Intel is fined by Seoul over chip sale tactic

An Intel banner on an electronic shop in Seoul, South Korea. (Lee Jin-man/The Associated Press)

South Korean regulators said Thursday that Intel had abused its dominant position in the local semiconductor market and they ordered the company to pay a fine equivalent to about $25.5 million.

The ruling, which came after a three-year investigation, is being closely watched as similar antitrust investigations are under way in the United States and Europe.

The chief lawyer for Intel said it would almost certainly appeal the decision, which was made by the Korea Fair Trade Commission, or KFTC.

"We are disappointed by the decision, and we think the KFTC has either misunderstood or just possibly chosen to ignore a great deal of the evidence that contradicts its findings," the general counsel for Intel, Bruce Sewell, said by telephone.

Because the commission defined the issue as a purely South Korean one, the ruling "will have very little impact outside of Korea," Sewell added.

The commission chairman, Baek Yong Ho, defended the inquiry and ruling. "Our decision to fine the company was based on facts and the probe was not conducted with any agenda," Baek said. "If players cannot abide by the minimum rule of the market, we have to take firm measures to defend the interests of the market."

The commission said Intel, the world's largest chip maker, offered rebates to South Korean personal computer makers including Samsung Electronics and Trigem Computer from 2002 to 2005 in return for not buying microprocessors from Advanced Micro Devices. Intel and Advanced Micro Devices make the central processors at the heart of PCs and server computers.

A public relations firm retained to represent Advanced Micro Devices in Singapore was not able to provide immediate comment.

The commission ordered Intel to stop offering the rebates and pay a fine of 26 billion won, or about $25.5 million, pending confirmation of the revenue made by Intel as a result of the practice.

"Intel's rebates were paid in return for not using its rivals' products," it said, and this "has hurt market competition by limiting the choice of local PC makers in selecting business partners. Taking into account Intel's rebates, AMD could not possibly fight Intel, even if its chips were offered for free."

As a result, the commission said, South Korean consumers bought personal computers at higher prices because domestic makers purchased Intel's more expensive chips.

In the United States, New York State began a formal investigation of Intel in January, but the U.S. government antitrust authorities have not yet begun similar action.

The European Commission, the executive arm of the European Union, charged Intel last July with selling chips below cost and offering customers huge rebates in an attempt to drive Advanced Micro Devices out of the market.

In Japan, the Fair Trade Commission concluded in 2005 that Intel had violated the Antimonopoly Act. Intel disagreed with the findings, but accepted the commission's recommendation, avoiding a trial.

In 2005, the South Korean commission fined Microsoft $34 million, after accusing it of having breached antitrust laws by selling a version of Windows that incorporated its media player and instant messaging services. Microsoft later released new versions of the operating system in the South Korean market to comply with the ruling.