29-07-2020 | | By Robin Mitchell
Back in 2014, Infineon (along with other chip makers), were fined for price-fixing of integrated circuits. Last week, Infineon successfully fought back against the fine and has had a significant reduction in its fine. What did Infineon do, and what devices were affected by the chip cartel? Learn about the Infineon trust fine, the EU chip cartel, and why this matters for you as a consumer!
When using the world cartel in a sentence, many would immediately think of drug lords such as Pablo Escobar, and their multibillion-dollar industry. But, the definition of a cartel envelopes any group of market investors who work together to increase their profits together. One method for achieving this is the use of price fixing; a group of distributors and manufactures agree to set the price of their products, and further agree not to provide discounts or incentives to buyers that would harm the profits of others in the cartel. For example, manufacturers of silicon wafers could, in theory, team up in a large cartel to fix the price of blank wafers which would result in the price of silicon increasing with no competitors to provide better prices. Such practices are heavily regulated and generally frowned upon with many countries making cartels illegal. Back in 2014, several semiconductor manufacturers were fined a combined total of $180 million for price fixing. Who was a part of this cartel, and what were they colluding?
The combined fine was issued to three companies, Infineon, Philips, and Samsung, who were accused of running a chip cartel between 2003 and 2005. However, while these three companies were fined, one additional company, Renesas, may have been a part of the cartel as they were the company who alerted the European Commission, and subsequently escaped the fine. The products that were supposedly price-fixed were smart card chips such as those found in sim cards, debit cards, and pay TV cards. According to the European Commission, the cartel utilised bilateral contacts, discussed prices, and also discussed manufacturing capabilities to maximise their profits. As these activities violate Article 101, the treaty on the Functioning of the European Union (TFEU), and Article 53 of the Agreement on the European Economic Area (EEA), the European Commission was able to sanction the companies involved.
This is not the first time Infineon has been accused of price fixing; in 2002, the US Department of Justice launched a probe into price fixing of DRAM after multiple OEMs, including Dell, complained about inflated prices of DRAM which negatively affected their profits. The supposed cartel during this time was made up of Hynix, Micron Technology, Samsung, Elpida, and Infineon. The resulting investigation saw Infineon plead guilty to price-fixing, and was issued a fine of $160 million, while Sun Woo’ Sunny’ Lee, who managed the DRAM division of Samsung, was fined $250,000 while also serving eight months in prison. The fine issued to Infineon at the time was the third-largest antitrust fine in the US up to that date.
Hefty fines issued to companies are almost always challenged in an attempt to either reduce or entirely remove it, and Infineon was no exception to this. Last week, Infineon challenged the fine to the European Court of Justice who found in favour of Infineon to reduce the fine. The initial fine, set at 82.78 million euros, was reduced to 76.87 million euros. According to the court, EU competition enforcers took insufficient account of the limited number of anti-competitive contacts Infineon had with its rivals. However, the fact that the company is still being fined over 75 million euros suggests that even the court understands the severity of the chip cartel and its impact on the economy. However, the court refused to reduce the fine for Philips, but it should be noted that Philips has a smaller fine than Infineon.
It would be a fair assumption to say that most people who read such headlines would be in favour of fining large companies for breaking antitrust rules. While breaking antitrust rules is bad for economies (as is any market manipulation), fining companies’ large companies can have some significant drawbacks. The first is that companies such as Infineon and Samsung, provide key technologies to the industry, such as memory technology. Should a fine give too much financial instability, then the entire supply chain would be affected with soaring microchip prices. The second factor to consider is that companies such as Infineon and Samsung are the ones that provide significant technological developments in almost all aspects of electronics from the development of SiC devices to large interactive displays. From the perspective of an engineer, it would make more sense to have lower fines for such companies but impose harsh prison sentences on managerial roles who engage in illicit activities such as price fixing. Generally speaking, it is not managers that provide significant technical developments, but the department as a whole.