Competition in the Innovation Economy - Other Regulatory Matters

The Directorate General of Competition of the European Commission currently has a case pending against Intel. The Commission issued a Statement of Objections (SO) in July of 2007 and a Supplemental Statement of Objections (SSO) in July of 2008. These preliminary findings follow investigations that began in 2000. After nearly seven years of investigation the EC filed its preliminary findings. The Commission alleges that Intel violated the law by giving discounts and other incentives to computer manufacturers and retailers to induce them to buy from Intel instead of its main competitor.

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Intel is confident that the worldwide microprocessor market is functioning normally and is highly competitive in Europe and elsewhere. Intel's conduct has always been lawful, pro-competitive and beneficial to consumers. As evidence of the existence of a highly competitive and innovative microprocessor market, consumers have benefited from prices that have gone down significantly, output has increased many times over, and the performance of products, including ours, has improved exponentially.

The case is based on primarily on complaints from a direct competitor rather than customers. The Commission has an obligation to investigate those complaints. However, a Statement of Objections contains only preliminary allegations and does not itself amount to a finding that there has been a violation of European Union law.

In January of 2008 Intel filed written responses to the first SO and presented its case at the Commission in March of 2008. Intel is in the process of evaluating this newest SO and will respond fully, but it's clear that the allegations stem from the same set of complaints that our competitor, AMD, has been making to regulators and courts around the world for more than 10 years.

Intel is confident that its response will show that the allegations in the SO are unfounded.

In March of 2005 the Japan Fair Trade Commission (JFTC) filed a Recommendation accusing Intel of violating Japan's antitrust laws. The Recommendation followed a year long investigation prompted by complaints from Intel's main competitor Advanced Micro Devices (AMD). A Recommendation contains three parts: an assertion of the facts; an interpretation of the law and a recommended remedy. Intel did not agree with the facts underlying the JFTC's allegations and the application of law in the Recommendation. Intel did accept the recommended remedy in the form of a cease and desist order believing that the cease and desist provisions of the Recommendation would not impair it from continuing to meet customer requirements.

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In a statement released on March 31, 2005 Intel said, "Intel respectfully disagrees with the allegations contained in the Recommendation, but in order to continue to focus on the needs of customers and consumers, and continue to provide them with the best products and service, we have decided to accept the Recommendation,” said Bruce Sewell, vice president and general counsel for Intel. "We believe the Recommendation's cease and desist provisions define a workable framework that enables us to continue to provide competitive pricing to our customers, and benefits consumers and the Japanese economy. We do not accept the Recommendation's allegations in its fact findings and the application of law. We believe the allegations misinterpret important aspects of our business practices and fail to take into account the competitive environment within which Intel and its customers compete.”

In July of 2005 AMD filed two private suites in Japan, focused on alleged violation of the antitrust laws and the second seeking damages as a result of those alleged violations. Intel has denied any wrong doing in those cases and is in the process of defending itself.

In June of 2008 The Korea Fair Trade Commission (KFTC) ruled that Intel had violated Korean antitrust laws. The KFTC has concluded that Intel violated the law on 2 counts of abuse of dominance. The KFTC also announced plans to fine Intel $25 million. Details on the specifics of the ruling are not available because the KFTC will not publish its findings in written form until September of 2008.

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Intel expects to appeal the ruling but cannot do so until the company has had and opportunity to review the final written ruling. Intel believes the announced ruling represents an outcome that will dampen, not enhance, the price competition that has resulted in lower prices for customers and consumers. Unfortunately the KFTC appears to have adopted AMD's accusation that Intel is competing too aggressively, by offering customers attractive, discounted prices to win their business -- despite the fact that Intel's prices invariably were above cost and profitable. In reaching its decision, we can only conclude that the Commission has misinterpreted or ignored the huge amount of factual and economic evidence that refute AMD's accusations.

In June 2005, AMD filed a complaint in the United States District Court for the District of Delaware alleging that Intel and its Japanese subsidiary engaged in various actions in violation of the Sherman Act and the California Business and Professions Code, including providing secret and discriminatory discounts and rebates and intentionally interfering with prospective business advantages of AMD. AMD's complaint seeks unspecified treble damages, punitive damages, an injunction, and attorneys' fees and costs.

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At least 82 separate class actions have been filed in the U.S. District Courts for the Northern District of California, Southern District of California, District of Idaho, District of Nebraska, District of New Mexico, District of Maine, and the District of Delaware, as well as in various California, Kansas, and Tennessee state courts. These actions generally repeat AMD's allegations and assert various consumer injuries, including that consumers in various states have been injured by paying higher prices for computers containing our microprocessors.

All of the federal class actions and the Kansas and Tennessee state court class actions have been or will be consolidated by the Multidistrict Litigation Panel to the District of Delaware. All California class actions have been consolidated to the Superior Court of California in Santa Clara County.

In January of 2008 Intel received a subpoena from the New York Attorney General related to its business practices. A news release from the New York Attorney General contained some general allegations that mirror claims made by AMD in its June 2005 suit.

In June of 2008 Intel received a subpoena form the U.S. Federal Trade Commission. Since 2006 Intel had been working closely with the FTC on an informal inquiry into competition in the microprocessor market based on complaints from AMD. During that period Intel provided the commission staff with a considerable amount of information and thousands of documents. By proceeding to a subpoena, the Commission was moving to obtain not only information that Intel has already committed to provide but also information from other parties.

Consistent with its standard practice Intel has been working cooperatively with both the U.S. FTC and the New York Attorney General to comply with the respective subpoenas.

Intel disputes the AMD charges and believes its business practices are lawful. The essence of this case is discounting, discounting that is above cost, discounting that benefits Intel's customers and consumers.

The discounts that Intel offers to PC makers, and the support it gives to distributors and retailers to assist them in expanding their sales, reflect the essence of competition -- intense rivalry to win business by cutting prices and expanding markets. Beyond that, AMD's complaint is full of fanciful claims, already publicly denied by some of the third parties cited, and confusing, contradictory arguments that defy logic. For example, AMD blames Intel for limiting its sales, but at the same time AMD admits it is selling all the microprocessors it is capable of making; that Intel sustains a monopoly allowing it to charge higher prices, but does so by lowering its prices, and, that nearly a year after that AMD is threatened with becoming "non-viable" AMD crowed that it "is in the strongest position we've ever been in."

Competition in the microprocessor industry has been vigorous and unrelenting, a picture that is the exact opposite of the stagnant monopoly. Output of microprocessors has been expanding at a breathtaking pace; the performance of microprocessors has been improving exponentially. During the past seven years, the quality-adjusted prices of microprocessors tracked by the U.S. Bureau of Labor Statistics have declined, on average, at a rate in excess of 42% each year – outstripping every other one of the 1,200 product categories tracked by the Bureau. Microprocessor output has increased by almost 300% over the last ten years. This is an industry that is performing exactly as a competitive industry should perform.