UPDATE 3-South Korea fines Intel for antitrust breach

Thu Jun 5, 2008 5:39pm IST

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(Adds AMD comment; European Commission declines comment)

By Marie-France Han and Rhee So-eui

SEOUL, June 5 (Reuters) - South Korean regulators said on Thursday Intel Corp (INTC.O) had abused its dominant position in the local market and they ordered the world's top semiconductor maker to pay a fine of about $26 million.

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

Intel's chief lawyer said the company would almost certainly file an appeal.

"We are disappointed by the decision and we think the KFTC (Korea Fair Trade Commission) has either misunderstood or just possibly chosen to ignore a great deal of the evidence that contradicts its findings," Bruce Sewell, Intel's general counsel, told Reuters by telephone.

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

The head of the KFTC defended his organisation's decision.

"Our decision to fine the company was based on facts and the probe was not conducted with any agenda," KFTC Chairman Baek Yong-ho told a news conference.

"If players cannot abide by the minimum rule of the market, we have to take firm measures to defend the interests of the market," Baek said, referring to the regulator's general stance.

The KFTC said in a statement Intel offered rebates to South Korean PC makers including Samsung Electronics Co Ltd (005930.KS) and Trigem Computer between 2002 and 2005 in return for not buying microprocessors from rival Advanced Micro Devices (AMD.N).

Intel and AMD make the central processing unit (CPU) chips at the heart of the world's personal computers and servers.

The KFTC ordered Intel to stop offering the rebates and pay a fine of 26 billion won ($25.6 million), pending confirmation of revenue made by Intel as a result of the practice.

"Intel's rebates were paid in return for not using its rivals' products and (this) has hurt market competition by limiting the choice of local PC makers in selecting business partners," the KTFC said.

"Taking into account Intel's rebates, AMD could not possibly fight Intel even if its chips were offered for free.

"South Korean consumers had to buy PCs at higher prices as domestic PC makers were forced to buy Intel's pricier CPU."

AMD said it hoped the ruling would lead to a more open market.

"In every country around the world where Intel's business practices have been investigated, antitrust regulators have taken action against Intel to protect consumers and the computer companies who serve them," the company said in a statement.

Typically, competition agencies around the world speak with each other. But they are prohibited from trading information and each must conduct its own separate investigation.

In the United States, the state of New York launched a formal probe into Intel in January, but federal antitrust enforcers in Washington have so far declined to take up the matter.

In Brussels, the European Commission charged Intel last July with selling chips below cost and offering customers huge rebates in an illegal attempt to drive smaller AMD out of the market.

A European Commission spokesman had no comment on the South Korean decision.

In Japan, the Fair Trade Commission concluded in 2005 that Intel violated that country's Antimonopoly Act. Intel disagreed with the findings but accepted the commission's recommendation, a move that allowed it to avoid a trial.

In 2005, the KFTC fined Microsoft Corp (MSFT.O) $34 million, saying the world's biggest software company breached antitrust laws by selling a version of its Windows operating system that incorporated its media player and instant messaging services.

Microsoft later released new versions of Windows in the South Korean market to comply with the ruling. (Additional reporting by Ben Weller and Park Ju-min and in Brussels by David Lawsky; Editing by Louise Ireland)

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