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Japan antitrust watchdog bites Intel

Chipmaker mulls a response to ruling, which accuses the company of offering rebates to PC makers that snubbed its rivals.

Intel is mulling a response to a ruling by Japan's antitrust watchdog that it used unfair business practices in the country.

The Fair Trade Commission, in a warning against Intel's Japan unit on Tuesday, said the chipmaker attempted to stifle competition in Japan by offering rebates to Japanese PC makers if they agreed to limit their use of others' processors.

Intel immediately disputed the warning, which came with no monetary penalty. The company is required to formally respond by March 18 to three recommendations issued by the FTC, a representative from the agency said.

The FTC's recommendations include calling for Intel to cease and desist activities such as offering favorable prices to companies that agree not to use or to limit their use of others' processors. Although they don't carry any fines, the recommendations could ultimately direct Intel to change some of its procedures in Japan to satisfy the government there.

The agency's warning was the second against a U.S.-based computer industry giant. It issued a similar warning against Microsoft last summer, which the software giant appealed.

"We'll be evaluating the recommendation in terms of the underlying facts and proposed cease and desist order," said Chuck Mulloy, an Intel spokesman. "We are faced with an evaluation we have to undertake, and we have to do that fairly quickly."

Intel said Japan has failed to take into account generally accepted principals of antitrust law, including evaluations of economic impact and the effect on customers.

"There has been no in-depth analysis by the FTC to look into that," Mulloy said. "That's a concern to us."

Advanced Micro Devices, on the other hand, supports the ruling.

The FTC "found that Intel illegally manipulated the market to exclude competition, hurting PC users around the world," Thomas M. McCoy, executive vice president of legal affairs at AMD, said in a statement. "Using market power illegally to limit innovation and, more importantly, consumers' freedom to choose, cannot be tolerated. We encourage governments around the globe to ensure that their markets are not being harmed as well."

The FTC said the Intel Japan unit stifled competition by offering rebates to five Japanese PC makers, including NEC, Toshiba, Hitachi, Sony and Fujitsu, which agreed to not buy or to limit their purchases of chips made by AMD and Transmeta.

The agency said such practices had been ongoing since May 2002 after the inflow of low-priced PCs into Japan heated up competition in the domestic market and prompted Japanese PC makers to turn increasingly to AMD and Transmeta chips, which were typically offered for less money than Intel products.

The share of Intel's central processing units in the Japanese PC market rose to 87 percent in 2004 from 73.2 percent in 2002, while AMD's share was halved to 10.4 percent over the same period, according to data from research firm Gartner.

"In this case, a company with a dominant market position squeezed out rivals by doing business with the five major PC makers on condition of not using competitors' chips," an FTC official told reporters.

The agency began its investigation last April, when it launched a raid on three Intel offices, confiscating documents and interviewing employees. That was followed up with a questionnaire sent to several companies in the summer, according to a source familiar with the Japanese investigation.

"It included nearly a dozen questions and was a broad inquiry on the industry's sales practices and industry data," the source said.

If Intel challenges the agency's warning, the matter will be reviewed by a court-like body set up by the FTC. If the chipmaker is dissatisfied with those results, it can appeal to a high court.

Still, one analyst said the ruling might not change much for Intel.

"Generally, Intel is pretty careful not to engage in these kinds of anticompetitive acts," said Martin Reynolds, an analyst at Gartner. "It could be something as simple as a field office pushing too hard."

So far, "the market share between Intel and AMD remains relatively constant and is largely related to manufacturing capacity," Reynolds said.

Domino effect?
The agency's actions could lead to similar moves by regulatory bodies around the world. Shortly after Japan launched its investigation, European antitrust regulators confirmed that they, too, are investigating Intel for possible antitrust violations.

"We are cooperating with the Japan FTC and have our own inquiry too," said a spokeswoman with the European Commission, an antitrust regulatory body with the European Union. She declined to elaborate at what stage the investigation has reached.

Intel, however, downplayed the EC investigation, saying it has been ongoing for three years.

"That's really not new," Mulloy said. "We're continuing to cooperate with them...and have been for years. We think, at the end of the day, as they analyze the market and the impact on consumers...they'll conclude our behavior has been fair and lawful."

The U.S. Federal Trade Commission was not immediately available for comment.

Reuters contributed to this report.