Reuters, via the New York Times, reports that the European Commission has fined Intel$1.45 billion.

The European Commission fined Intel a record €1.06 billion on Wednesday for abusing its dominance in the computer chip market to exclude its only serious rival, Advanced Micro Devices.

The European Union’s competition commissioner, Neelie Kroes, said the penalty against Intel, the equivalent of $1.45 billion, was justified because the company had skewed competition and denied consumers a choice for chips.

Ms. Kroes said Intel had “used illegal anticompetitive practices to exclude its only competitor and reduce consumers’ choice — and the whole story is about consumers. ” She said Intel’s practices had “undermined innovation.”

…

Paul Otellini, chief executive of Intel, said the company would appeal.

“We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace,” Mr. Otellini said. “There has been absolutely zero harm to consumers.”

Giuliano Meroni, president of A.M.D.’s operations in Europe, said the decision would “shift the power from an abusive monopolist to computer makers, retailers and above all PC consumers.”

Ms. Kroes said Intel had pursued a strategy aimed mainly at excluding A.M.D. by paying computer makers and retailers to postpone, cancel or avoid A.M.D. products entirely.

The European Commission, which is the E.U.’s executive arm, also found that Intel “went to great lengths to cover up its anticompetitive actions,” Ms. Kroes added.

Here are some (draft) slides and materials from my course in International Antitrust and Policy at U.C. Berkeley.

• Segment 1: Introduction
• Segment 2: Horizontal Agreements in the U.S. and the EU
• Segment 3: International cartels at work

As always, everything is licensed under a Creative Commons attribution only license. The (ever evolving) syllabus is here. By the way, weary as I am of the cloud for privacy and policy reasons (I like to control my tools, not vice versa), Google Docs is one great app that just keeps getting better.

Here are some initial reactions to the Commission Guidance to Article 82 in no particular order.

• The Commission confirms that exclusion is a derivative antitrust offense. There is only one type of harm to competition, namely consumer exploitation. Exclusion is relevant only if and to the extent it leads to exploitation. (Para. 19) Antitrust conservatives will like this. However, as the Commission giveth it taketh away, namely with a hair trigger standard for exploitation. Consumer harm is recognized at all levels (FN. 15), and in both the short and the long run. Moreover, consumers may be harmed by a loss in innovation, market dynamism, and variety of choice. Even a loss of business rivalry as such may harm consumers, so that “the protection of rivalry and the competitive process outweighs possible efficiency gains.” (Para. 29) The Commission thus reclaims the consumer welfare concept, the favorite meme of antitrust conservatives in paring back the reach of the antitrust laws, as a foundation for a progressive antitrust policy. This proves what commentators have observed all along, namely that the consumer welfare paradigm is not necessarily a rule of non-intervention.
• Technological tying, in the eyes of the Commission, is worse than contractual tying, because it makes a “tying or bundling strategy a lasting one.” (Para. 52) Here, the Commission also includes a negative externality of technological tying in the anticompetitive calculus, namely that “technological tying … reduces the opportunities for resale of individual components.” (Id.) The latter is very much in keeping with recent policy statements in favor of modularization and open systems.
• Cross-subsidies may qualify as predatory, even if the firm is not dominant in the predation market. Tucked away in FN. 39 is the following statement.

  The Commission may also pursue predatory practices by dominant undertakings on secondary markets on which they are not yet dominant. … While the dominant firm does not need to predate to protect its dominant position in the market protected by legal monopoly, it may use the profits gained in the monopoly market to cross-subsidize its activities in another market and thereby threaten to eliminate effective competition in that other market.

  This seems to say that a firm that is lawfully dominant in the market for product A could be liable under Art. 82 for using its profits to subsidize predatory pricing in the market for product B, in which it is not (yet) dominant and where A and B are unrelated.
• The Commission does not like Trinko. Really. For a refusal to deal “it is not necessary that there is actual refusal on the part of a dominant undertaking; ‘constructive refusal’ is sufficient. Constructive refusal could, for example, take the form of unduly delaying or otherwise degrading the supply of the product or involve the imposition of unreasonable conditions in return for the supply.” (Para. 23). Moreover, having obtained a dominant position as a result of previous legislative protection from competition and now being under regulatory compulsion to grant access to essential facilities is an argument for, not against, imposing an antitrust duty to deal. A dominant firm can’t complain about a duty to share

  where regulation compatible with Community law already imposes an obligation to supply on the dominant undertaking and it is clear, from the considerations underlying such regulation, that the necessary balancing of incentives has already been made by the public authority when imposing such an obligation to supply. This could also be the case where the upstream market position of the dominant undertaking has been developed under the protection of special or exclusive rights or has been financed by state resources. In such specific cases there is no reason for the Commission to deviate from its general enforcement standard and it may show likely anticompetitive foreclosure without considering whether the above three cumulative circumstances are present.

The Commission Guidance is clearly a response to the DOJ’s recent report on single firm conduct. Time to check the FTC’s website.

Today, the European Commission published its preliminary report on the competition inquiry into the pharmaceutical sector. The New York Times, which misleading headlines its article “E.U. Accuses Drug Makers of Gouging Consumers,” reports:

The European Union accused drug companies on Friday of adding billions of dollars to health care costs by delaying or blocking the sale of less expensive generic medicines.

One common tactic, said Neelie Kroes, the European competition commissioner, was for drug companies to amass patents to protect active ingredients in the medicines — in one case, 1,300 patents for a single drug.  Another tactic, she said, was for pharmaceutical companies to sue the makers of generic drugs for ostensible patent violations, which tended to delay the availability of the lower-cost products for years.

Hyperbole aside, as the report itself states, it “does not seek … to each any conclusion as to whether certain practices described in the report infringe EC Competition law.”

More to come, but until then, check out the preliminary report and its executive summary; also online are several fact sheets, a press release and Commissioner Kroes’ comments.

The EC fined four companies 1.3 billion euros ($1.66 billion) for price fixing.  Reuters (via the Washington Post) reports:

The EU’s antitrust chief on Wednesday fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel.

France’s Compagnie de Saint-Gobain SA must pay 896 million euros ($1.14 billion) - more than any other company has been fined before.

The European Commission said the four companies control 90 percent of the glass used to make European cars, a market worth 2 billion euros in 2003.

EU Competition Commissioner Neelie Kroes said the companies fixed prices over a period of five years. She said the fines were high because European industry had to “learn the lessons the hard way.”

…

The EU said it increased Saint-Gobain’s fine by 60 percent because the company was a cartel repeat offender. It was fined last year for an EU-wide window glass cartel, following earlier fines for a Belgian flat glass cartel in 1988 and a similar cartel on the Italian market in 1984.

The statement of Neelie Kroes can be found here.

In industries governed by standards, it is not always easy to identify the goal of antitrust intervention. Neelie Kroes defined it as follows:

When a market develops in such a way that a particular proprietary technology becomes a de facto standard, then the owner of that technology may have such power over the market that it can lock-in its customers and exclude its competitors’. Where a technology owner exploits that power, then a competition authority or a regulator may need to intervene. In essence, the competition authority has to recreate the conditions of competition that would have emerged from a properly carried out standardisation process.

This definition makes a collaborative standard setting process the normative benchmark even for de facto standards that evolve as a result of the operation of the marketplace.

The EU Commission on Monday announced that it is investigating the French drug maker Sanofi-Aventis for obstruction of justice. As part of its crack-down on the pharmaceutical industry, the EU conducted a dawn raid at Sanofi-Aventis, but was refused access to documents without a French search warrant:

The commission’s allegation centers on Sanofi-Aventis’ refusal to let inspectors examine and copy relevant documents until the French authorities produced a national search warrant, the commission says. The European antitrust regulator was raiding the pharmaceutical company’s headquarters in France, as part of a wider inquiry into the sector. Under European antitrust laws, companies have an obligation to cooperate with the commission’s inspectors, including full access to important documents.

A press report is here.

The Financial Times Deutschland reports, according to Marketwatch, that

the European Union’s competition authority will take action later this year against Intel Corp. over the semiconductor giant’s sales and distribution practices.  The Financial Times Deutschland said the EU had acquired enough evidence to act to keep Intel from selling its microprocessors at a discount to PC companies.  The paper said the EU could fine Intel up to 10% of its annual sales, or $4.1 billion.

Thompson Financial (via Forbes.com) reports that:

The European Commission is planning to bar some of Intel Corp.’s sales practices to curb the company’s market power in Europe, Financial Times Deutschland reported, citing sources in Brussels.

Commissioner for competition Neelie Kroes has already made a ‘factual’ decision, the paper said, with the decision to be published in late summer.

According to the EU plans, Intel will have to stop marketing its processors at discount prices to PC-manufacturers.

In addition, the EU intends to ban Intel from paying marketing cost subsidies to retailers, if Intel demands exclusivity in return.

I would link to the FTD article but my German is poor.  Perhaps one of my fluent-in-German co-bloggers can link to and/or report on the original article.

The Commission published a White Paper on Private Damages Actions. While EU law clearly provides for the compensation of victims of antitrust violations, many member states have been slow in updating their rules of civil procedure to make the enforcement of such rights commercially viable. The white paper contains recommendations as to collective redress (class actions and representative actions), availability of the pass-on defense and, as a flip side, indirect purchaser actions, offensive collateral estoppel rules for final, non-appealable decisions by competition authorities, and somewhat more relaxed discovery rules. As to the latter, a key component (since US style discovery is neither possible nor desirable), in my view, is the ability of the courts to draw negative inferences from the non-production of materials.

In the aftermath of the international Graphite Electrodes cartel, the US sought the extradition of former Morgan Crucible Co. Chief Executive Officer Ian Norris from the UK on the theory that price fixing is a criminal conspiracy to defraud (which is punishable both in the US and in the UK). The House of Lords disagreed. According to Bloomberg, Norris

won a ruling from the U.K.’s highest court that hinders attempts to extradite him for a trial in Pennsylvania. … The House of Lords today ruled he couldn’t be extradited on the antitrust claims because price-fixing wasn’t a crime in the U.K. at the time of the alleged misconduct. “Mere price fixing was not at any time” a criminal offense in the U.K. when the cartel operated, the House of Lords said.

That said:

While Norris doesn’t have to face U.S. antitrust charges, the Lords said he may be extradited over the obstruction of justice claim and sent the issue to a lower court for review.

Stay tuned, we might be in for a revival of the Alcoa and Hartford Fire debates. (These things seem to coincide with the ABA Spring Meeting.)

Technorati Tags: antitrust, extradition

From the AP (via the Washington Post):

The European Union fined Microsoft Corp. a record $1.3 billion Wednesday for the amount it charges rivals for software information.

EU regulators said the company charged “unreasonable prices” until last October to software developers who wanted to make products compatible with the Windows desktop operating system.

The fine is the largest ever for a single company and brings to just under $2.5 billion the amount the EU has demanded Microsoft pay in a long-running antitrust dispute.

Microsoft immediately said the issues for which it was fined have been resolved and the company was making its products more open.

The fine comes less that a week after Microsoft said it would share more information about its products and technology in an effort to make it work better with rivals’ software and meet the demands of antitrust regulators in Europe.

…

Microsoft fought hard against a March 2004 decision that led to a 497 million euro ($613 million) fine and an order that the software maker share interoperability information with rivals within 120 days. The company lost its appeal in that case in September.

Microsoft was fined $357 million in July 2006 for failing to obey that order.

The EU alleged that Microsoft withheld crucial interoperability information for desktop PC software _ where it is the world’s leading supplier _ in an effort squeeze into a new market and damage rivals.

The company delayed compliance for three years, the EU said, only making changes in October to the patent licenses for companies that need data to create software that works with Microsoft.

Microsoft had initially set a royalty rate of 3.87 percent of a licensee’s product revenues for patents and demanded that companies looking for communication information _ which it said was highly secret _ pay 2.98 percent of their products’ revenues.

The EU complained last March that the rates were unfair. Under threat of fines, Microsoft two months later reduced the patent rate to 0.7 percent and the information license to 0.5 percent _ but only in Europe, leaving the worldwide rates unchanged.

The EU’s Court of First Instance ruling that upheld regulators’ views changed the company’s mind again in October when it offered a new license for interoperability information for a flat fee of 10,000 euros ($14,900) and an optional worldwide patent license for a reduced royalty of 0.4 percent.

Microsoft does not yet have a statement about this on its website, but one should appear here shortly.

Yesterday, EC competition authorities “raided” the European offices of Intel and several electronics retailers.  According to the Financial Times:

European Commission officials visited Intel’s Munich offices, as well as Europe’s biggest electronics chain, Media Markt, its second-biggest, DSG International, operator of the UK’s PC World, and French retailer PPR.

“The Commission has reason to believe that the companies concerned may have violated EC treaty rules on restrictive business practices and/or abuse of a dominant market position,” the regulator said.

It stressed that the raids did not prejudge the outcome of the investigation.

Intel, Media Markt, PPR and DSG confirmed the visits and said they were co-operating with the investigation.

The Commission’s move comes at an unusual stage in its long-running probe into Intel, which began nearly seven years ago after a complaint from the US company’s smaller rival, Advanced Micro Devices.

Having carried out raids in 2005, the Commission formally accused Intel six months ago of trying to do deals with computer makers to push AMD out of the central processing unit business.

The latest raids appear to be focused primarily on Intel’s relationships with retailers, rather than computer makers, suggesting that the Commission may be enlarging the scope of its inquiry.

I am sure that most of our readers regularly read Flight International magaine.  For the few that do not, it is reporting that the EC has issued statements of objection to at least 15 airlines.

The cargo price-fixing probe has entered a new phase with European regulators handing at least 15 airlines statements of objections. These and similar investigations by other governments could lead to hefty fines for several major carriers.

Two years after government agents raided airline offices around the world, the cargo probe that is causing genuine paranoia in airline cargo departments everywhere is moving from an investigation into actual charges.

The European Commission has entered this phase ahead of the US Justice Department and other agencies by issuing statements of objection to at least 15 airlines. The EC has not said which or how many airlines it has served but 15 carriers have acknowledged they have received such statements (see list above right).

Other government-owned or privately-held airlines that have no duty to disclose may also have been served, but have not told anyone. Some sources claim as many as 25 airlines have received the EC statements, but this number is unconfirmed.

This list of airlines is instructive. First, it includes the three airlines - British Airways, Korean Air and Qantas - that have already pled guilty and agreed to pay fines of nearly a $1 billion. Second, several airlines whose offices were raided or were otherwise investigated have not been named. These include American and United Airlines, as well as Taiwan’s China Airlines and EVA Air.

Both facts underscore a critical point. Even though this may be the world’s largest antitrust investigation, each jurisdiction decides independently how and against whom to proceed. None of the three airlines that settled did so with the EC. Hence, it and any other competition agency that did not settle with these airlines may go after them. And even though the EC apparently has not charged American, United, China Air, EVA or a number of other airlines, this does not mean they are off the hook in other countries. It is possible, for instance, that the EC elected not to charge these carriers, not because it thought they were innocent, but because they did not transport enough cargo to or from Europe to bother.

The article continues at some length.  Check it out.

According to the Wall Street Journal:

European Union investigators raided drug companies in several countries as the bloc’s antitrust watchdog launched a wide investigation of potentially anticompetitive practices in the industry.

Neelie Kroes, the EU antitrust chief, said the industry-wide inquiry would examine whether large companies are abusing their market power to prevent competitors from bringing new drugs to market, or whether companies were colluding to restrain competition.

AstraZeneca PLC, GlaxoSmithKline PLC, Sanofi-Aventis SA, and Pfizer Inc. said they were among the companies contacted, although the commission did not name the companies searched Tuesday and early Wednesday, nor where they were located.

The EU’s so-called sector inquiries are broad-brush examinations; they don’t necessarily lead regulators to bring antitrust cases, but can result in substantial fines. Recent sector inquiries have focused on energy markets and payment-card systems. Both eventually resulted in antitrust action — most recently in the EU’s declaring unlawful a type of interbank fee set by MasterCard.

…

The EU began the sector inquiry with unannounced inspections — triggering the first ones within hours of the commission’s decision Wednesday to authorize the inquiry. In earlier sector inquiries, EU officials had begun more politely, with requests for information.

Bloomberg also has a report.

The Commission’s press release is here; and the Commission’s FAQ on its antitrust sector inquiry into pharmaceuticals is here.

Apple and the EU have reached an agreement that will end the EU’s investigation of Apple. According to the AP:

The maker of the popular iPod media players had been under investigation since April by EU authorities after a British consumer group complained that Apple and major record companies were unfairly restricting the choice and ramping up the cost of downloads at the company’s European music stores.

…

EU regulators opened a probe into iTunes last year. They alleged distribution agreements Apple signed to sell music from its online stores in EU countries contained territorial restrictions which violated EU competition rules because consumers can only download music from the iTunes store in their country of residence.

Downloaders have to provide a credit card issued by a bank with an address in the country where they live.

Britain’s Consumers’ Association filed a complaint with EU regulators in 2004 complaining that British customers of iTunes downloads had to pay more than those in France or other iTunes stores in countries using the euro currency.

Apple said it would introduce a new pricing policy for British based iTunes consumers and will “soon pay the same for music downloads from iTunes as customers from the euro-zone countries,” the European Commission said.

It added that it has now closed the case against Apple’s iTunes operation.

The EU executive office added however that there is “no agreement” between Apple and major record companies on how iTunes stores are organized in Europe, notably on allowing consumers to download music from an iTunes store outside their country of residence.

AFP also has an article on the settlement.

Technorati Tags: Apple, iTunes, iPod, EU