Samsung to Pay Up in Chip Price-Fixing Case

Samsung Electronics Co. Ltd. has agreed to plead guilty to computer-memory price fixing and to pay a $300 million fine in a settlement with the United States Department of Justice.

The U.S. Department of Justice has charged that Samsung, the worlds largest DRAM (dynamic RAM) maker, Hynix Semiconductor Inc., Infineon Technologies AG and Micron Technology Inc. all conspired to set prices of DRAM between 1999 and 2002.

The four companies, the Department of Justice has said, violated U.S. antitrust law by sharing information in an effort to set uniform prices for the DRAM modules they sold to companies such as Dell Inc. and Hewlett-Packard Co., the worlds two largest PC and server makers.

The Department of Justice alleges that the price fixing occurred between April 1999 and June 2002, a time period which battered the DRAM makers. PCs are the largest consumers of DRAM, which they use as their main memory.

But the PC market, which had been expanding through the 1990s and in most of 2000, contracted during late 2000 throughout 2001, deflating demand for DRAM.

Such a turn of events normally causes DRAM manufacturers to cut prices in order to compete and maintain their market share.

Click here to read more about Samsungs investment in chip manufacturing.

Some evidence shows that spot market DRAM prices did fall in 2001. However, the Department of Justice charges that representatives of Samsung met in person or held conversations "with competitors to discuss the prices of DRAM to be sold to certain customers."

"Price fixing threatens our free market system, stifles innovation, and robs American consumers of the benefit of competitive prices," Alberto R. Gonzales, the U.S. Attorney General, said in a statement.

"Todays guilty plea is evidence of the Departments ongoing commitment to protect consumers from corporations that engage in illegal conduct."

The Department of Justice alleges that the four companies agreed during the discussions to charge certain prices to certain customers, and issued price quotations in accordance with the agreements. Later the companies exchanged information on sales of DRAM to certain customers for the purpose of monitoring and enforcing the agreed-upon prices, the Department of Justice said.

The actions of the DRAM makers, according to testimony given by the manufacturers involved in the case, affected consumers or corporations buying the machines by either causing their prices to increase or by resulting in less memory being offered in computers, said Phillip Warren, chief of the San Francisco office of the Antitrust Division of the Department of Justice.

"Certainly they have said that," Warren said. However, he said, "We have not completed our analysis of the effects."

Is the threat of paying a hefty settlement enough deterrent to prevent corporate crime? Click here to read Contributing Editor David Courseys commentary.

A representative from Dell, whose chairman Michael Dell once spoke out publicly against the group, declined to comment on the case, however. A spokesperson for HP said the company was still weighing a statement.

Samsung said in a statement, which confirmed that it had agreed to pay the $300 million fine, that it "strongly supports fair competition and ethical practices and forbids anti-competitive behavior."

The Samsung fine is the second largest criminal antitrust fine levied in U.S. history, the Department of Justice said in a statement. Hynix and Infineon have also settled with the Department of Justice and have agreed to pay fines of $185 million and $160 million, respectively, as part of their settlements. Thus the total fines in the case are above $646 million, the Department of Justice said.

However, the Samsung fine wont see money directly working its way back to computer buyers or the manufacturers, Warren said. Instead it will go into a Department of Justice-administered fund to assist victims of crime.

"This plea agreement does not provide for restitution," he said. "The reason is that there are several class action lawsuits that are filed against the DRAM manufacturers."

Those suits, which are pending now, do seek damages, he added.

To date, no action has been taken by Micron. The company has said in the past that it is cooperating in the case, however.

The investigation, which is being carried out by the Department of Justices Antitrust Divisions San Francisco Field Office and the FBI in San Francisco, continues, the Department of Justice said.

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