The European Union made one of the most significant antitrust decisions in its history on May 13 when it found computer chip-maker Intel guilty of anticompetitive practices in Europe. Intel was fined more than €1 billion ($1.45 billion) on charges that it violated EU monopoly rules by selling chips below cost to computer makers, to the detriment of its smaller rival Advanced Micro Devices (AMD). Even though the most likely consequence of the EU’s action will be higher prices for consumers, EU Competition Commissioner Neelie Kroes hailed the move. “Given that Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for over five years, the size of the fine should come as no surprise,” she declared.
EU regulators said they calculated Intel’s fine — 4 percent of last year’s $37.6 billion in worldwide sales — on the value of its European chip sales over the five years that it broke European law. The EU could have gone even higher as EU antitrust rules allow for a fine of up to 10 percent of a company’s annual global revenue for each year of noncompliance. After Kroes announced the fine, which must be paid within three months, she joked that Intel is now the “sponsor of the European taxpayer,” a spoof on the company’s new ad campaign “sponsors of tomorrow.”
Intel is not the first American technology giant to be slapped down by the European competition regulator. In 2001, the European Commission blocked the planned merger of General Electric and Honeywell, even though both companies were based in the United States and American regulators had already approved the merger. And in 2004, the EU ordered Microsoft to pay a fine of more than $600 million for abusing its dominant position in the software market, plus an additional fine for failing to respect the antitrust ruling. The EU also ordered Microsoft to give away for free its trade secrets to competitors.
Like Microsoft, Intel claims it is simply building a better mousetrap and that European regulators, blinded by protectionist dogma, are short-sightedly stifling innovation. But Europe’s corporatist economic model, which allows EU bureaucrats to manipulate economic outcomes at their will, seeks not only to ensure that consumers are not harmed by monopolistic behavior, but also that competitors are not harmed by other competitors, even if they happen to offer better products and services. As a result, the European case against Intel actually is a backdoor industrial policy that is masquerading as competition policy. (Although it is, no doubt, also European protectionism masquerading as “consumer protection.”)
The EU’s regulatory activism may soon have an important effect in the United States as well. Indeed, far from contesting the economic and legal flaws in the EU mindset, the Obama administration seems eager to bring American competition policy into line with the European model. In a May 11 speech, Assistant Attorney General Christine Varney, who is U.S. President Barack Obama’s new antitrust chief, announced a return to “vigorous antitrust enforcement action” by the U.S. Justice Department. At the same time, Varney withdrew a report issued in September 2008 by the Bush administration which delineated a laissez-fair approach to enforcing the Sherman Act, the federal statute that deals with monopolization cases. The report held that markets are usually self-correcting and that big companies are agents of economic efficiency that should be constrained only if their action “disproportionately harms consumers.” But Varney said: “We must change course and take a new tack.”