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Did Intel Get a Fair Hearing?

Intel and the Courts
When the head of a group designed to monitor and restrict companies deemed too dominant makes jokes at your expense, you might get the impression that impartiality was lacking.

So it was for Intel CEO Paul Otellini, who, in the middle of a two-day meeting with investors and analysts, took time out on Wednesday for a conference call with the media to discuss the $1.45 billion fine the EU just slapped on Intel. Normally even-tempered, Otellini sounded rather indignant this time.

After announcing the fine, the EU's Competition Commissioner Neelie Kroes joked that Intel (NASDAQ: INTC) should change its slogan from "sponsors of tomorrow" to "the sponsor of the European taxpayer."

Otellini clearly took a dim view of his firm being viewed as Europe's ATM. Intel has $3.5 billion in the bank as of the end of its first quarter, down from $7.6 billion a year ago, thanks to the precipitous drop in sales that took place starting late last year. "I don't think it's a joking matter. I think she was making a joke and I'll leave it at that," Otellini said.

He was more forthcoming about the fine: He thought it was way too much. Even though both Japan and Korea had made similar anticompetitive discoveries against Intel in the past, Japan levied no fine and Korea only hit Intel with a $23 million fine.

"There seems to be no correlation between the number and the process," Otellini said. "You'll have to ask the EU how they came up with that and it's one of the questions we'll ask them when we have a chance."

Gartner fellow Martin Reynolds agreed that the fine seemed exorbitant. "If it had been a $50 million or even a $400 million fine, they might have let it go, but at $1.4 billion, they have got to contest it," he told InternetNews.com.

Selective review?

Intel said it has so far only seen a three-page summary of the Commission's ruling, not the full 500-page document. Otellini said it will take some time to digest everything. The allegations against the company come down to Intel granting conditional rebates, where the conditions weren't just based on sales volume but allegedly around exclusive dealings, large percentages of customer volume or in one case, exclusivity on retail shelves.

The EU cited a single German chain, MediaMarkt, that sold nothing but Intel product for five years. The commission cited by name Acer, Dell (NASDAQ: DELL), HP (NYSE: HPQ), Lenovo and NEC as getting contracts that forced them to buy most or all of their CPUs from Intel and paid them to stop or delay the launch of personal computers based on AMD (NYSE: AMD) chips.

Inquiries to HP, Acer and Dell were not returned as of press time.

Otellini responded that some of its customers are larger than Intel and "excellent negotiators," and that there were a number of documents from the OEMs involved in the case that refute the EU's claims.

"In some cases, OEMs made statements in fact that there were not exclusive deals and not under conditional terms. Those documents were not allowed into the case file or used properly by the case team in making their decision," he said.

Next page: "The EC isn't obliged to listen."