Otellini and Intel’s EU Appeal

The $1.45B fine levied by the
European Commission on Intel Corp. for alleged anti-competitive
practices brings to mind a similarly important anti-trust case, one
where the fine was never paid. In a Chicago district court in 1907,
Judge Kenesaw M. Landis (later to become the commissioner of
baseball) fined the Standard Oil Company $29,240,000, the maximum
possible, for allegedly driving out competitors by using illegal
rebates, a practice not too dissimilar from the allegations being
made against Intel a century later.

John D.
Rockefeller, according to a biographer, said that Judge Landis
would be dead “a very long time before that fine would ever
be paid.” And the oil baron was right: Standard Oil won on
appeal. It took Teddy Roosevelt and the full powers of the
government to bust up the oil, steel, and railroad trusts.

On a conference call with reporters
Wednesday morning, Intel CEO Paul Otellini suggested that the
appeal of the EU decision will take a long time, with any decision
being “two to three years out.” Intel’s customers
will come forth, he said, to tell the appellate panel that
“what is alleged is not true.” And he points out that
“none of the computer makers joined the EU
complaint.”

On the call with reporters, Otellini
said Intel was upstanding, saying that customers would ask Intel
and AMD to “bid for business,” with the result being
that when Intel won the other guy naturally lost.

Prompted by a questioner, Otellini
said Intel has 6000 employees in Ireland, where its largest
non-U.S. manufacturing complex is located. And he bemoaned the
legal costs that will go into an appeal, suggesting that Intel
executives are wasting time giving depositions rather than
concentrating on bringing new products to market that will benefit
consumers.

There is little doubt that Intel is
legally innocent. A former Intel sales managers told me last year
that Intel’s sales force was trained to not step over a
certain line, to avoid behavior that Intel’s lawyers
described in regular sales training sessions. The source also said
that by carefully offering volume discounts, Intel could achieve
exclusivity, or very close to it.

And by using Intel’s huge
cache of marketing dollars to co-sponsor advertising and other
much-needed promotions, Intel was able to bring to bear incentives
for cash-strapped PC vendors to stick as close to Intel as
possible, he said.

It is one argument to say that Intel
may have violated our common-sense definitions of fair trade, the
bedrock of healthy capitalism (those ideals, however, belie the
reality that America has always been a land of hustlers, a people
trying to get rich by almost any means possible). It is another
thing to prove that Intel sales people promised better pricing for
exclusivity, or offered bribes. And remember that the EU complaint
stems from practices that allegedly happened from 2000 to 2007.
Promises of rebates for exclusivity, or bribes to PC vendors to buy
only from Intel, would be crude behavior for a company as large and
as legally-savvy as Intel was from 2000 onward.

However, by offering lower MPU
prices for higher volumes, by leveraging marketing dollars, and by
bundling MPUs with chipsets, Intel could achieve a de facto
monopoly, which in and of itself is not against the law.

Will Intel pay its huge fine to the
European Commission? History suggests it will not.