Intel Abuses Its Power, Japan Says
Japan’s anti-monopoly watchdog on Tuesday accused chip maker Intel Corp. of abusing its market dominance by pressuring computer makers not to buy rival microprocessors.
The Japanese Fair Trade Commission warned Santa Clara, Calif.-based Intel that it could face prosecution if it didn’t change its business practices in Japan. The company has 10 days to respond formally to the charges.
Intel executives denied wrongdoing.
Intel violates anti-monopoly laws by offering discounts to five Japanese computer vendors on the condition that they restrict their purchases of processors from other manufacturers, the trade commission alleged.
“Contrary to the public interest,” the commission said, Intel “has substantially restrained the competition ... by acting to exclude Intel’s competitors’ business activities.”
Advanced Micro Devices Inc. and Transmeta Corp. also sell computer microprocessors in Japan, but AMD and Transmeta’s market share in that country fell to a combined 11% in 2003 from 24% in 2002, according to the Japanese FTC, with Intel claiming virtually all the remainder.
Worldwide, Intel boasts a market share of more than 80%.
For more than a decade, Intel has been offering marketing support to NEC Corp., Fujitsu Ltd., Toshiba Corp., Sony Corp. and Hitachi Corp. in the form of rebates. In exchange, those companies put “Intel Inside” branding on their machines.
The practice is followed by Intel in the U.S. as well, most recently with its Centrino wireless package for laptop computers. “That was the whole strategy behind Centrino, and it turned out to be a great marketing move,” said James Ragan with Los Angeles-based brokerage Crowell, Weedon & Co.
Ragan, who owns Intel shares, said the company “is in a situation where it has such a commanding market share, and does certain things to maintain that, that at times it’s construed as being too extreme. The company needs to be sensitive to those concerns, but I wouldn’t expect any major changes in the way they do business.”
Neither does Doug Friedman, a semiconductor analyst in San Francisco with brokerage American Technology Research.
The Japanese case “will likely go through some court of law to determine if tie-in marketing funds with sales targets is an acceptable business practice,” Friedman said. “It’s been in practice and widely known worldwide, so it’s no surprise.”
Intel has faced antitrust issues twice before. In 1998, three corporate customers brought an antitrust case before the U.S. Federal Trade Commission involving patent infringement. The case was settled the following year. The European Union has also had an antitrust investigation against Intel for more than three years based on complaints brought by AMD.
“Using market power illegally to limit innovation and, more importantly, consumers’ freedom to choose, cannot be tolerated,” said Thomas M. McCoy, AMD’s executive vice president for legal affairs. “Efforts by an avowed monopolist to artificially set market shares to exclude competition clearly violates antitrust standards globally.”
Intel said its business practices were fair and that the Japanese commission hadn’t taken into consideration antitrust principles commonly accepted around the world.
“One of the core principles of competition policy is the notion that such policies should be based on sound economics,” Intel Vice President and General Counsel Bruce Sewell said. “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.”
Japan’s antitrust system operates differently from those in the West, though its laws are modeled after the U.S. and Europe.
After World War II, Japan promoted collaboration and government-industry cooperation as a way to build globally competitive automakers, steel firms and electronics companies. In that environment, the Japanese Fair Trade Commission was a reluctant enforcer with limited powers, legal experts said.
That has started to change in recent years as Japan has begun opening up its economy and Japanese firms have faced more serious competition within the country’s own borders. Last year, Japan’s FTC accused Microsoft of forcing its Japanese customers to sign licensing agreements that violated antitrust laws.
But Japan’s FTC, in contrast with its U.S. and European counterparts, is underfunded and understaffed, which makes it difficult to challenge the powerful government agencies that have historically controlled the economy, said Joe Dowley, a Washington attorney who represents U.S. firms challenging anti-competitive practices in Japan.
“If Japan does become a more market-based economy, they are going to need to have this umpire role out there protecting the standards of competition,” he said.
