournal.com]

Agreed, on all points. I use AMD processors by choice myself, wherever possible. It's pretty widely acknowledged in the hardware community that Intel is a generation ahead of AMD in fab technology, but that AMD is at least a full generation ahead of Intel in processor design.

[writerspleasure.livejournal.com]

nothing wrong with seeking to gain competitive advantage, so long as intel doesn't defraud anyone.

[unixronin.livejournal.com]

IMHO, there's nothing wrong with trying to gain competitive advantage fairly. But I would argue that bribing your competitor's trade customers and resellers is emphatically not fair competition.

Even if we disagree on that, consider this: If we once declare that bribery is OK in this case, then when does it stop? The precedent that bribery for business ends can be OK is a dangerous one to set. What happens when it turns into, say, TRW bribing Ford to accept substandard brake pads? Toyota bribing the NHTSA to give a new model a free pass on crash testing? Pfizer bribing the FDA to accept incomplete or falsified test results on a new drug? It's been reported that the RIAA secured the law change that made all record-company contracts legally classed as work-for-hire — meaning that the record company, not the artist, ends up owning all rights to the artist's work — by bribing a law clerk in the California legislature to alter the requisite section of the California civil code.

Let's not set foot on that slippery slope.

[writerspleasure.livejournal.com]

the use of the biased term "bribe" is a circular argument, though.

there's nothing that should merit political solutions with aggressive competition, including competition that disables your opponent, so long as it does not involve force or fraud.

as for non-political solutions (e.g., negative press, boycott, etc.): i'm not sure that such hard competition mightn't be a good thing: increases ROI for shareholders, with familiar synergistic positive consequences.

competitors are always free to find other channels, publicize negatively, etc.

[ithildae.livejournal.com]

What you are arguing for is a closed market economy. Established players can raise the barriers to entry so high, that there never will be effective competition, or even technology improvements. That will end up costing the consumer more, and keeping all products more resource intensive than they should be, destroying growth potential.

This may be a political thing, but I am strongly in favor of free markets. I am also firmly in favor of regulation that keeps markets free and open. This fine is that type of regulation.

In the chip market, the barriers to entry are really too high for virtually any new players. Chip and processor patents bar compatible processors, and foundry costs are too high for most players to participate. (I understand that ARM does not have foundries, but without meaningful competition, they would not be able to find a manufacturer for their product. There are also patent hedges where they needed to cross-license in order to produce anything at all.) If an established player were also able to set pricing below cost for a period of time, no new player would ever be able to establish themselves. Intel's marketing incentives and bulk purchasing agreements effectively sold their chips below cost in only the segments where AMD was competing. Intel has the size and cash to operate for quite some time losing money on some segments of the market, they make it up in other places. AMD is cash strapped. The only reason AMD survives (losing money) is that they produce a really sweet product, and they have patient investors.

[writerspleasure.livejournal.com]

no. i am arguing for an actual free market, which includes all possible private agreements that do not coerce others. if you allow one violation of economic liberty in the course of daily events, just as a single "help," then you establish the principle that government coercion is justified. the State has no role in the economy per se whatsoever. if you wish to penalize companies that do backdoor deals, there are plenty of non-government avenues.

separately to this, the barrier-to-market arguments insofar as they claim to establish that coercive monopolies necessarily arise, have been exploded by e.g. the austrians. aside from all the other factors (principally that innovation undercuts existing market shares), it's actually not economically profitable to dominate markets too much: the costs wind up being prohibitive. competition actually is good for profits. thus it was john d. rockefeller [IIRC] who consciously refrained from driving all competitors out, even though he quite possibly could have.

for more information on this, see george reisman's body of work.

[ithildae.livejournal.com]

The EU argued that the Intel agreements were coercive. When a single player has the clout to materially harm their customers, and uses it to prevent competition, I think a bigger player needs to step in.

If the government collects taxes, it has a role in the economy. I strongly feel that the government has a right to grant tax exemptions to bolster companies that produce products or services that the government wishes to encourage. (Direct money to companies is a problem.) I also feel that there needs to be a referee that can stop a corporate bully, if one should arise. If that is the government, or some other entity, it doesn't matter to me. The goal should be to keep barriers to entry at their natural level, not artificially high.

Competition keeps companies sharp. It also helps prevent disruptive technologies from eating their lunch in a very short amount of time. Most businessmen are honest and honorable. They make money through a strong sense of ethics and fairness. It is not often that a bad player makes it to prominence. If they do, they either change, or die. Monopolies fall harder, but they still fall. Rockefeller understood that.

[unixronin.livejournal.com]

"biased term"? Can you define any context in which paying off one of your competitor's corporate customers to delay shipping a product that contains the competitor's product is not a bribe? If that's OK, is it also OK to go to the next step and pay off one of your competitor's suppliers to deliver defective parts or contaminated materials, or pay off your competitor's employees to sabotage his product, production process, or factory?

Negative press and boycotts, even astroturfed ones, are dirty pool but legitimate (though I still wouldn't do business with a company that made a habit of using them ... Microsoft, for example). When you start paying off your competitor's business associates and partners to conspire with you to ruin your competitor, you've crossed the line into organized crime.

[fruitylips.livejournal.com]

"Offering an incentive to gain preferential treatment". He's right. 'Bribe' is nothing but a prejudicial term here.

In short, it is common practice to offer some value to a vendor to promote your projects over someone else's Usually this is done by offering better commission programs and pricing on your products, but there's a gazillion other ways that it's done.

While I think this probably is a bit over the line, it isn't exactly something so far beyond the pale of normal retail business that we should all be aghast and up in arms about it.

As for why would Intel do this if they weren't afraid of AMD? Simple. If we are better in technology, price and quality and play 'nice' and they don't, we'll still lose. Notice that in this case, you don't have to be at all afraid of your competitors products. You'd think someone who's made a life out of complaining about how not nice MS is would know that...

[ithildae.livejournal.com]

The legal difference between the standard practice you describe and what Intel got nailed for is that, Intel did it from a monopoly position. When in a monopoly position, viable competition is harder to introduce. Usually, you have higher profits, so that you are able to absorb at or below cost sales long enough to kill a competitor. The only real way to threaten a monopoly is produce product at zero cost, or change the technology landscape.

[ithildae.livejournal.com]

The word bribe is prejudicial in that it is associated with corruption in American English use. Many overt tactics that Intel used are standard practice. It is the covert tactics, that the emails and other extrinsic evidence revealed, that showed a problem.

Dirty pool indeed. If the agreements were not a step over the line, why were they side arrangements, and not part of the contract?

[otherbill.livejournal.com]

There's a lot I'd like to say here, but...well, you know.

[unixronin.livejournal.com]

I hear you.