Antitrust Law, Antitrust Law | Japan, Corporate, and Antitrust Law | Litigation
On March 8, 2005, the Fair Trade Commission of Japan ("JFTC") challenged certain rebate and marketing programs of Intel Corp.’s Japanese subsidiary, Intel K.K., and recommended in a proposed order that Intel eliminate certain exclusivity conditions imposed on five Japanese PC manufacturers receiving price rebates and advertising subsidies for purchases of Intel’s microprocessors.
The key implications of the JFTC’s challenge to Intel’s conduct are:
The JFTC’s Challenge to Intel’s Rebate and Marketing Program
The JFTC’s proposed order alleges that one of Intel’s chief rivals, AMD, began selling its microprocessors in 2000 at prices below those offered by Intel, and, as a result, AMD increased its share of the Japanese microprocessor market from 17% in 2000 to 22% in 2002. In response to this action, Intel began offering the five leading Japanese PC original equipment manufacturers ("OEMs") price rebates and "subsidies" related to the "Intel Inside Program" supporting advertisements for PC manufacturers’ products using Intel’s microprocessors. However, in order to receive these rebates and "subsidies," Intel allegedly required the PC OEMs to switch from using a competitor’s product by agreeing to either:
(1) buy 100 % of their required microprocessors from Intel, and not use other manufacturers’ processors;(2) buy 90% of their required microprocessors from Intel, and only use other manufacturers’ processors in 10% or less; or(3) use only Intel microprocessors for certain popular or high volume lines of PC products.
(1) buy 100 % of their required microprocessors from Intel, and not use other manufacturers’ processors;
(2) buy 90% of their required microprocessors from Intel, and only use other manufacturers’ processors in 10% or less; or
(3) use only Intel microprocessors for certain popular or high volume lines of PC products.
The five PC OEMs that Intel’s rebate program targeted purchase the vast majority (77%) of microprocessors sold in Japan by Intel, AMD and Transmeta between 2000-2003. As a result, following Intel’s implementation of its rebate program, the combined shares of AMD and Transmeta declined significantly - falling from 24% in 2002 to 11% in 2003. In addition, because the PC manufacturers relied heavily on purchasing microprocessors from Intel for certain PC products, the JFTC determined that Intel’s exclusivity conditions exclude the business activities of Intel’s competitors and restrain competition in the sale of microprocessors to Japanese PC manufacturers. Therefore, the JFTC found that Intel’s conduct violates the prohibition against private monopolization in Section 3 of Japan’s AMA.
While the proposed order will not go into effect until the JFTC considers Intel’s expected challenge to its preliminary findings and conducts an adversarial hearing before JFTC examiners, as currently drafted, the order recommends that Intel (1) cease enforcement of these exclusivity provisions, (2) eliminate them from future sales and marketing activities and programs, (3) notify all of Intel’s PC manufacturer customers and Intel’s own employees (in a manner acceptable to the JFTC) that the rebate and marketing programs have changed and no longer require customers to deal exclusively with Intel, and (4) implement procedures for the education and training of officers and employees involved in the sale of microprocessors and for regular monitoring by Intel’s legal department.
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