Normally, when you're up before the beak, the rules are simple: wear your best suit and call him 'Sir'.
Intel has been doing none of this during its spat with the EC, and things were no different yesterday when the EC imposed its €1 billion fine.
In the Red Corner, EC Competition Commissioner Neelie Kroes accused Intel of:
1. Giving rebates to manufacturers conditional on them using a limited number of AMD chips;
2. Of paying a manufacturer to delay the launch of an AMD-based PC by six months;
3. Of trying to hide evidence.
In the Blue Corner, Intel's chief lawyer, Bruce Sewell was in fighting form responding:
1. "We have never conditioned a rebate on an agreement not to buy from AMD."
2 "I can absolutely and categorically deny it, and I do deny it."
3. "I know of no instance when Intel has tried to hide something."
The most puzzling thing about all this - when the investigation has been going on for nine years - is that Sewell said he didn't understand what it is that the EC wants Intel to stop doing.
Asked if he'd had discussions with the EC about this, Sewell replied: "We have had no discussion with the Commission on any aspect of this."
For God's sake, why not?
Whatever the legal or factual merits of the case, the fact that Intel has now been found guilty of abusing its dominant market position and of anti-competitive practices by the competition authorities in Japan, Korea and now the EU speaks volumes. The message is clear and frankly common sense. With size and market supremacy comes increased professional responsibility.
Whilst Intel obviously clearly believed it had behaved within the letter of the law, although equally clearly the EU, Japan and Korea authorities felt otherwise, it ought to have been clear to them that they were sailing close to the boundaries of acceptability, if not the law. They broke the most fundamental laws of marketing … Rule 1 the customer is always right; Rule 2 if proved wrong, Rule 1 applies. Rule 3 never ignore what your customers are telling you, especially when your ‘customers’ are the world’s top competition authorities.
What might be an acceptable market practice with a sub-20 percent market share is almost certainly not acceptable at an 80 plus percent level. That means it is no longer acceptable to plead: “What we are doing is not illegal”. Market dominance requires firms to act, and be seen to be acting, well within the boundaries of the law, even if this seems to give away a potential competitive advantage.
In reality it will not, ironically many of the practices actually become irrelevant once a dominant market position has been reached. The firm’s very size and cost efficiency makes its market position secure, unless it really screws up, which takes time.
Far better for Intel to have headed this off at the pass, defending a case of this size and importance by sparring on points of law and legal interpretations was madness. It was also unnecessary. Intel is one of only a handful of chip firms that really understands the semiconductor business and the need to keep on innovating. And although they were sometimes beaten to the punch by AMD, their dominant market position was never ever in jeopardy.
To have lost this case against the European Commission shows a degree of arrogance that does not befit such a fine company as Intel. The forthcoming US anti-trust investigations and class-action lawsuits are now going to be an awful lot tougher to defend.
Malcolm, you are, as always, absolutely spot on. Intel, in my opinion, was very ill-advised to take this high-handed attitude to the EU. A soft answer turneth away wrath. I fear that Intel's answer will only increase the wrath to come.
Very thought provoking article, David and an equally enlightening analysis by Malcom.
Thanks- I didn't understand the intricacies of the case until today.
I've no background in law or finance but I've read Andy Grove's "only the parnoids survive" Still. it's hard to relate how Intel's corporate mentality can go this far to twist legal arms to secure market share.
It's time for Intel to confess & reprise
Thanks Gautham, there was an interesting piece in the Wall Street Journal recently at: http://online.wsj.com/article/BT-CO-20090515-718596.html which says how very careful Andy Grove became when Intel's market share soared above the 60%+ mark. Grove impressed on Intel the legal dangers of taking advantage when you have such a dominant share. The article says Craig Barrett wasn't as concerned as Grove about the issue and then, when you read Otellini's public remarks, you get the impression he feels he can behave as though he had a 10% share. Such an attitude was, in my view, bound to fall foul of the authorities at some stage. And the Korean, Japanese, and European authorities have all rejected Intel's claims that it acted legally. You'd thing it's about time Otellini 'got it' as they say.
If Intel are to be believed, are we to assume that after 9 years of litigation, Intel has not been presented with the evidence, nor have they spoken to the commission at any stage ?
"We have had no discussion with the Commission on any aspect of this."
Oh now come on Intel, what have you been doing for all this time. Such statements will just make everyone laugh including the U.S. commission.
This is just a war of words and deception by Intel. Here are a few comments on the points in the article
1. "We have never conditioned a rebate on an agreement not to buy from AMD."
If you buy at least 90% of your chips from us we will give you an exceptional rebate.
Intel do not need to be specific and say AMD, ergo the Intel statement is correct.
2. Of paying a manufacturer to delay the launch of an AMD-based PC by six months;
If you delay the launch of any other PC than Intel by up to 6 months, we will give you a further rebate after that 6 month period.
Note, no mention of AMD again.
3. Of trying to hide evidence.
Any and all agreements and discounts are subject to change and any release of these agreements with third parties will be considered as breach of contract and all discounts will be repaid to Intel.
Just thoughts on how things went, and therefore make the worded statements by Intel correct, but far from honest.
You're right, Late Developer, Intel is quibbling and wriggling and nit-picking and it's not an attractive sight.
Although you suggest that during Andy Grove's tenure as Intel CEO, they were exemplary in their behaviour, I think in reality they were doing the exact same things, just more careful about not being caught doing it. I don't believe that Intel were any less careful during Craig Barret or Paul Otellini's reigns, just that with the progress of technology (i.e. modern archived email systems), it has become harder to hide wrongdoing than during Grove's time. The allegations against Intel have been around in some form or another since the early 90's.
Also the type of discounts that Intel offered would not pass antitrust muster whether Intel had only 10% market share, let alone 80%. What Intel was offering was not a volume-based discount, but a proportion-based discount. In a volume based discount, which is completely legal -- you get a discount if you buy certain absolute number of processors: bigger discount if you buy 2000 chips rather than 1000 chips. In a proportion based discount, you get a discount if a certain proportion of your chips is bought from Intel: bigger discount if you buy 80% of your chips from Intel rather than only 70%.
Yousuf, that sounds in line with what I've heard. But what surprises me about Otellini is the level of surprised incomprehension (whether simulated or not) which he displays in his public utterances. If he is aware of the anti-trust issues, which you would think he must be, he must know that an 80 per cent market share means you have to tread very carefully. That's why I'm a bit puzzled by this public stance of aggrieved outrage. As you say Intel's had 9 years when it could have come to an accommodation with the EU which would have removed the need to pay a €1 billion fine. Aren't CEOs supposed to try and protect their companies from this sort of expense? If he's adopting this aggressive attitude to get sympathy from the press, then it's partially understandable. But surely he must realise it will cut absolutely zero ice with the EC. They're not going to change their view.
Hi David, I'd say Paul Otellini is earning his salary as Intel's CEO and CDA (Chief Drama Artist). If you look back at the history of AMD and Intel, which are just a year apart in age, and both among the oldest companies in Silicon Valley, then you will see that AMD's first CEO, Jerry Sanders, said that they were cordial during Robert Noyce's time as Intel CEO, but relations between the two companies started going sour when Gordon Moore was CEO, and reached its current fever pitch with Andy Grove. It's now part of Intel's internal culture to be always paranoid about AMD in particular. Paul Otellini is just continuing his role within the culture that is much bigger than him. Anything that's connected to AMD is instantly a target of Intel's fire.
The OLPC charity project is a case in point. The project chose AMD processors in its original design, rather than Intel. Intel immediately went to work trying to undermine the charity ferociously. The charity even invited Intel into their board in an attempt heal relations, but Intel used the board connections to go after OLPC's customers. The Atom chip was originally intended to be the chip that Intel used to take over OLPC, and then when they were kicked off the board to compete against OLPC. OLPC had already decided that the Atom chip wasn't going to be power-efficient enough compared to the AMD Geode chip it was already using.
Yousuf, In fact Bob Noyce kicked in some of the founder's cash which got AMD going. I don't think either Gordon Moore or Andy Grove fell out with Jerry Sanders personally, but they had to have a legal fight with AMD to try and implement Grove's strategy of going sole source on the 386. I remember Sanders in Europe at the time saying that whatever Intel did, AMD would always compete in the x86 market. We phoned up Gordon Moore and asked him what he made of Sanders' remark and Moore replied: "They'd better be very careful". But it seemed to be all business and not personal. The OLPC saga was a disgrace in my opinion. Intel behaved appallingly.
Hi David, yes I agree about your recollection of the history between Intel & AMD. Another thing to note is that AMD filed this EU complaint against Intel, way back in 2000, ancient history already! The EU only ruled on the period after 2000. So AMD was already experiencing these anti-competitive actions by Intel way back then. During that time, Intel didn't become more careful, but it kept right on doing what it had been doing for 9 more years! So Intel never felt it could get caught, it felt it had the perfect system to keep getting away with it. Probably not a good assumption considering it had already been found guilty by Japan and then Korea.
Absolutely Yousuf - Japan, Korea, the EU - when you're 3-0 down, it's probably time to start changing the game plan.
But what surprises me about Otellini is the level of surprised incomprehension (whether simulated or not) which he displays in his public utterances
I don’t know Otellini and may be completely wrong, but this matches the observation I offered in another thread which was The incompetents who do reach the top and walk away unscathed from the disasters that repetitively happen on their watch are genuinely unaware of their own ineptitude and the fallout that results.
I have countless memories down the years of senior execs from my own company being wheeled in front of important customers and/or standing up at industry events, and spouting such complete garbage that I would cringe inside, in terms of wondering how other people perceived such a performance. Many are the times I have been devastatingly embarrassed by the level of ignorance (and arrogance) so proudly exhibited in front of people from other companies I worked closely with on a daily basis as customers and partners. The look in the eyes of those witnessing this BS used to say it all: “Who is this idiot....what planet is he on, and how the hell did he get to be in this position....?”
It seems to be a disease in the high-tech industry.
Big Softie
Big Softie, I couldn't agree more. Otellini must be aware of the fact that anti-trust law says that if you have 80% market share your behaviour vis a vis competitors must be immaculate. That he affects in public not to understand this, suggests to me that he's insecure and needs to look macho to impress his employees.