The European Commission (EC) has launched a probe into Intel Corp.'s licensing practices, the company said Friday. The EC said the investigation focuses on marketing tactics. Commission spokeswoman for competition matters, Amelia Torres said the European Union competition regulator is concerned that Intel is abusing its dominant position in the manufacture of microprocessors used in Windows software.
Activities under investigation include Intel's licensing agreements with PC makers and retailers and the rebates it grants these other firms in return for their loyalty, she said.
"Loyalty schemes are fine when the company using them is not dominant. But Intel is dominant in the microprocessor market, so it must be careful about what it does," she said.
"We have received a request from the European competition authorities for information on our policies in licensing our bus architecture for Intel processors," said Intel spokeswoman Gillian Murphy.
"We believe our practices are both fair and lawful," said Murphy, adding that Intel will cooperate with the regulatory agency.
The Intel investigation is at a very early stage, Torres said. "Two separate complaints were received towards the end of last year and, and the Commission is still examining whether or not Intel has actually committed an infringement of European Union competition law," she said.
Noting that the investigation is in a very early stage, the Commission said in a statement Friday that it has not found that Intel acted against European Union competition law. There is no strict timetable for the conclusion of the antitrust investigation.
Torres would not reveal the complainants, and said there is no deadline by which the Commission must decide whether to begin a lawsuit against the chip maker.
Torres confirmed that the Commission is examining compatibility problems raised in one complaint which claims Intel's bus architecture creates compatibility problems for rival chip makers.
In a PC, the bus interconnects the microprocessor with the motherboard and components attached to the motherboard, such as hard disk drives, and graphics adapters. Intel's bus architecture is part of the company's intellectual property and is licensed to PC builders. PC manufacturers who used processors from Intel's rivals were allegedly denied access to design data.
"We want a fair return for our intellectual property assets, one of our key assets," said Murphy.
Torres said it is already examining the U.S. chip giant's replies, and has requested additional information from PC makers and retailers.
According to a report in The Wall Street Journal on Friday, the probe also examines possible exclusionary effects of Intel's marketing tactics, specifically the subsidies the chip manufacturer gives PC vendors for including the "Intel Inside" logo or tune in advertising. Intel wouldn't confirm that and nobody at the EC was available for comment.
The investigation follows an antitrust probe of Intel launched by the U.S. Fair Trade Commission that began in 1997 and ended in late September last year with no action taken. The FTC accused the chip maker of harming competition when it refused to do business with three companies -- Compaq Computer Corp., Intergraph Corp. and the former Digital Equipment Corp. (since acquired by Compaq) -- unless they agreed to license patented technology on Intel's terms. The case was settled in 1999 but the investigation continued until late September last year.
Torres said the Commission is not picking up where the FTC left off. The timing is coincidental," she said. We are simply reacting to complaints.
Torres told journalists that although Windows software lies at the heart of the Commission's concerns, there is no link between the Intel investigation and the two antitrust probes into Microsoft Corp's business practices.
The Commission last August opened a legal action against Microsoft as it believes the software maker abused its dominant position in the operating systems software market with earlier versions of its Windows software, to leverage control of the server software market. A similar investigation is under way to see if this is also a problem with Windows 2000. The European Commission is the executive arm of the European Union. Regulating competition in the 15-country block is one of its core responsibilities.