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Intel Defends Japanese Market Practices

Intel executives were quick to issue a statement about its business practices in the wake of a damning report by Japan's watchdog organization Tuesday.

A Japan Fair Trade Commission (JFTC) report found the Santa Clara, Calif., chipmaker in violation of section three of the country's Antimonopoly Act. According to the report, Intel, finding its market share eroding among Japan's PC manufacturers, instituted polices to keep the competition marginalized.

The JFTC claims the company was limiting the market share of competitive chip makers, such as AMD , which were cutting into Intel's market share in the low- to mid-range PC desktop space. To combat this, Intel imposed conditions on a majority of PC manufacturers in the country.

One manufacturer, according to the report, was limited in the amount of non-Intel purchases it could make, while Intel also put conditions on its rebates, giving them to PC makers that used Intel exclusively or primarily. As a result, AMD market share dropped from 24 percent in 2002 to 11 percent in 2003.

Thomas McCoy, AMD executive vice president for legal affairs and chief administrative officer, said in a statement that using market power to exclude competition and limit consumer freedom harms the consumer.

"The evidence of harm to consumers is obvious," he said. "By preventing PC manufacturers from using CPUs of their choice, Intel's misconduct deprived consumers worldwide of the freedom to purchase computers that best fit their needs. Efforts by an avowed monopolist to artificially set market shares to exclude competition clearly violate antitrust standards globally."

The commission has recommended that Intel's Japanese subsidiary, Intel Kabushiki Kaisha, immediately refrain from its current anti-competitive activities; inform customers of the JFTC's report and what corrections it's made; end its policy to refuse business and rebates to manufacturers who don't exclusively or primarily sell Intel-based PCs; and provide antimonopoly training for sales and marketing executives.

Intel officials said they are evaluating JTFC's recommendations and its findings; the company has 10 days before it must respond to the commission, although it is not required to address the antimonopoly training recommendation.

The JFTC's recommendations, one Intel official noted, do not take into account antitrust principles accepted worldwide.

"One of the core principles of competition policy is the notion that such policies should be based on sound economics," said Bruce Sewell, Intel vice president and general counsel for Intel, in a statement. "There is a broad consensus that competition regulators should only intervene where there is evidence of harm to consumers. It is apparent the JFTC's recommendation did not sufficiently weigh these important principles."

This is the second time Intel has had a run-in with the JFTC; in April 2004, the organization raided three Intel offices in Tokyo.

The company is also facing scrutiny with the European Union (EU) over its market practices, namely that Intel was strong-arming PC makers into deals.